What will it be blamed on next time? Unrest in the Middle East driving up oil prices? Global warming? John Boehner’s sun tan? Cyclone Yasi? Public education? The PIIGS? Poor folks strike again? Partisan politics? The price of tea in China? I don’t know which one armed man will be chosen but I do suspect that establishment will once again be tripping over itself to find a way to avoid using terms like “The Big Banks”, “Financial Sector”, “The FED” or even just “Wall Street”.
Back in 2007-2008, the most common mainstream media narrative for the financial crisis was that it was due to a mixture of bad luck and poor people. It was called a perfect storm, a rare event which no one could have predicted. The scapegoats, if any were identified at all, were people who took out million dollar mortgages based on the salary of a school bus driver.
Since that time, anyone who has taken a critical look at the crisis realizes that those narratives were rubbish. A fact backed up by the recent report from the Financial Crisis Inquiry Commission(FCIC).
In a recent FDL book salon, FCIC Commissioner Byron Georgiou stated:
“Our number one conclusion is that this crisis was avoidable. It was the result of human actions, inactions and misjudgments and a set of warning signs being ignored.”
Commissioner Georgiou went on to add:
“If practices in Washington and on Wall Street (practices we outline in our report) don’t change, then I do think we are at risk for another crisis. The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus, nothing could have been done. If we accept this notion, it will happen again.”
It will happen again… an ominous statement but not unwarranted. In fact, one could argue that we are still in the middle of an ongoing financial crisis who’s burden has merely been shifted from Wall Street to Main Street. Sure, the stock market has been up and the Wall Street bonus machine hasn’t missed a beat but… Unemployment remains high, forclosure rates remain high, States are experiencing major budget shortfalls and as zerohedge regularly points out, the number of people on foodstamps keeps going up every single month. Given that accounting and regulatory standards are still exceptionally loose, we don’t know if we are in the calm of a slow ‘recovery’ or the calm in the eye of a hurricane.
Surely the “experts” will learn from the FCIC report and won’t get things completely wrong this time! But before making that assumption, it would be worth looking at how “the experts” operate. Based on a research article by the Huffington Post, there is reason to believe that the economic “experts” truly are completely useless. It seems that establishment economists do not start with a question and produce an answer. Rather, establishment economists are given an answer and produce a suitable question. Who gives them the answer? The FED. The entire profession runs a bit like the Jeopardy game show with Ben Bernanke as host.
What causes this reverse dynamic? In a nutshell, the FED has top down control of the economic profession. Control is maintained via employment opportunities, publishing access to economic journals and other related forms of academic association. The FED can and does open and/or close nearly every door in the career of an economist. As a result, establishment economists basically operate the same way that FED economists operate. How do FED economists operate? According to the Huffington Post article:
“The Fed staff would come out and their ritual is: Greenspan has kind of told them what to conclude and they produce studies in which they conclude this.”
Thus, it’s no surprise that when the FED Chairman proclaims that there is no housing bubble, establishment economists proceed to publish such fine works as: “Why the Real Estate Boom Will Not Bust”. The FED gives the answer: No Housing Bubble. And then the economist provides the question: Why the Real Estate Boom Will Not Bust. And on to the final round we go!
Will Ben Bernanke learn the correct lessons from the FCIC report? Because if he doesn’t, then he won’t be able to provide the correct answers. And if the FED Chair isn’t providing the correct answers then it’s a bit unfair to expect our economists to ask the correct questions. Thus the ball appears to be squarely in Ben Bernanke’s court. Will he get it right or are we to be sustained on a steady diet of scapegoats?
James Galbraith’s “Who are these economists anyway?” (PDF)
FDL Book Salon’s “Deception and Abuse at the Fed“