I often have occasion to comment on the failure of the media to report on the housing bubble and the risks that it posed to the economy and to families’ personal finances. I have made the same complaint about reporting on the stock bubble. There were few stories in any of the major media outlets that warned of the bubble and its likely demise prior to the collapse in the years 2000-2002. I have heard many comments (on BTP and elsewhere) that I am being unfair to reporters, because they are just reflecting the consensus within the economic profession, which managed to overlook the growth of both bubbles. This is an entirely valid complaint against the economics profession. The overwhelming majority of economists completely missed the stock bubble even as it hit its peak in 1999 and 2000 (I’m referring to their public forecasts, not their personal comments to friends). They also completely missed the housing bubble until its deflation was already well underway in 2007. It is easy to verify these facts. The Philadelphia Fed’s Livingstone Survey [http://www.philadelphiafed.org/econ/liv/] summarizes the predictions of more than 30 leading forecasters. There is no evidence that these forecasts reflect the expectation of an imminent collapse of the housing bubble in 2006 or even 2007, or the collapse of the stock bubble in 2000-2001. (Another good source is the Blue Chip Financial Forecasts, which present the forecasts of 50 prominent economists. In the fall of 2000, not one of the 50 economists saw the recession coming the following winter. Unfortunately, these forecasts are proprietary and therefore not freely available on the web.) Since the vast majority of economists failed to recognize two huge financial bubbles, the collapse of which had enormous consequences for the economy, it is reasonable to conclude that there is some inherent problem with the nature of the consensus within the economics profession. Either these economists hold views about the world that prevent them from seeing financial bubbles, or the sociology of the profession is such that they are unable to express independent opinions. Regardless of which scenario is accurate, the consensus within the economic profession has twice in the last decade been demonstrated to be a grossly inadequate source for information on the economy. Good reporters should recognize this fact. This means that going to 2 or 3 standard well-credentialed sources will often not be sufficient to obtain a range of views. It is reasonable to expect that reporters will try to find economists who were not surprised by the collapse of the stock and housing bubbles when getting views on the economy’s prospects. When reporters continue to rely exclusively on economists who missed the housing bubble, they deserve to be criticized. They are not responsibly presenting the range of views in the profession if they have not included anyone who was able to recognize the nature of the economy’s current problems. [I have appended a response to a comment by Cervantes below: All areas of science are to some extent self-contained. They control their own credentialing process -- they decide who gets the top positions and which articles get published in the top journals. This means that there are opportunities for abuse. It will be difficult for non-experts (including reporters) to determine where such abuses are preventing serious arguments from being presented. However, when the predictions of the mainstream of the profession are repeatedly shown to be wrong, as they have been in economics, then reporters should be viewing the consensus with skepticism. I can give a long list of very important topics (not just the bubbles) where the mainstream in the profession has been shown to have been wrong. For example, just over a decade ago, the mainstream was absolutely contemptuous of anyone who argued that unemployment rate could below 6.0 percent (the old "NAIRU") without accelerating inflation. Now, everyone recognizes this is true. I also remember arguing with the Boskin Commission people who argued that the CPI overstated inflation by 1.1 pp each year in an effort to cut Social Security. There were some modest changes to the CPI (about 0.3 pp in the Boskin Commission's view), but now no one is complaining about the overstated CPI. I could add many others, but the point is that the consensus within the profession has repeatedly shown to be wrong. Good reporters know this and therefore seek out views that are outside the consensus.]
--Dean Baker
