Tyler Cowen: belief

Transcript context

…Yeah. But the origins of that article were that I read some books that said economists got a lot more influence and things got worse in the United States, and this was a really troubling argument for me because it’s not easy to dismiss. What I concluded in that article saying we should do a cost-benefit analysis — look at the big things that economics has done well, the things it may have done badly, and just see how it works out. The point you’re alluding to is something that my colleague, Peter Henry, has also made, which is that one of the areas where economics may really have been helpful is in the development process or the catch-up phase of growth. So that should go on the plus side, I think, on the benefit side of the cost-benefit analysis, no question there. And I think there’s some other ones that belong there too. My point was that there may have been some things that have also been significant negatives, and it’s time to do the numbers and see what the net is. So if I ask myself, “What do I think has been the biggest negative? ” I suppose I would say around 2000 date, economists for the most part did not understand the importance of the shadow banking system. What seemed to be a kind of ordinary real estate bubble, like the early 1990s, was far, far worse, and we totally missed that. That seems to be a defect of institutional knowledge, but you tell me what you think the greatest problem has been. I think this problem is an interesting one. I put a slightly different spin on it, but I think it’s in the class of things of a failure to understand or incomplete understanding. I don’t think that’s a sign of a science that’s failed. That’s a sign of a science which is just making progress. There’s some things it knows and things it doesn’t know. So I don’t view this one as a sign of a systemic problem that we’re not doing it right, in a sense. For what it’s worth, we can come back and talk about this, but I think the lesson from the financial crisis, which we’re learning again now, is one about the fragility of extensive interconnection. We’ve paid attention to optimize efficiency with massive reliance on specialization and these complicated supply chains. But the growth, the proliferation of connection means that our system is more fragile than we realize. A shock comes, and things happen that we didn’t anticipate. But again, that’s part of learning about a very new type of economy which is changing in real time. The ones that struck me as being particularly worrisome were, first, I think the negative effect that economists have had in terms of protecting competition. Through the law and economics movement, we ratified this notion that big is okay as long as you can make some case that it’s efficient. The upshot is, is that I think because of technical economics and the arguments of economists, antitrust is much more tolerant now of dominant firms, and if we believe that competition’s good in a whole bunch of ways, this could actually be very, very harmful. So that’s one.…

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