Thursday, July 30, 2009

Tom Palley Writes to the Queen of England

Letter to the Queen: Why No One Predicted the Crisis

Her Majesty The Queen
Buckingham Palace
London
SW1A 1AA
29 July 2009
MADAM,

In response to your question why no one predicted the crisis you have recently received a letter from Professors Tim Besley and Peter Hennessy, sent on behalf of the British Academy. They claim economists’ failure to foresee the crisis was the result of a “failure of the collective imagination.” That claim is tendentious and will mislead you.
The failure was due to the sociology of the economics profession. This failure was a long time in the making and was the product of the profession becoming increasingly arrogant, narrow, and closed minded. One was compelled to adhere to the dominant ideological construction of economics or face exclusion. That was the mindset of the IMF and the World Bank with their “Washington Consensus”, and it was the mindset of central bankers (including your own Bank of England) with their thinking about the sufficiency of inflation targeting and hostility to regulation.

The crisis was predictable and was predicted. See, for example:

(1) "The Weak Recovery and the Coming Deep Recession," Mother Jones, March 2006.

(2) "Debt and Lending: A Cri de Coeur," Levy Institute, April 2006.

(3) "The Fallacy of the Revised Bretton Woods Hypothesis: Why Today’s Financial System is Unsustainable," Levy Institute, June 2006.

Professors Besley and Hennessy’s letter is another example of the economics profession’s complete inability to come to grips with its sociological failure which produced massive intellectual failure with huge costs for society. This is a very serious social problem and we will all continue to pay the costs as long as it is unaddressed.

Respectfully yours,

Tom Palley

6 comments:

Anonymous said...

Well written and on target, but, unfortunately, 80 years late...

Daro said...

From about 2005 the looming meltdown scenario was the consensus with just about everyone I knew. With householders borrowing 4% into the red each year to keep consumption treading water I don't understand anyone who was shocked by the outcome. The answer is, of course, ivory towers. These people seek tenure not truth with their positions. They reject religion as black magic and then set themselves up as the new priesthood. I'm shocked to see a lot of commentary from people in the hard science field going the same way. Just plain old wrong thinking being spouted as fact based on flimsy research. So it seems to be a phenomena of the academic structure, not the subject itself.

P.S. My word ver. is "cliquat". Is it just me or is that vaguely lewd..? Must stop thinking about sex...

Brenda Rosser said...

Daro: "...based on flimsy research.

There were many, many areas of the obviously-dysfunctional economic 'science' that didn't require any research at all to see the nonsense behind the theories presented. Additionally there were many well-established bodies of research already in existence that countered many facets of neoliberal/neoclassical economic dogma. Claims such as 'rational man', price-demand-supply equilibrium, the environment and man as a commodity etc, 'free market' and so on.

What is the real motivation for men and women to take on the professional field of such deformed economics?? I just don't know but the answer might partially explain why the crisis failed to be predicted.

Brenda Rosser said...

PS: Having said that, I'm sure there were a range of motives for becoming an 'economist' ;-)

Brenda Rosser said...

PS: Having said that, I'm sure there were a range of motives for becoming an 'economist' ;-)

Jack said...

I'm not sure if it is significant to Mr. Palley's over all argument, but I find it interesting that he speaks of the sociology of the economics profession, but he makes specific reference only to variatins of the banking sector,
IMF, World Bank and central bankers. I assume by that last reference he means the Federal Reserve. he refers more vaguely to the Washington Consensus. My guess is that is a reference to economists in high government advisory positions.

I think the problem is more that economists in these positions sit too close to the private banking and finance industry. Their theoretical positions may serve as the justifications for their collective actions or inactions. The antecedents to the decisions behind those collective behaviors may have more to do with those economist's proximity to an industry that distributes wealth to a network of research organizations that cater to that banking industry. The problem was not just that disagreement with the concensus might lead to exclusion, but that agreement and participation with a specific set of ideas and ideals might lead to significant income, if not great wealth. Proximity to significant wealth can breed an inclination to sycophancy.