Posner Reviews Akerlof and Shiller

From Posner's review of Shorting Reason:

As one reads this book, one has the sense that deep down Akerlof and Shiller believe that being rational is the same as being right. That is a mistake. It prevents them from entertaining the possibility that what has now plunged the world into depression is a cascade of mistakes by rational businessmen, government officials, academic economists, consumers, and homebuyers, operating in an unexpectedly fragile economic environment, and that what is retarding recovery is not the "unreasoning fear" of which Franklin Roosevelt famously spoke but the rational fears--the reasoning fear, to use Roosevelt's idiom--of businesspeople, consumers, and officials who confront economic uncertainties for which no one had prepared them.

You get very different view of a crisis if you think it was because of bad faith or greed versus an unintentioned, reasonable error. I was not following this in real time, but putting myself back into 2006 I can empathize with those convinced by the absence of historical losses in the face of easier credit terms. I would like to think I would have noted that the recent housing spike made things much different, but I can see how that view would be a minority one (remember, even Shiller did not suggest a nation-wide housing price collapse was probable).

Chavez gave Obama a book to read, the Marxist conspiracy history Open Veins of Latin America. It's a typical tract that paints Latin American's as victims by wealthy northerners, always selling their commodities 'too low'. As novelist Mario Vargas Llosa explains in the foreword for counter to 'Open Veins', The Guide to the Perfect Latin American Idiot:

"History" for the idiot "is a successful conspiracy of the evil ones against the good, in which they always win and we always lose.

Business and politics involves planning and building coalitions, so it is natural to think everything happens because of some kind of big plan. But broad trends are usually not the sum of their parts. They reflect an equilibrium of deeper preferences and productivity. Understanding the trends and breakpoints in an economy, is best done assuming people are neither idiots nor evil, merely imperfect. Bad faith and stupidity explain a lot of specific trades or litigation, but they don't generalize well because people tend to be mean or stupid in idiosyncratic ways.