Brad DeLong introduces the concept of “zombie” elites with underwater reputations who thereby refuse to adapt to changing circumstances. Thus his theory of Jean-Claude Tricket and the European Central Bank, though the application is clearly wider:
The most likely scenario is this: they bet on mean-reversion in unemployment, on the magic full-employment equilibrium-restoring properties of the market, on their role as prudent stewards of financial rectitude, and on a take-no-prisoners commitment to price stability in all circumstances as the driving force behind the great moderation.
They were wrong. They now have a choice. They can admit that they were wrong. Then they will probably have to resign, and then be snubbed worldwide. Nobody likes a loser.
Alternatively, they can double down. Their reputations right now are underwater. What do they have to lose reputationwise by saying more absurd nonsense? And there is a chance that tomorrow the confidence fairy will appear, wave her magic wand, and the V-shaped recovery will start.
This is, I think, the right way to think about the “success” of Bush administration Iraq policy in its second term. In the case of Europe, I would add that the underwater elites extend well beyond the narrow confines of the European Central Bank. The current crisis is revealing the fact that the Euro wasn’t a very good idea and realistic approaches to resolving it require admitting that. Either the project is a failure and countries need to leave the Eurozone, or else the project can only be made workable by asking German taxpayers to do something they were promised they’d never been asked to do. Talking about fiscal austerity is a good way of casting the problems here as caused by greedily unaustere voters and obscuring the extent that what we’re watching is the fundamental failure of a deeply elite-driven project.