Must-Read: Simon Wren-Lewis: Attacking Economics is a Diversionary Tactic

Must-Read: Simon Wren-Lewis: Attacking Economics is a Diversionary Tactic: “The financial crisis in the UK was the result of losses by banks on overseas assets, originating from the collapse in the US subprime market…

…UK macroeconomists failed to pick up the impending crisis [because] they did [not] routinely monitor… bank leverage. Macroeconomists generally acknowledge that they were at fault in ignoring the crucial role that financial sector leverage can play…. Admati and Hellweg have written persuasively that we need a huge increase in bank capital requirements to bring the ‘too big to fail’ problem to an end and avoid a future banking crisis, and the work of David Miles in the UK has a similar message. I have not come across an academic economist who seriously dissents from this analysis, but it has no impact on policy at all. The power of the banking lobby is just too strong.

So the response of economists to the financial crisis has been as it should be…. Economists have come up with clear proposals about how to avoid the crisis happening again. And these proposals have been pretty well ignored. In terms of conventional monetary and fiscal policy, academic economists got the response to the crisis right, and policymakers got it very wrong….

So given all this, why do some continue to attack economists? On the left there are heterodox economists who want nothing less than… the overthrow of mainstream economics…. The right on the other hand is uncomfortable when evidence based economics conflicts with their politics. Their response is to attack economists. This is not a new phenomenon, as I showed in connection with the famous letter from 364 economists…. The media did the rest of the job for them by hardly ever talking about the majority of economists who did not support austerity….

Attacking economists over Brexit is designed to discredit those who point out awkward and uncomfortable truths. Continuing to attack economists over not predicting the financial crisis, but failing to ignore their successes, has the effect of distracting people from the group who actually caused this crisis, and the fact that very little has been done to prevent a similar crisis happening in the future.