The Cassandra Hunt
Kevin Drum comments, here is Brad DeLong, and Matt Yglesias, and Arnold Kling; they make good points all around. There aren’t nearly as many Cassandras as you think, once you require more of a person than "having called" the housing bubble. A simple question is what financial stocks a person had shorted as of, say, November 2007, or for that matter July 2007, and no "my wife wouldn’t let me" is not an adequate comeback. And if you’re afraid of an unhedged position or margin call just buy some puts.
I plead fully guilty to not having been a Cassandra. Oddly, I published an entire book in the late 1990s — Risk and Business Cycles(cheaper on Kindle) — on how excess risk and correlated errors could cause an economy to explode; I’ll tell you more about that soon. But if anything when it came to running commentary (on this blog, most of all) I was an anti-Cassandra. First, I was too influenced by the relatively mild housing bubble collapse of the late 1980s. Second, I did not understand how much fragility the extant degree of leverage implied.
Cassandra’s gift was in fact the source of continual pain and frustration. That’s one reason why not so many people are Cassandras.
Fischer Black insisted in the mid-90s that the law of large numbers did
not apply to individual economic forecasts of sectoral shifts and thus such errors could not be expected to "cancel out" in the aggregate. Not so many
people believed him and in retrospect the failure of people to take
Black seriously on this point is further evidence that the point is
indeed correct in many situations.
Addendum: The end of this Kevin Drum post nails it.