Letter to the Queen: Why No One Predicted the Crisis
Her Majesty The Queen
29 July 2009
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.