By William K. Black
Bloomington, MN: January 13, 2015
One of the many quips ascribed to Winston Churchill is that it was well that Clement Atlee were modest for he had much to be modest about. This article comments on a remarkable article dated September 19, 2009 by the French economist Gilles Saint-Paul that embodies why economics is the only field that purports to be a science that has gotten worse for decades, which actively makes the world worse in its supposed area of expertise, and that is proud of it. I learned of the article through the worthy blog site Unlearning Economics. That site has a special category for theoclasscial sermons, including Saint-Paul’s, that exemplify our family rule that it is impossible to compete with unintentional self-parody.
Saint-Paul’s title is “A ‘modest’ intellectual discipline.” Saint-Paul is one of the economists who was an architect of the ongoing disaster, so one could hope that writing in 2009 would have led him to conduct a thorough re-examination of his field’s catastrophic failures. He should have begun with a personal and professional mea culpa and a series of frank admissions as to what caused him and his discipline to fail yet again and cause such great harm to the world. That’s what a representative of a “modest” field that has so very much to be modest about would do.
Saint-Paul’s title, therefore gives the reader some reason for hope. The first two questions he poses address the fundamental questions.
“Has economics failed us? Should economists have seen this crisis coming?”
Alas, hope died in the third and every following sentence of his paper. Saint-Paul’s “revealed preference” is to continue, indeed, celebrate all of his profession’s worst pathologies. Arrogance, a bizarre ode to ignorance, and a manic dedication to repeating the field’s worst errors rather than correcting those errors are his motifs. The funniest line is his claim that his arrogance constitutes “modesty.” Yes, but for his excessive modesty Saint-Paul would be perfect.
The Answer to His Two Fundamental Questions is “Yes”
Yes, economics and mainstream economists have “failed us.” If Saint-Paul cannot bring him to make that simple admission he lacks any integrity.
Yes, “economists should have seen this crisis coming?” More precisely, competent economists did see a likely crisis.
Far more importantly, however, competent economists saw the maladies that created a serious risk of a crisis coming – and that’s what society really needs from economists. Society does not need us to be able to predict exactly when a crisis will begin and how severe the crisis will be. If we identify and warn the public of the maladies and devise and support public policy interventions to counter those maladies that greatly increase the risk of a financial crisis we have done all that economists need to do. That’s the good thing about bad things – it makes sense to fix them regardless of whether we can predict the exact likelihood, magnitude, nature, or timing of the crises they threaten to cause. It makes sense to fix them promptly. Indeed, not fixing them because it is impossible to predict in advance the likelihood, magnitude, nature, or timing of the crisis that the maladies might cause is irrational and will lead to repeated catastrophes. What Saint-Paul has, unintentionally, done is demonstrate that the faux regulatory “reforms” (“better regulation,” “principles-based regulation,” etc. and the use of cost-benefit analysis) that mainstream economists have demanded before any effective financial regulation can be adopted are a prescription they know will produce repeated catastrophes. Saint-Paul’s article makes clear that these economists know that it is impossible to produce even a vaguely reliable cost-benefit analysis.
When mainstream economists demand that no financial regulation be adopted to counter the maladies without support from a cost-benefit analysis it is vital that people understand that they know they have rigged the regulatory “reform” to make it impossible to protect the public from the maladies that cause our recurrent, intensifying financial crises. Economists like Saint-Paul have not “failed” us, they have knowingly betrayed us. They have betrayed us to serve their banking patrons and the ideological hostility that they and their patrons share to democratic governance and government programs. They have rigged the financial system in a way that allows the banksters to become wealthy by looting the public with impunity by destroying effective regulation. They view democratic governance as illegitimate. Saint-Paul, a strong libertarian, labels democratic governments that seeks to help people “tyranny.”
Why Didn’t Saint-Paul Answer the Fundamental Questions He Asked Himself?
It is very strange to start a paper by asking two fundamental questions about economics and economists and then fail to even address the questions. Let me be clear, he did not ask the two fundamental questions, explain why he believed that they were the wrong questions, and state that he will therefore not seek to answer the two fundamental questions. He simply started talking about other more technical matters that could not answer the fundamental questions that he asked. In essence, he ignored the first question and implicitly rephrased both questions into a single question that he narrowed so greatly that it no longer posed a fundamental question but instead was replaced with a hyper-technical forecasting question. Again, he doesn’t discuss how or why he has tortured and twisted the fundamental questions he began with, he simply proceeds to address forecasting.
