Economists and Epidemiologists

This needs study. How did the epidemiologists fail us so badly? Or did they? The CDC turned out to be utterly, amazingly, incompetent and counterproductive. People like the Imperial College adulterer didn’t know what they were talking about, despite having the reputation, we are told, of being at the top of their field. Someone should study this. It could be, that the real top epidemiologists all knew basic things such as the true value of masks, the importance of heterogeneity in herd immunity, and so forth, and only a few known cranks didn’t, but the cranks got the media attention and the policy jobs. But I get the impression that epidemiologists aren’t very smart people, not top drawer at all. I’d like to see the average GRE scores or MCAT scores in that field.

It would be interesting to compare with econonomists in 2008. We economists didn’t predict the 2008 Great Recession. Are we incompetent as a field? Many people said so, and said economic theory was useless. That’s wrong. In general, economics cannot predict recessions and does not pretend to, any more than scholars of government can predict presidential election results a year before, but there are good reasons for that– essentially, there are too many facts for theory to be successful. Economics can say that if you triple the world price of oil it will cause a recession, but it can’t predict that there will be an Arab-Israeli War that will triple the price of oil.

The Great Recession is the unusual recession that *should have been* predictable, though, given standard theory. It was the result of extraordinary borrowing on Wall Street and incredible risk taking by major financial corporations such as Citigroup and AGI and mortgage lenders. As I recall from personally being an economist then, everybody knew there was a giant housing bubble that would burst at some point. Housing was way overpriced, due to easy borrowing with subprime mortgages encouraged by both Democrats and Republicans as a way to help low-income people without steady jobs to own their own homes, mortgages everyone knew would result in lots of foreclosures at some point. Such a bubble doesn’t always cause recessions, though. What was added here was that some large corporations were doing this risky lending in defiance of their own ultimate profits and even existence, for the sake of short-term profit, and that the bad mortgages were being bundled and repackaged as ostensibly safe bonds, falsely labelled as safe by the leading ratings agencies, which were committing fraud thereby, though they were never punished. Academic economists such as I had no idea of the crazy things going on on Wall Street, or that financial people could be so stupid. A few did know, and did tell Wall Street how stupid this was and how it would crash eventually, and they were ignored. By 2007, economists at the Federal Reserve did know all this and were panicky, issuing lots of warnings, but I suppose they were worried about pricking the bubble and just didn’t know how to deflate it gently.

So it wasn’t like in 2001 (or was it 2000?) with the Telecomm Bubble. There, it was easy to see that Telecomm stocks were overpriced, simply by looking at the prices and noticing how big future profits would have to be and how close in time to justify those prices. Economists I knew all wondered when prices were going to drop, and I myself did sell stock short and made some profit. THere was a small recession, which perhaps was a consequence of that, as theory would predict.

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