Economists confess their failings
G. K. Chesterton (1874 to 1936) inadvertently anticipated the failings of economists in the lead up to the Global Financial Crisis:
It looks just a little more mathematical and regular than it is; its exactitude is obvious, but its inexactitude is hidden; its wildness lies in wait.
Itís not that they canít see the solution, itís that they canít see the problem.
Mea culpa's from economists began emerging in 2009 and are continuing.
Itís clear that Australiaís economists need to spend more time on the road listening to businesses than crunching numbers in their ivory towers. CommSecís Craig James (formerly an economics writer with the Australian Financial Review) The Age, August 7 2009, page 1.
There were very few of us who saw the full financial crisis coming Ė we have failed to pick some of the most momentous events of the past 50 years. Saul Eslake, former ANZ Bank chief economist, Australian Financial Review, 3 August 2009, page 55.
Why no one saw the event ďa failure of imagination of many bright people both in this country and internationally, to understand the risks to the system as a wholeĒ Letter from UK economists after Queenís visit to LSE, reported in Australian Financial Review, 3 August 2009, page 55.
The financial crisis delivered a fatal blow to that overconfidence in scientific economics. It is not just that the profession did not forecast the crisis. Its models, taken literally, sometimes suggested that a crisis of this magnitude could not happen. Robert Shiller, a professor of economics at Yale University, Australian Financial Review, 25 January 2011, page 47.
After all, most economists did not see this crisis coming, in part because they had removed themselves from what real world people were doing and thinking. Robert Shiller in the same article.