Krugman on Error-Loving “Economists”

Posted on March 19, 2013


March 19, 2013, 8:07 am Comment
The Dunning-Kruger-Madoff Effect
Via Mark Thoma, Hale Stewart is bemused by John Hinderaker of PowerLine. As Stewart notes, Hinderaker begins by asserting that everyone knows that an economic crisis is coming — which apparently means everyone he talks to — then rolls out just about every one of the myths that have been proved wrong again and again by events, from the looming debt crisis to the imminent takeoff of inflation.

What Stewart may not know is that this reign of error goes way back — at least to Hinderaker’s ridiculing of yours truly, back in 2005, for suggesting that we had a huge housing bubble that posed an economic threat. He knew that this was nonsense, because the authors of Dow 36,000 said so. It’s actually kind of a nice symmetry: the man who sneered at warnings about a real crisis is now utterly convinced by claims about a fake crisis.

All of which raises an interesting question: why don’t people like Hinderaker who have been wrong about everything for years and years — demonstrably wrong, in ways that would have lost anyone who believed them a lot of money — ever reconsider? Shouldn’t the thought at least enter their minds that maybe economic analysis is not their strong point? Shouldn’t they at least entertain the notion that they are talking to the wrong “experts”?

So why doesn’t this happen? Part of it, surely, is the Dunning-Kruger effect: the truly incompetent are too incompetent to realize that they’re incompetent. Part of it, also, is the Madoff “affinity fraud” effect: people trust someone they perceive as part of their tribe — in this case the tribe of liberal-haters — and are blind to evidence that they are being taken for a ride.

The surprise, I’d say, is just how strong the Dunning-Kruger-Madoff effect has proved in the face of economic crisis. Year after year in which the predictions of their crowd have gone totally astray haven’t shaken their faith at all. They still believe that reading the WSJ editorial page and watching Fox are the way to know what’s going to happen to the economy, and nothing will change their minds.

Posted in: Economics