Thomas Frank on The Credibilty Trap

The "sound" banker, alas! is not one who sees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows so that no one can really blame him.  - John Maynard Keynes

In the twelve hapless years of the present millennium, we have looked on as three great bubbles of consensus vanity have inflated and burst, each with consequences more dire than the last. But what rankles now is our failure to come to terms with how we were played.

In the twelve hapless years of the present millennium, we have looked on as three great bubbles of consensus vanity have inflated and burst, each with consequences more dire than the last.

First there was the "New Economy," a millennial fever dream predicated on the twin ideas of a people's stock market and an eternal silicon prosperity; it collapsed eventually under the weight of its own fatuousness.

Second was the war in Iraq, an endeavor whose launch depended for its success on the turpitude of virtually every class of elite in Washington, particularly the tough-minded men of the media; an enterprise that destroyed the country it aimed to save and that helped to bankrupt our nation as well.

And then, Wall Street blew up the global economy.  Empowered by bank deregulation and regulatory capture, Wall Street enlisted those tough-minded men of the media again to sell the world on the idea that financial innovations were making the global economy more stable by the minute.  Central banks puffed an asset bubble like the world had never seen before, even if every journalist worth his byline was obliged to deny its existence until it was too late.

These episodes were costly and even disastrous, and after each one had run its course and duly exploded, I expected some sort of day of reckoning for their promoters.  And, indeed, the last two disasters combined to force the Republican Party from its stranglehold on American government-- for a time.

But what rankles now is our failure, after each of these disasters, to come to terms with how we were played.  Each separate catastrophe should have been followed by a wave of apologies and resignations. Taken together--and given that a good percentage of the pundit corps signed on to two or even three of these idiotic storylines--they mandated mass firings in the newsrooms and op-ed pages of the nation. Quicker than you could say "Ahmed Chalabi," an entire generation of newsroom fools should have lost their jobs.

But that's not what happened.  Plenty of journalists have been pushed out of late, but the ones responsible for deluding the public are not among them. Neocon extraordinaire Bill Kristol won a berth at the New York Times (before losing it again), Charles Krauthammer is still the thinking conservative's favorite, George Will drones crankily on, Thomas Friedman remains our leading dispenser of nonsense neologisms, and Niall Ferguson wipes his feet on a welcome mat that will never wear out. 

The day Larry Kudlow apologizes for slagging bubble-doubters as part of a sinister left-wing trick is the day the world will start spinning in reverse. Standard & Poor's first leads the parade of folly (triple-A's for everyone!), then decides to downgrade U.S. government debt, and is taken seriously in both endeavors. And the prospect of Fox News or CNBC apologizing for their role in puffing war bubbles and financial bubbles is no better than a punch line: what they do is the opposite, launching new movements that stamp their crumbled fables "true" by popular demand.

The real mistake was my own.  I believed that our public intelligentsia had succumbed to an amazing series of cognitive failures; that time after time they had gotten the facts wrong, ignored the clanging bullshit detector, made the sort of mistakes that would disqualify them from publishing in The Baffler, let alone the Washington Post.

What I didn't understand was that these weren't cognitive failures at all; they were moral failures, mistakes that were hard-wired into the belief systems of the organizations and professions and social classes in question.  As such they were mistakes that-- from the point of view of those organizations or professions or classes-- shed no discredit on the individual chowderheads who made them. 

Holding them accountable was out of the question, and it remains off the table to- day. These people ignored every flashing red signal, refused to listen to the whistleblowers, blew off the obvious screaming indicators that something was going wrong in the boardrooms of the nation, even talked us into an unnecessary war, for chrissake, and the bailout apparatus still stands ready should they fuck things up again.

[big snip]

'The main lesson we should take away from the Efficient Market Hypothesis for policymaking purposes is the futility of trying to deal with crises and recessions by finding central bankers and regulators who can identify and puncture bubbles,' announced Chicago school economist Robert Lucas from amid the ruins in 2009. 'If these people exist, we will not be able to afford them.'

And the main lesson we should take away from the Efficient Market Hypothesis for our purposes is the utter futility of economics departments like the one that employs Robert Lucas.

A second lesson: if economists— and journalists, and bankers, and bond analysts, and accountants— don’t pay some price for egregious and repeated misrepresentations of reality, then markets aren’t efficient after all. Either the gentlemen of the consensus must go, or their cherished hypothesis must be abandoned. The world isn’t gullible enough to believe both of them any longer.

 Read the entire article here.