How Did Economists Miss This Downturn?

Last week Paul Krugman initiated a sequence of discussions centered around how and why the current recession blind sided economists as badly as it did. Other famous economists have jumped into the conversation, including Mark Thoma, James Delong and James Hamilton. It appears as though most of these economists "blame the other guy." For example, Paul Krugman, who is a Neo-Keynsian, basically argues that he was SO busy correcting Neo-Classical's mistakes that he totally missed the recession's warning signs. Liberals seem to blame Greenspan and Conservatives seem to blame... well Greenspan also.

The BBFiles, your trusty guide to unbiased economic analysis, disagrees with most of these economists. The study of business can be split into several fields: economics, finance, management, marketing, entrepeneurship. It appears as though economists have been assigned most of the blame for this recession. In reality, though, The BBFiles argues that the products that got us into the recession, the way they were traded, and and the people that were assigned to manage them, lie far outside of the field of economics. Financial wizards created MBS's, marketers sold them to as many people as possible, management teams gave employees incentive to stimulate short term profits, not long term growth. Lobbyists influenced Congressmen, Congressmen did what Congressmen do: spend a lot of money.

All of these things, which the field of economics does not specialize in, created a perfect storm of instability that led to this recession. It was economists of several different belief systems that stepped in via the Federal Reserve and the Treasury Department and saved financial traders, management teams and Congressmen from the debacle that they created. While economists like Krugman believe that he is right and everyone that disagrees with him wrong, the BBFiles appreciates the diverse ideas and the new theories that come from debating controversial issues.