If an econmist doesn’t factor for:
- confidence men
- Regulators who are not held liable for professional negligence
- Regulators who use their position not to find fraud and or danger signs, but to curry favor to secure future employment
- Executive compensation completely uncoupled from magnitude or quality of company performance
- A TV network masquerading as a news source becoming the major source for business information
- A glut of predatory lending to citizens and commercial businesses to generate paper for mortgage backed securities
- Poor consumer financial education
then I would imagine it would be easy for that economist to be in the dark about what is really going on with the US economy.
Few economists saw our current crisis coming, but this predictive failure was the least of the field’s problems. More important was the profession’s blindness to the very possibility of catastrophic failures in a market economy. During the golden years, financial economists came to believe that markets were inherently stable — indeed, that stocks and other assets were always priced just right. There was nothing in the prevailing models suggesting the possibility of the kind of collapse that happened last year. Meanwhile, macroeconomists were divided in their views. But the main division was between those who insisted that free-market economies never go astray and those who believed that economies may stray now and then but that any major deviations from the path of prosperity could and would be corrected by the all-powerful Fed. Neither side was prepared to cope with an economy that went off the rails despite the Fed’s best efforts.
Krugman pretty much nails it, except when he calls it “irrational and often unpredictable behavior”. The behavior is predictable when you factor in greed, envy and the ignorance of the general financial consumer when dealing with debt.