Bryan Caplan  

Two Mea Culpas

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If there's one thing I've learned from Tetlock, it's that you should openly admit your errors and update your beliefs in response to evidence.  So let me now share two mea culpas with you.

1. Last September, I wrote:
If the bail-out happens, and unemployment stays below 8% for the next two years, I'm going to become less confident that the bail-out prevented disaster. After all, even a near-miss with disaster should look pretty ugly. Alternately, if the bail-out happens, and unemployment hits 8% or higher during the next two years, I'm going to become more confident that the bail-out prevented disaster. I still won't be convinced, but I'll be less skeptical than I am now.
Now that unemployment has passed 8%, I now admit to having underestimated the severity of the threat, and marginally reduce my skepticism about the effectiveness of the bail-out.  I still think it's a bad idea, but at least it's no longer much ado about nothing. (HT: Josiah Neeley)

2. In 2005, I wrote:
Bernanke is admittedly a mainstream economist - and I'm not. I'm sure we'd disagree on a great many issues. But at the same time, he is living proof that the mainstream of economics has vastly improved since the dark days of the 60's. Bush's Number One economic mistake is not appointing Bernanke to head the CEA. In fact, Bush's Number One economic mistake is a lot more likely to be habitually ignoring the advice of the excellent economist he appointed.
Boy, was I wrong.  I doubt that even the dinosaur Keynesians of the 60's would have embraced big government, bail-outs, and crony capitalism like Bernanke did.  And I doubt that Bush would have come up with all these radical changes if Bernanke hadn't embraced them first.

When I studied monetary economics with him in 1995, Bernanke showed humility about the power of government to mitigate economic crises.  He thought about long-run policy consequences - and recognized that a "do something - anything!" mentality often makes a bad downturn worse.  Now he looks like any other DC demagogue.  What a disappointment.


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COMMENTS (13 to date)

Surweicki wrote in January that you and Arnold and others were foolish for ignoring the endorsement the market seemed to be giving the so-called stimulus plan. He pointed out the stock prices of the time as support for this view.

What do you think of his arguments now that the market says otherwise?

Fenn writes:

On point 2 you might consider a Cowen perspective: that his actions might indicate the nature of info he's privy to that we're not.

And how was Watchmen?

Ryan writes:

Aren't you going to give us your Watchmen opinion?

Mason writes:

how do you have these two things in the same post?

"He thought about long-run policy consequences - and recognized that a "do something - anything!" mentality often makes a bad downturn worse."

and

"Now that unemployment has passed 8%, I now admit to having underestimated the severity of the threat, and marginally reduce my skepticism about the effectiveness of the bail-out."

I would have expected your first "my bad" to be that you selected a poor means for measuring the effectiveness of the bailout.

Robb Lutton writes:

Bryan,

Yeah, it is at 8% but it is diving, not plateauing. Maybe I am not objective, having lost my job of 14 years in January, but isn't more time for chicken little than "marginalizing your skepticism"?

jurisnaturalist writes:

The first error is most likely a ceteris parabus error. That is, so many other variables changed without precedent that your earlier prediction could have held.

Jim writes:

Under Bush I thought Paulson was leading - not Bernanke.


dearieme writes:

"his actions might indicate the nature of info he's privy to that we're not": aye, some people said that about the Iraq war.

scott cunningham writes:

I second the desire for a Watchmen review. I saw it last night and am itching to hear your opinion. One thing I was wondering is whether you think the experience of the movie changes dramatically if you've never read the source material. I felt like I could feel my knowledge of and love for the book just filling in all the spaces in the film.

Also, we need to give an academy award to the casting agent who cast these parts. Perfect.

Bob Murphy writes:

Bryan,

Mason beat me to the punch. I understand your argument about Bayesian updating, but I don't understand why you think rewarding inefficient firms and increasing the public debt would reduce unemployment.

Suppose we were at full employment and the government all of a sudden announced it would give $700 billion to politically connected firms on the verge of bankruptcy. What would that do to the unemployment rate, especially over 6 months?

Barkley Rosser writes:

Bryan,

Mason makes a valid point. On the one hand you are now saying that a bailout was not such a bad idea, but on the other, it is way too much. What is certainly clear is that we still do not know what the heck we should be doing (or not doing), although pure laissez-faire in this situation does not exactly look like a big winner.

Robb Lutton,

Your source on the unemployment rate "diving"? I have seen a big fat zero suggesting that, indeed quite the contrary. Everybody should be very aware that for the first time since WW II world GDP is now being forecast to actually fall. This is global and still getting worse.

Jim,

It sure looked that way, but credible reports have it that on Sept. 18, when the Minsky moment hit, Gentle Ben was on the phone yelling and screaming at Paulson to do a bailout.

dearieme,

I have serious information whose source I am not going to divulge in a blog comment that serious people at the Fed, including most especially Bernanke, were very aware of how bad things were way ahead of most people. One sign of this is that in August, 2007 when things first began to go rotten, they immediately rolled out some alternative policy tools (in the form of new lending facilities). Now one can argue that maybe they should not have done that, but that they were ready to do it meant that they had been thinking about what to do, and that what was coming was going to be something way beyond their normal tools to deal with.

B.B. writes:

Humility is a two-way street.

Humility makes us question our power and the wisdom to use that power and the knowledge of unintended consequences. That seems to be what you had in mind.

The other side of the street is humility about the limits of one's theories and priors. Thus, an unhumble dogmatic libertarian says "I am right, let the banking system collapse, and business go under!" Humility may say, "We know too little about the dangers of that libertarian approach, let's experiment with something that could work better."

Mark writes:

Bryan,

You might also want to adjust your priors when you re-read what you wrote about immigration. To wit, that immigration can't be all bad, else housing prices in California would not be increasing.

It was a reasonable argument at the time. Not now.

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