Or vice versa.
It began with this paper, which I found out later had exactly the same title as this one by Barry. Then, when I wrote my guest Economics Focus column for The Economist, Richard Baldwin chided me for repeating arguments that Barry had made elsewhere and which he assumed I was familiar with and had borrowed. And now Barry has come out with an excellent piece (what else would I call it?) which I wish I had written. (A more vain version of me thinks that I actually have, some of it published, some not.)
There are quite a few points in Barry's piece that are really noteworthy. One is that the problem with economists is not that we did not have the models and the tools needed to understand that the crisis was on its way, but that we focused excessively on the more benign models that we had.
... it was not that economic theory had nothing to say about the kinds of structural weaknesses and conflicts of interest that paved the way to our current catastrophe. In fact, large swaths of modern economic theory focus squarely on the kind of generic problems that created our current mess. The problem was not an inability to imagine that conflicts of interest, self-dealing and herd behavior could arise, but a peculiar failure to apply those insights to the real world.
And why did this happen? Part of the reason is that economists are subject to all the same heuristic biases that behaviorists amongst us study in others--over-confidence, willingness to conform, tendency to discount contradictory evidence, and so on. Part of it is that economists did not have the guts to speak out when financiers and policy makers engaged in cherry-picking their results--using those that were favorable to their cause to buttress their case, while disregarding others.
[T]he problem was a partial and blinkered reading of [the economics] literature. The consumers of economic theory, not surprisingly, tended to pick and choose those elements of that rich literature that best supported their self-serving actions. Equally reprehensibly, the producers of that theory, benefiting in ways both pecuniary and psychic, showed disturbingly little tendency to object. It is in this light that we must understand how it was that the vast majority of the economics profession remained so blissfully silent and indeed unaware of the risk of financial disaster.
It is indeed hard to escape the sense that many leading economists became complicit in the financial crisis by remaining so complacent about the risks of financial liberalization. Interestingly, some of these same economists have now become advocates of financial controls much more draconian than what the early liberalization-skeptics had contemplated. But that's another story...