Economics

Economic Terrorism

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Contrarian economist Robin Hanson of George Mason University gives his version of what has just happened with the Current Crisis at his fascinating Overcoming Bias blog:

Few experts in our society could pull off saying:

Emergency!!! We will suffer terribly if you don't spend a trillion dollars right now overpaying for stuff from our friends! No, you don't have time to study the problem, nor will we present an analysis for your review. No, other experts in our field cannot actually see this problem, and there will never be data showing the problem really existed. You just have to trust us and give us the trillion right now!!

US military experts said something similar on Iraq weapons of mass destruction, but at least they admitted we'd eventually be able to see if they were wrong (as they were). Medical experts implicitly say something similar about the health value of the second half of medical spending that costs a trillion dollars a year, even when our best data show little value, but this is a steady problem not a sudden new problem. Global warming experts have been trying, so far without much success, to get us to spend similar amounts on their problem, even though other experts can supposedly verify it.

Given how much less respect and deference economists get on most policy topics, relative to docs, physicists, or generals, I'm surprised to see some economists just got away with this sort of thing. The US has given top government economists, such as Paulson and Bernanke, well over a trillion in mostly blank checks to spend saving their Wall Street friends from ruin, supposedly to prevent another great depression. But it seems economists looking today at the data available then just can't find clear evidence a massive buyout was needed.

The full article has lots of links to support the "can't find clear evidence a massive buyout was needed" assertion.

Well, the generals did get away with this trick, just like the economists just did. Most people know they don't have any understanding of this national and international capital market stuff, but have a frightened sense that it is capable of causing them great and long-term harm. And unlike with, say, global warming, they also don't have a sense that what the experts are now doing to "solve' the problem will harm their lives or livelihoods in obvious or understandable ways, in the short term.

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  1. If we don’t do something, there will be A Catastrophe Too Awful To Contemplate!

    Just sign here, and as soon as I decide what to do, I’ll fill in the rest!

  2. …I’m surprised to see some economists just got away with this sort of thing. The US has given top government economists, such as Paulson and Bernanke, well over a trillion in mostly blank checks to spend

    Top government economists, oh, that’s the difference. Why so surprised?

  3. I read somewhere that the CEO’s of the nine banks getting the 1st round of dole outs pocketed an average of about $32,000,000 a year in compensation, much higher than the Fortune 500 average.

    People are worried about Obama “redistributing wealth”. Sounds like most of it might already be “redistributed” before he takes office.

  4. Ha! That’s just what the experts want us to believe: that the government experts we did not elect are not experts at all, and having had nothing to do with electing them, we must in fact be individual experts of our own wants and needs, and therefore must be correct in assuming that they have no idea what they are doing, because if they did, they would certainly get their hands off our economy and allow our expertise to shine through for all to see!

  5. I’ve got an ultra-progressive friend who continues to assert that giving a trillion dollars to ultra wealthy capitalists was necessary to save our economy. The cognitive dissonance in his head must be deafening.

  6. The more convoluted the scheme, the more likely people will simply believe whoever speaks of it. Sort of how conspiracy theories get a foothold. People believe in a guy with a beard up in the sky, too.

    Not to say that there isn’t some god-like spirit of love and compassion amongst humans that manifests itself from time to time. And that’s not to say that there aren’t a few thousand extremely intelligent people who could understand the complexities of such things as global and local economies or the planetary climates. Democracy is a particularly inept way of fostering that spirit and discovering that intelligence.

  7. Hey now, don’t blame the generals, blame the military experts.

    /granted , many were probably retired generals, but you know what I mean

  8. I read somewhere that the CEO’s of the nine banks getting the 1st round of dole outs pocketed an average of about $32,000,000 a year in compensation, much higher than the Fortune 500 average.

    Stands to reason that if a company is too big to fail, it’s leader must be too big to fail, too!

  9. It can’t be said enough:

    “The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.” H.L. Mencken

  10. I must be special.*

    I didn’t want to go into Iraq.
    I’ve long understood that increasing medical spending will yield only progressively smaller gains in public health.
    I railed on these very pages against the bailout for more than a year before it was proposed.

    Oh well, amidst the threat of global warming a few former anti-nuclear power activists have apologized for their previous views. Maybe in a few years some of the bailout proponents will be as honest.

    * Or a skeptical cynical bastard who’s smarter than the average bear politician.

  11. I’ve found it interesting just how much open dialogue there has been about the specific mechanisms linking the collapse of the distant commercial banks (whose collapse does in fact seem to be pretty well documented) with effects at the regional and local level. Inability of smaller businesses to borrow is a genuine outcome, and that outcome can potentially cripple the real economy as experienced by ordinary people. Hence the necessity for a bailout.

    I certainly think they should have taken a lot more time to contemplate the specifics of the bailout, and consider more opinions, but in the end the package chosen seems to have been a surprisingly good one, given the flaws in the process of choosing it.

    Don’t confuse the repugnance of having to bail out private interests with a lack of necessity for doing it. Don’t confuse the poor process of creating the plan with it being necessarily wrong.

  12. Hugh,
    How do you grow your naive so big?

  13. Just because I don’t think everyone is out to get me doesn’t mean they are.

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