"Know-Nothings": The World's Best Economists

You've heard the story by now: In 2007, most economists saw clear sailing ahead and little to worry about. Then the economy crashed.

In 2009, most economists could see nothing but doom, more collapse, and panic. Then things turned, job gains resumed, and markets doubled.

We see this same cycle play out over and over again. Highly distinguished economists who are supposed to be experts on business cycles completely miss not only the details, but the big shifts. It's the equivalent of a fireman driving past a burning building without a second glance.

Last week I sat down with Ron Suskind, a former Wall Street Journal journalist and Pulitzer Prize-winning author of five books. His most recent work, Confidence Men, details how President Obama managed the first two years of his presidency, allowing Suskind to interview virtually everyone who matters in Washington, including President Obama and Treasury Secretary Tim Geithner. I asked him what he thought about the current state of the economy, which led into a discussion about the humility of economists. Have a look (transcript follows):

Morgan Housel: You are not an economist, but you have written one of the most in-depth books about the economy. And I'm convinced that you've spoken to everyone in Washington who matters about the issue. From the perch that you've had, how does the economy look today?

Ron Suskind: Shaky, frankly. Fragile. I was talking to a pretty well-known novelist, a friend of mine ... and he's like, "OK, one word that sums up your reporting so far and what you've found as a title for your book." And I said "fragile." We are still an economy with fragility, with a kind of brittleness that I think is borne of the fact that some of the fundamental structural issues weren't handled. They simply weren't. And part of that is we have a failed political system that's just not working right now -- everyone knows that.

The difficulty is we're the largest economy in the world -- two-plus times larger than China at this point. You can't function without a working political system. And right now I think we're coming up against the barriers on that -- against the limits of that hard fact. ... I'm not an economist, but I have experience over 30 years of asking economists questions that often leave them sort of nicely befuddled.

There was a nice group which you can dig up on the Internet that I always think about. In the early '90s, when I was at The Wall Street Journal, there was a group of Nobel Prize Winners. I think Bob Solow was one of them at MIT -- a bunch of 'em. And they were old guys already at that point, and they formed a group as immutable, unassailable Nobel Prize winners, and the group was called the "Know Nothings." And their whole purpose was to tell fellow economists -- at this point, in the autumn or winter of their careers -- "Look, there's a whole lot you don't know that you're faking, and we're here to be the corrective." I'm not sure how long they went, but I sort of loved that. And I think we need that.

That's why, frankly, I often like old people in the books. Paul Volcker is all over Confidence Men. I like these folks who have kept their eyes open and learned, often against their will, hard verities, and they get toward the end of their life when they don't have a dog in the fight, and there's not some media message from some company they have to play every day. And they almost are like trumpeting to the herd, you know, the bull elephants before they go down. And you often get the best stuff from them. Right now I think we are undernourished in terms of some of the hard truths of what is actually driving this crossroads moment in our economy.

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