It’s fascinating to me the extent to which economists refuse to deploy the insights of economics in order to help understand the behavior of economists and economics departments. For example, Tyler Cowen says Ragu Rajan “nails it” with his explanation of why economists didn’t predict the crisis:
I would argue that three factors largely explain our collective failure: specialization, the difficulty of forecasting, and the disengagement of much of the profession from the real world.
Rajan glosses a leading alternative hypothesis thusly:
Finally, an answer that is gaining ground is that the system bribed economists to stay silent.
Obviously bribe-based theories of human behavior are crude and rarely capture reality. But how about translating this into economics? How about incentives? Rajan says it’s not individual corruption that led to a lack of insight, it’s structure features of the way the profession is organized. That makes a lot of sense to me. But what explains that structural organization? Is it really unrelated to the financial basis of the economics profession? Or are economists supposed to be immune from the factors that influence human behavior in other instances?
If so, I’d like to meet these people! In journalism, I think most people want to do a good job and produce good articles. But people also want to get raises, get better jobs, get invited to cool events with important people, get on TV and be famous, etc. Nobody’s “on the take” but the objective structure of incentives does influence what happens, especially in the aggregate. College professors are different, I guess, which must be why they’re all paid on a flat salary scale and everyone donates 80–90 percent of their outside consulting income to charities.