Why Economists Don’t Learn From Mistakes
The bursting of the housing bubble challenges established views of the world but this seems more like a recommendation to others, rather than a personal statement. The lesson most people claim to have have learnt, according to John Kay, is that they were right all along. Funny, isn't it, how one's errors are twisted to confirm the power of one's ideas?
This bias receives organisational reinforcement, too. In politics and corporate life there is strong competition to support the opinions of the great leader, be it the head of the International Monetary Fund, or a major bank. Media developments also make it all-too-easy today to find information only from sources that reflect one’s existing opinions; think Fox News or the blogosphere.
In economics, the academic realm ought to be the home of pluralist discourse but the growth of peer review and journal publication has undermined this. University economists, of the sort gathered at Bretton Woods, are now under relentless pressure to conform to a narrow, established paradigm. Inexplicably most supporters of that paradigm also feel that the crisis confirmed its validity.
All these factors played a part in the origins of the crisis. Within financial institutions, there was no incentive to challenge practices that appeared to be profitable. States saw little reason to question these same activities, which also contributed mightily to tax revenues. CNBC told everyone they were getting richer and the academic theory of finance reassured that all was for the best in the best of all possible worlds.