October 19, 2014


How (Some) Economists Are Like Doomsday Cult Members (JAY LIVINGSTON • October 16, 2014, Pacific Standard)

The 1954 sociology classic When Prophecy Fails describes groups built around a prediction that the world would soon be destroyed and that they, the believers, would be saved by flying saucers from outer space. When it didn't happen, they too faced the problem of cognitive dissonance--dissonance between belief and fact. But because they had been very specific about what would happen and when it would happen, they could not very well use the  denial and equivocation favored by the economists. Instead, they first claimed that what had averted the disaster was their own faith. By meeting and planning and believing so strongly in their extraterrestrial rescuers, they had literally saved the world. The economists, by contrast, could not claim that their warnings saved us from inflation, for their warning--their predictions and prescriptions--had been ignored by the Fed. So instead they argue that there actually is, or will be, serious inflation.

The other tactic that the millenarian group seized on was to start proselytizing--trying to convert others and to bring new members into the fold. For the conservative economists, this tactic is practically a given, but it is not necessarily a change. They had already been spreading their faith, as professors and as advisors (to policymakers, political candidates, wealthy investors, et al.). They haven't necessarily redoubled their efforts, but the evidence has not given them pause. They continue to publish their unreconstructed views to as wide an audience as possible.

That's the curious thing about cognitive dissonance. The goal is to reduce the dissonance, and it really doesn't matter how. Of course, you could change your ideas, but letting go of long and deeply held ideas when the facts no longer cooperate is difficult. Apparently it's easier to change the facts (by denial, equivocation, etc.). Or, equally effective in reducing the dissonance, you can convince others that you are right. That validation is just as effective as a friendly set of facts, especially if it comes from powerful and important people ,and comes with rewards both social and financial.

It is possible to forgive Alan Greenspan for tanking the economy twice by raising rates into the teeth of deflation, after all, he'd been in positions of power during the great inflation of the 70s.  It is understandable if some such people remain terrified of the phenomenon.

But the problem now is not just that these guys are obsessed with a problem that no longer exists, but that they can not even begin to face the potential issue that does exist : deflation.

Posted by at October 19, 2014 7:17 AM

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