Quite simply, challenging the status quo is difficult because the mainstream either ignores the challenger and their ideas or dismisses their ideas without considering the merits.
Your humble blogger confesses that Mr. Johnson's column resonated with me because it accurately describes my experience calling for restoring transparency to all the opaque corners of the financial system.
Despite the fact that transparency is the necessary and sufficient condition for the invisible hand of the market to operate properly and is underlies the our financial system as shown in the FDR Framework, mainstream economists are at the head of the line in dismissing transparency as the solution to our current problems.
Instead, mainstream economists champion a host of solutions for a bank solvency led financial crisis that I have predicted in advance on this blog would not end the financial crisis and the last 5+ years have shown will not end the financial crisis.
Regular readers know that your humble blogger laid out a transparency based solution that would have moderated our financial crisis and, if implemented today, would end our financial crisis.
As explained by Mr. Johnson, for policymakers to choose this solution will take a tremendous amount of courage as it means telling the mainstream economists and bankers to take a hike (emphasis added).
Avoidance and false certainty are common afflictions of economic policymakers. Could this explain why they missed something as big and obvious in hindsight as the 2008 financial crisis?
Courage to take on the causes of the crisis is needed now.
Nearly a century ago, Henry Louis “HL” Mencken provided a useful lesson in this regard in his famous essay on economics, “The Dismal Science”.
In it, Mencken noted the example of a Professor Nearing, who was kicked out of the University of Pennsylvania because his “efforts to get at the truth disturbed the security and equanimity” of those wealthy few who controlled the university. “He was thrown out because he was not safe and sane and orthodox,” Mencken explained.
Dr Nearing challenged the status quo by trying to speak the truth, and power did not like what it heard. He paid the price. This price was not lost on his colleagues, certainly not on the members of the profession whose theories, as Mencken pointed out, often centred on price signals.
Even today, academics who earnestly aspire to seek out truth see similar examples among their colleagues. Those who dare to venture outside the box of orthodox economics–outside the “safe and sane”–are met with the language of marginalisation and a refusal to consider their arguments on their own merits.
Instead, they face constant attempts to pick apart their methodology and undermine their credibility as professionals. They aren’t granted the assumption of competence, unlike mainstream economists who have been blessed with the aura of legitimacy by those with power. Opponents “play the man and not the ball”, as soccer fans would say.....
Far more prevalent than simple corruption are those who tacitly accept the status quo because they know the price of challenging it.
This dynamic becomes increasingly dangerous as wealth becomes concentrated in a particular sector, as it has in finance in recent years. The clarity of analysis of that sector ceases to be dispassionate and takes on the aura of fear–a fear of tangling with those who could fight back and hurt you. And these rituals of avoidance, as we have seen in the case of finance, can have enormous real costs.
The deference that this concentration of wealth and power engenders in the economics profession creates significant negative externalities for the rest of society, as we experienced very starkly in 2008.
This is the cost of a dynamic where it is more rewarding to be safe and wrong, than to challenge the orthodoxy in pursuit of what’s right. The nail that sticks out does get hammered....
When the world is faced with uncertainty, as it is now, there is a great temptation for experts to provide false resolution to the anxiety this uncertainty creates. The short-term rewards for doing so can be considerable and exert a distorting pull on economists’ analytic abilities.
Being a “guru” is a siren song of temptation, if there ever was one. Who ever won a Nobel Prize for saying “Honestly, I do not know”? ...Even those economists who did win a Nobel Prize have fallen for the siren song of temptation and loudly banged on the table for solution that will not end a bank solvency led financial crisis.
Why won't their solutions work?
Because as Nobel Prize winner Joseph Stiglitz said, economics has a simplified view of banks that simply does not correspond with reality.
This temptation can also interact dangerously with the rituals of avoidance detailed above, as it did in the lead-up to the financial crisis. The belief in a stable and knowable future led to risk-assessment models in the financial sector that collapsed in the face of real turmoil.
The desire to provide false resolution and the deference to power combined to provide descriptions of an economic reality that were in fact quite useless to those who earnestly wanted to guide the economy for the benefit of society.
So where does all this leave policymakers? How are they to determine good economic analysis from bad? ... Conventional wisdom is often unwise.
Real economic analysis does not always recommend outcomes that are politically safe or within the contours of affirmation by established power. ....
Policymakers, much like economists, face the same challenges of speaking truth to power and resisting the comforts of false certainty.
And as is the case for economists, policymakers who would earnestly serve society require not just intelligence or wisdom. They require courage to think outside the box, to do what is not safe...