Re-writing the History of the Housing Bubble and the Economic Crisis
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"...a few of us did recognize the housing bubble, and the dangers it posed at the time, and did everything we could to try to warn the country. For this reason it was somewhat shocking to see a book review in the New York Times by Noam Scheiber, an editor at the New Republic, that longed for the day when we will have people who can use data to identify housing bubbles before they grow so large as to pose a serious danger to the economy."
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"Given this history, how can an ill-informed book reviewer get away with making what is obviously an untrue assertion in an NYT book review? The simple answer is that Scheiber’s “who could have known” story is quite comforting to people with power in this country. The people in positions of authority who ignored the warnings of the dangers of the housing bubble would like the public to believe that there were no such warnings. It is much easier for them to act as though the state of economic knowledge was too primitive to allow them to see a bubble than to acknowledge that they simply did not feel like paying attention to the warnings.
It is important to their legitimacy to maintain this fiction, since with virtually no exceptions the people guiding economic policy today are the same people who ignored the growth of the bubble in the last decade. If everyone recognized the enormity of their failure they would be less likely to heed their calls for austerity: for example the cuts in Social Security and Medicare that virtually everyone in the higher circles of the policy establishment agrees are necessary.
That is why it is necessary to keep reminding the public that the policy elite blew it. The tools of economics were entirely adequate to see the housing bubble and the dangers that it posed to the economy. The problem is that the people who controlled economic policy at the time found it convenient to ignore the evidence. They still do."
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