Few economists saw our current crisis coming, but this predictive failure was the least of the field's problems. More important was the profession's blindness to the very possibility of catastrophic failures in a market economy.
— Paul Krugman, Princeton University economics professor, winner of the 2008 Nobel Prize in economics. From his Sept. 6 New York Times magazine article "How Did Economists Get It So Wrong?"
No expert gets it right all the time. But here in Florida we might have a Guinness Book of World Records contender for the number of economists and business experts who missed or minimized the coming catastrophic unraveling of the U.S. and global economy.
Many not only denied that a serious economic downturn was coming — even after the recession had officially arrived — but went so far as to predict a rapid rebound to the housing, employment and stock markets that, in horrible combination, would sink like a rock starting in earnest in 2007.
Why did so many thinkers, trained to study our intricate economy and paid well to prognosticate about it, fail to see the depth and duration of this recession? (Or, more sinister, why did so many see signs of a nasty recession but opted to downplay the evidence?)
Maybe it's because we live in a post-9/11 period of trying to be bullish about everything American, including our increasingly fragile economy. Maybe it's because many big-name economists work for huge organizations that like to hear good news over real news. Maybe the economy relied too much on Wall Street's house-of-cards mojo of creating investment products no one really understood, but Wall Streeters got so well paid to sell. age 2.)
Talk about fiddling economists while Rome burned. In this case, we had a whole string section.
David Lereah was chief economist for the National Association of Realtors during the housing boom and made frequent, optimism-loaded trips to Tampa Bay during housing's heyday. But he was discredited amid our increasingly ominous housing market for insisting all was well. His 2005 book, Are You Missing the Real Estate Boom — Why Home Values and Other Real Estate Investments Will Climb Through the End of the Decade, all but assured his loss of credibility when Florida's housing market began tanking in 2006.
Lereah made such a deep impression that you can even buy a "financial villain" bobblehead of the economist (along with former Fed Chairman Alan Greenspan and more) for "marching America into financial oblivion." Now that's notoriety.
Florida economist Hank Fishkind was so bold as to predict that the downturn in the residential real estate market was over. In May of 2007. "I argue that housing has stopped going down," Fishkind, of Fishkind & Associates, in Orlando, said that May. "It is weak. It is painful, but it is not going to get any worse."
At the time, the median home price in Florida was $209,300. Now it's closer to $142,000.
Longtime Florida watcher and Wachovia economist Mark Vitner usually has a sharp eye, but as late as early 2008, he was on the speakers circuit here saying that concerns about the economy were overblown.
"There is no way the U.S. economy can be in a recession," he said in January 2008. "I think we've gotten through the most painful part of the correction."
At the time, the Dow was well over 12,000 and Florida's unemployment rate was under 5 percent. Now the Dow has crawled back from March lows near 6,500 to hover near 10,000. But Florida's unemployment rate last month hit an extraordinary 11 percent, the highest since 1975, while Tampa Bay's soared to 11.7 percent.
Princeton's liberal economist, Paul Krugman — who takes his share of criticism, too — suggests that many in his profession were lulled by the modesty of the nation's financial downturns in recent decades and the simplistic assumption that everyone is "rational" and "markets work perfectly."
"In short," Krugman stated, "the belief in efficient financial markets blinded many if not most economists to the emergence of the biggest financial bubble in history."
My take is, when everybody's having fun, no one wants to be the party pooper to say we've had enough to drink, our wallets are empty and credit cards tapped, we have to get up early in the morning to get to work, and everyone needs to lend a hand in cleaning up before they leave.
That sure won't get you another invitation. And we all know how those economists like to party hearty.
Robert Trigaux can be reached at [email protected]