Over e-mail, Dean Baker offers an explanation why so few economists accurately saw the trembling instability beneath the economy, much less sounded the alarm. "They didn't know" is not an operative explanation. The analysis was public, written by people like Nourel Roubini and Paul Krugman and Robert Shiller and, yes, Dean Baker. But few faced up to its implications:
Just apply economics to economists.The honchos in the profession (Paul Krugman excepted) said everything was fine. Agreeing with the honchos will never get you in trouble. You will never lose your job or even miss a promotion because you made the same mistake as all the leading lights in the profession.On the other hand, if you go against the honchos and end up being wrong, well you should be prepared to be sent to oblivion. You are obviously a raving lunatic who has no business being taken seriously as an economist. Even when you end being right against the honchos you can't count on any great reward, since the honchos so control the profession and the media that "nobody could have seen" will be repeated at least frequently as the fact that some people did see.Anyhow, what would an economist expect to happen in a situation in which option one carries no risks and reasonable expected rewards and option two carries enormous risks and only moderately higher expected rewards? In short, the incentives in the economics profession, just as in finance, strongly encourage a lack of original thinking.