Economics and economists “failed us” in far greater and more destructive ways than forecasting when and how a bubble will burst. It was economists who were the architects of the criminogenic environments that have produced our recurrent, intensifying financial crises. Economists didn’t simply miss the crisis – they caused the crisis through their embrace of the three “de’s” (deregulation, desupervision, and de facto decriminalization), modern executive and professional compensation, and financial pricing models that led to the massive understatement of risk and overstatement of value. They also created complacency, claiming that virtually all the changes that were creating the criminogenic environment were actually making the world far safer. Those are the fundamental ways in which economists failed. Nobody claims that the important way in which “economics failed” was its inability to call the month in which the bubbles hyper-inflated by the three most destructive financial fraud epidemics in history would collapse.
Saint-Paul has no way to answer the fundamental questions with which he began – so he tried what he apparently thought was a smooth move to redefine the questions out of existence and ignore them. His choice has nothing to do with economics, it is simply a dishonest rhetorical trick that any competent first year law student would spot. He ducked the fundamental questions because he lacks the courage to admit error and drop the ideological blinders that caused him and his field to be the leading architects of these growing catastrophes and the leading (and well paid) apologists for the financial CEOs that were enriched by leading the fraud epidemics.
But here’s the really amazing part, even when he gamed the question his attempt to answer it inadvertently revealed the abject failures of economics and economists – and their arrogance rather than their modesty. A practitioner of a field that has so much to be modest about yet cannot hide his naked arrogance even when pretending to modesty is beyond redemption.
Saint-Paul’s Attempted Defense Reads Like a Confession
After noting how other economists have tried to explain why economics and economists have failed so catastrophically, Saint-Paul ignores the debate, begins his arrogant assault on other fields that actually produce far greater predictive ability, and changes the question so he can ignore the fundamental question he doesn’t dare even try to answer.
“While economics is admittedly quite a “dry” discipline, I firmly believe that replacing the training of economists by some soft transdisciplinary melting pot would be a catastrophe.
It is not the job of economists to forecast crises.”
First, there is no reason why economics has to be a “’dry’ discipline.” It is a thrilling discipline if it is taught and practiced properly. Second, count the loaded words in the next clause and the extraordinary arrogance he is blind to.
- He doesn’t simply “believe,” he “firmly believe[s].” So it must be true. I’m going to start adding “firmly” in every sentence as a substitute for facts and reasoning. So efficient.
- “Transdisciplinary” knowledge is bad – it is inherently “soft” and a “melting pot” that is certain to cause a “catastrophe” (no, he doesn’t mean the status quo catastrophe, he “firmly believe[s]” it will cause a super-duper “catastrophe.” I’ll return to his arrogance.
Third, the straw man question he creates is “Is [it] the job of economists to forecast crises?” He answers his own question – “no.” In economics, “forecast” is a term of art with a narrow, technical meaning. Among the most interesting and important questions about financial crises and economics is whether economists help us prevent the creation of the criminogenic environments that produce the fraud epidemics that drive our recurrent, intensifying financial crises, whether they fail to do so, and whether (and far worse) they support policies and fraudulent CEOs that make the environment more criminogenic. A reliable formal economic forecast that attempted to predict when a bubble would burst and potentially spark a crisis isn’t possible, but that does not mean that economists should be unable to identify the factors that produce criminogenic environments and are hyper-inflating the bubbles. That is the information we need to dramatically reduce the frequency and severity of our financial crises.
The S&L crisis, however, was also caused by misunderstanding. Neither the public nor economists foresaw that the [deregulation] of the 1980s [was] bound to produce looting. Nor, unaware of the concept, could they have known how serious it would be. Thus the regulators in the field who understood what was happening from the beginning found lukewarm support, at best, for their cause. Now we know better. If we learn from experience, history need not repeat itself (George Akerlof & Paul Romer 1993: 60).
The fact that the deregulation of the 1980s was “bound to produce looting” was a fact known to us as savings and loan regulators in the early 1980s. Our work and findings are written up in the economics, regulatory, criminology, accounting, law, and public administration literatures. You know, all those “soft” fields that if they ever contaminated the purity that is economics would cause a super-duper “catastrophe.” Naturally, Saint-Paul has assured his purity of essence by avoiding contamination with these “soft” disciplines.
