more crisis round-tabling...

If nothing else, the financial crisis seems to have created a lot of demand for people to sit around round or square tables, and to debate in front of their peers. I am on this afternoon at the Barcelona Trobada, the local version of the all-UC meetings in California. The session chair, Jordi Gali, gave us some homework to make sure we all come prepared:

1. In your opinion, what has been the impact of the crisis on:

(i) how the outside world perceives economists and economic research?

(ii) how you perceive the value of economic research?

2. Do you think the economics profession deserves part of the blame for

the great financial crisis as some (even famous colleagues) would claim?

So I did some background reading, from revisiting the "famous" Krugman piece to the now infamous "Crisis? What crisis?" papers by Chari, Christiano, and Kehoe. The latter's abstract is worth reproducing:

Facts and Myths about the Financial Crisis of 2008
Patrick J. Kehoe - Monetary Advisor
V. V. Chari - Consultant
Lawrence J. Christiano - Consultant

The United States is indisputably undergoing a financial crisis and is perhaps headed for a deep recession. Here we examine three claims about the way the financial crisis is affecting the economy as a whole and argue that all three claims are myths. We also present three underappreciated facts about how the financial system intermediates funds between households and corporate businesses. Conventional analyses of the financial crisis focus on interest rate spreads. We argue that such analyses may lead to mistaken inferences about the real costs of borrowing and argue that, during financial crises, variations in the levels of nominal interest rates might lead to better inferences about variations in the real costs of borrowing. Moreover, we argue that even if current increase in spreads indicate increases in the riskiness of the underlying projects, by itself, this increase does not necessarily indicate the need for massive government intervention. We call for policymakers to articulate the precise nature of the market failure they see, to present hard evidence that differentiates their view of the data from other views which would not require such intervention, and to share with the public the logic and evidence that burnishes the case that the particular intervention they are advocating will fix this market failure.

Some economists, when faced with diatribes like Krugman's, sound a bit like General Buck Turgidson. When scolded by the President about the fact that despite the "human reliability program", an air force general ordered his wing of nuclear-armed B-52's to attack the Soviet Union, Turgidson says:

Well, I don't think it's quite fair to condemn the whole program because of a single slip-up, sir!

Having said that, I think I will talk a bit about unreasonable expectations -- why the public thinks its a good way to measure the value of economics in terms of predictive power, and why that makes little sense.