by Tyler Cowen
on September 24, 2009 at 12:21 pm
1. Did regulation cause the financial crisis?
2. Non-profits in debt.
3. Bank pay and the financial crisis.
4. Does economics need heroes?
5. The evolution of overconfidence.
6. Clay Shirky on Antananarivo and Tegulcigalpa.
7. Honesty (?) stamps.
As someone who worked as a mortgage analyst at an investment bank throughout the run-up to the financial crisis, I can say that both perverse incentives (through short-term compensation for taking on long-term risk) and evolved overconfidence were more important factors than too much (?!) regulation.
Re: #4: Three comments on Dan Klein’s paper:
1) I’m not surprised that many economists do not have ‘heroes’. This has much to do with the smaller and smaller place occupied by history of economic thought in economic departments. How can scholars be reverent towards Smith, Hayek, Veblen, Marx, Walras, etc. if they don’t read these authors, or in the case of students, are not invited to read them by their professors who prefer model-building or the latest fad in economics?
2) Related to my first comment and to what Polanyi, as quoted by Klein, says about the mind, I’m reminded of what Schumpeter wrote in the History of Economic Analysis: “the highest claim that can be made for the history of any science or of science in general is that it teaches us much about the ways of the human mind.”
3) What would Dan Klein respond to someone who would reply in the job interview that his heroes are Marx and Mises or Walras and Hayek? All four were great minds, weren’t they? I believe that our choice of heroes (at least in economics) goes beyond having great minds. It has much more to do with what Schumpeter (again!) called the Vision, the pre-analytic cognitive act that informs our analysis. And this Vision, as Schumpeter wrote, is “necessarily ideological.” IMHO, one is reverent towards a great mind whose ideology conforms to ours.
Although it’s too big a topic to quickly post about, I’ve always linked my personal views to mentors, both real and literary. My economic views are all based upon my heroes or mentors. That’s simply my way of organizing my views, I suppose. It is true that Milton Friedman is the last mentor in economics that I follow chronologically. There is no economist after him that I would consider a mentor or hero. That’s doesn’t mean that there aren’t any economists that I can learn from. There are a fair number that I read regularly. But there aren’t any current economists that I have yet to add to my pantheon of mentors or heroes.
I think a spinoff of the argument is that, even if the majority of economists did have reverence towards deceased economists, they don’t and probably can’t feel the same way towards contemporaries. Dead economists, yes, people have the grace to honor the deeds and accomplishments of economists who came before them, but live contemporaries, no. I think this can best be supported from Klein himself: in his paper he offers a list of possible economic heroes:
“such as Smith, Mill, Marx, Marshall, Veblen, Keynes,
Mises, Hayek, Rothbard, Galbraith, and Friedman.”
One theme resonates through this list: the fact that all of those included are deceased. Additionally, I feel there is a serious omission from this list: he left out Paul A. Samuelson whose accomplishments would rate as one of the greatest of all time! I suggest that Klein overlooked Samuelson specifically because he is still alive. I don’t consider this a major failing, just an interesting observation that could have been overlooked in his analysis.
If I were more cynical, I would argue that economists’ pride in their own talent and intelligence precludes them from remonstrating to the mind of another. Those economists would decry their untimely date of birth which precluded them from publishing the same insights that won others acclaim. It goes without saying that this type of reasoning would have to work on a subconscious, or at the very least unspoken, level.
“Did regulation cause the financial crisis?”
The answer, as always, is Yes…
It’s obvious. There was never such a thing as a financial crisis before the modern era of regulation. Never.
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