Of course, that doesn’t explain why Saint-Paul has avoided reading the relevant economics literature. George Akerlof was made a Nobel Laureate in Economics in 2001 well before Saint-Paul wrote the article I’m discussing and Akerlof and Romer’s famous article has been available to all economists since 1993. Saint-Paul has no excuse for not being aware that competent financial regulators and economists can – and have – been able to determine what makes an environment criminogenic and is producing fraud epidemics that are capable of producing the large bubbles that can spark financial crises. Better yet, we can do so early while there is still ample time to prevent the bubbles from hyper-inflating and greatly reduce the risk of causing a financial crisis and a recession. We are not talking about “forecasting” as that term is used technically by economists, but it does fall within the common usage of the term “forecast.” Regardless of definitional games the key is that competent regulators knowledgeable about “accounting control fraud” (aka “looting”) have repeatedly successfully predicted and countered fraud epidemics and prevented hyper-inflated bubbles and financial crises. Economists can and should learn the lessons we learned because it is impossible to understand finance and many of the worst financial crises without understanding the ultimate form of financial fraud.
Even better, the regulatory, supervisory, enforcement, and criminal justice steps we take to prevent or reduce fraud epidemics are unambiguously beneficial regardless of our ability to predict when, precisely how destructive, and how long the fraud epidemics would be absent our interventions. The reasons this is true should commend themselves (but for the barrier of ideology that I end this article with) to Saint-Paul given his arguments in the article I am discussing. The fundamental reason is that our key insights come (albeit not uniquely) from principles long known to economists. The accompanying reason is that we realized the needs for modesty as regulators.
Our first key insight as regulators was “precise[ly]” how important, in so many ways, loan underwriting is. In particular, in the context of secured real estate lending we understood the concepts of risk pricing and adverse selection. We realized that no lender controlled by honest officers would deliberately adopt lending strategies that created material adverse selection. Doing so means that the bank’s lending will have a negative expected value. In plain English, the bank will lose money.
Our “autopsies” of every new S&L failure (a far superior research methodology than standard econometric methodologies that are perverted by accounting fraud), our understanding of how honest banks underwrite, our competence in accounting, and our understanding of the linkage between short-term reported income and modern executive compensation allowed us to figure out lenders’ “recipe” for optimizing accounting control fraud. The recipe has four “ingredients.”
- Grow extremely rapidly by
- Making terrible credit-quality loans at premium nominal yields, while
- Employing extreme leverage, and
- Providing only grossly inadequate allowances for loan and lease losses (ALLL)
We understood the three “sure things” that arise from the “recipe.”
- The lender will report record (albeit fictional) income in the near term
- The senior officers will promptly be made wealthy by modern executive compensation
- The lender will eventually have to recognize enormous losses
Top economists understood these dynamics.
“[M]any economists still seem not to under-stand that a combination of circumstances in the 1980s made it very easy to loot a financial institution with little risk of prosecution. Once this is clear, it becomes obvious that high-risk strategies that would pay off only in some states of the world were only for the timid. Why abuse the system to pursue a gamble that might pay off when you can exploit a sure thing with little risk of prosecution? (Akerlof & Romer 1993: 4-5).”
Akerlof and Romer agreed with us that the standard economic story about financial crises being driven by moral hazard (aka “gambling for resurrection”) was falsified by the facts as to underwriting.
“[S]omeone who is gambling that his thrift might actually make a profit would never operate the way many thrifts did, with total disregard for even the most basic principles of lending: maintaining reasonable documentation about loans, protecting against external fraud and abuse, verifying information on loan applications, even bothering to have borrowers fill out loan applications.5 Examinations of the operation of many such thrifts show that the owners acted as if future losses were somebody else’s problem. They were right (Akerlof & Romer 1993: 5).
- See Merton (1978).
- Black (1993b) forcefully makes this point.
We also understood why an epidemic of such frauds was the perfect means to hyper-inflate a financial bubble and why a bubble was the perfect environment to substantially extend the life of the fraud epidemic. The saying in the trade is that “a rolling loan gathers no loss.” As long as the bubble is inflating it is simple to refinance the bad loans, book new (also fictional) accounting income, and avoid loss recognition.
