By Bryan Caplan
Stiglitz is bragging about his amazing foresight:
Rereading some of my papers in preparing for the publication of the second volume of my Selected Works (to be published by Oxford University Press), I came across a paper, written almost two decades ago, commenting on the move–just beginning then–towards securitization. I was struck by what I had written.
Well, to be more precise, he’s bragging that unlike most of us, he noticed what was right in front of his nose:
But this crisis was totally avoidable. I warned roughly two decades ago of the need for greater government regulation of mortgage securitization. I don’t think my prediction showed any astounding brilliance. Others no doubt felt similarly. Economic theory–and historical experience–made the risks apparent. Unfortunately, the call for the regulation of mortgage securitization reached deaf ears at that time. Let’s hope that this time is different. The next crisis may well be different than the present one, but I’d like to see appropriate regulations that make sure of it.
I suppose Stiglitz does deserve a little credit for highlighting bank incompetence. But as Arnold’s readers know, that’s only one facet of a complex problem. If anyone is the prophet of 2008, it’s economic historian Robert Higgs. Here’s how he concluded Crisis and Leviathan way back in 1987:
[W]e do know something – at least abstractly – about the future. We know that other great crises will come. Whether they will be occasioned by foreign wars, economic collapse, or rampant terrorism, no one can predict with assurances. Yet in one form of another, great crises will surely come again… When they do, governments almost certainly will gain new powers over economic and social affairs… For those who cherish individual liberty and a free society, the prospect is deeply disheartening.
Sadly, we got a trifecta of war, collapse, and terrorism. And things have played out exactly as Higgs foretold. Thank you, Bob, for being the forthright bearer of bad tidings.