We also believed in modesty as regulators. Our underwriting rule was not a “best practices rule.” It had three major provisions. S&Ls had to underwrite before they made the loan. They had to verify that the borrower and the collateral had the ability to repay the loan. They had to keep a written record confirming these points. Any honest lender, of course, would greatly exceed our underwriting requirements. That was the point! Our rule imposed no cost on honest lenders but posed a major obstacle to the officers leading an “accounting control fraud” because we could use the underwriting “paper trail” to demonstrate that they knew that they were making bad loans. “Liar’s” loans are superb fraud devices because they eliminate much of that paper trail.
The reader can now understand while regulatory interventions that prevent horrific underwriting is good for everyone who is honest. We do not need to “forecast” crises in the manner Saint-Paul discusses in order to greatly reduce their frequency and severity. It does not matter whether terrible underwriting will create a global crisis or “merely” huge losses – it is unambiguously optimal to crack down immediately on terrible underwriting.
Saint-Paul relies on his specialized use of the term forecast throughout his article. “A crisis is by nature not forecastable.” Again, the key is that we do know what environments and lending practices are most likely to produce crises and certain to produce serious losses. Our predictive abilities are in fact not precise in terms of how severe the fraud losses will be or when a bubble will burst. But we do not need to know either fact to know what policies we should be following to limit fraud losses and prevent bubbles from inflating further. We can, as we did in the S&L debacle, deflate existing bubbles by cracking down on the fraud epidemics that are driving their inflation. Economists who learned these lessons would be much more effective and would help the world instead of damaging it with their criminogenic policy recommendations and their apologias for the elite frauds.
His Attempted Defense of Efficient Markets
Saint-Paul then claims that the efficient market hypothesis, while false, fails only because investors are ignorant of economics, though he states that these ignorant investors made supra-normal profits by ignoring the errant predictions of the efficient market hypothesis.
“In other words, if market participants had been more literate in, or more trustful of economics, the asset bubbles and the crisis might have been avoided. It is therefore strange to advocate that the efficient market hypothesis should not be taught because it fails to explain the actual behaviour of markets.”
Yes, trust us – we’re wrong, but trust us. It’s amazing that investors didn’t find this an effective pitch from economists. Actually, “market participants” is a vague term. If he means the CEOs leading lenders that are accounting control frauds or the CEOs leading the firms that purchase the fraudulent lenders’ loans, the fraud recipe leads them to knowingly grow exceptionally rapidly by making terrible loans. The fraud recipe means that fraud epidemics are an ideal means of hyper-inflating bubbles and that the CEOs leading the frauds love bubbles because it allows them to refinance their bad loans and delay defaults (“a rolling loan gathers no loss”). The problem is that these CEOs are far more “literate” than neoclassical economists are about accounting, fraud, and how finance actually works.
The reality, which Saint-Paul ignores, is one that John Kenneth Galbraith emphasized. Economists and regulators were vastly too “trustful of economics’” falsehoods like the efficient market hypothesis and claims that the frauds and bubbles that were becoming massive could not exist because prices should always be trending towards greater efficiency without any systematic bias. The efficient market hypothesis created complacency among economists, regulators, and politicians, which is a recipe for disaster in finance.
His Attempt to Defend Economists’ Financial Models
Saint-Paul shows how specialized and limited a concept he has about identifying the environments likely to cause enormous losses and financial crises.
“It is hard to see how forecasting ability could be improved by means other than mathematical techniques
Those considerations aside, it is strange to complain about inadequate forecasting and use of mathematics at the same time. While a “broad view” may offer insights about the institutional environment or the role of human nature, forecasting is a precise quantitative exercise which must be formulated mathematically and use mathematical technique. It is in the area of forecasting that the most sophisticated mathematical techniques (spectral analysis, cointegration, etc.) are used.”
Note that he retreats once more to the specialized definition of “forecasting” and ignores the real question of whether economists, drawing on the knowledge provided by multiple disciplines, could be useful in identifying the factors that are or would produce a criminogenic environment and support efforts to make the environment less criminogenic. This involves predictive ability, a far broader concept that the formalized definition of “forecasting” that Saint-Paul keeps retreating to.
When it comes to identifying whether epidemics of accounting control fraud are developing economists’ purportedly “precise quantitative exercise[s]” relying on “the most sophisticated mathematical techniques” repeatedly produced systematically inflated valuations and systematically inadequate measures of risk. These systematic biases made the fraudulent officers wealthy. Standard econometric techniques for evaluating the risk and price of financial assets systematically, and massively overstate the value of lenders’ assets when the firms are accounting control frauds.
The purportedly most sophisticated economic models used to estimate risk and asset values assume something that economists know to be false – that there is a true exogenous distribution of risk. The reality is that when economists and politicians make the financial environment more criminogenic they make the probability of default and expected loss upon default dramatically greater. This does not allow the calculation of “precise” valuations, but the following paragraph would have allowed any competent economist or U.S. financial regulator to identify in 2000 that there was an epidemic of accounting control fraud developing and that the officers controlling the fraudulent lenders were deliberately creating a “Gresham’s” dynamic to suborn appraisers. This provided all the information one needed to know that it was vital to intervene.
From 2000 to 2007, a coalition of appraisal organizations … delivered to Washington officials a public petition; signed by 11,000 appraisers…. [I]t charged that lenders were pressuring appraisers to place artificially high prices on properties [and] “blacklisting honest appraisers” and instead assigning business only to appraisers who would hit the desired price targets (Financial Crisis Inquiry Commission 2011:18).
We do not have to be able to “forecast” crises to have the information necessary to intervene through effective regulation, supervision, enforcement, and prosecutions to dramatically reduce losses, stop the hyper-inflation of bubbles, and reduce the risk of crises. But this requires thinking in a manner that is foreign to the kind of economists that Saint-Paul wants trained.
As S&L regulators we went head-to-head on predictive ability against the elite economists, including Alan Greenspan, representing the Nation’s leading frauds. In every case we were, of course, correct and the economists were spectacularly wrong. Saint-Paul is, of course, unaware of this fact because he does read the relevant scholarly literature. Our methodology and analytics proved their predictive success. The economists’ methodology and theories proved to be predictive failures and the extent of the failures was enormous. The economists reprised those failures in the Enron-era scandals, and the most recent crisis. This pattern makes Saint-Paul’s next passage unintentionally hilarious.
“The problem with the ‘broad picture’ approach, regardless of the intellectual quality of those contributions, is that it mostly rests on unproven claims and mechanisms. And in many cases, one is merely speculating that this or that could happen, without even offering a detailed causal chain of events that would rigorously convince the reader that this is an actual possibility.”
The economic methodology that Saint-Paul champions as “hard” and “precise” in not “unproven” – it has been repeatedly disproven. The methodology he champions is infamous for lacking any “detailed causal chain” and “rigor” and substituting instead circular reasoning. The methodology we used was proven repeatedly. Given Saint-Paul’s purported basis for choosing superior methodologies (what is “proven”) he should have long ago abandoned his disproven methods and adopted our proven methods. His failure to read the relevant literature in other fields and within his own field means that he isn’t even aware of what happened when we tested the rival methodologies.
I am being too fair to Saint-Paul. He is well aware that his preferred methods have proven to be catastrophic failures in each of the three major crises I have mentioned. Saint-Paul counsels that methodological ignorance is bliss for economists. He derides the idea that economists should even be trained to know that other methodologies exist much less trained to recognize when and how alternative (and in many contexts far superior) research methodologies should be used. He says they should not “be imported into the actual professional work of economists, much less their training.” This goes beyond arrogance to absurdity.
His Plea that Economists Not Learn from Other Disciplines
After his initial lob claiming that other disciplines are “soft” and that learning from them would cause a “catastrophe” it unsurprisingly turns out that Saint-Paul provides no support for his claim. Once more, he substitutes rhetorical games that any first year law or logic student would spot.
“It is naïve to assume that if economists were only more open-minded, well read, and in tune with other disciplines, they would be able to develop an operational understanding of how the macroeconomy works.”
The test for whether multi-disciplinary analysis is desirable is not whether it would enable economists to move from a position in which they know very little about the economy and, far worse, most of what they think they know is dangerously false to a position in which they know everything about the economy. But that’s the straw man standard that Saint-Paul invents to purport to judge whether multi-disciplinary knowledge is desirable. That’s the import of his phrase: “how the macroeconomy works.” Saint-Paul fabricated a test that no approach could meet.
It is beyond naïve, it is baseless arrogance, for economists who want to understand financial crises to (1) implicitly assume that they do not need to understand accounting control fraud, or (2) to assume that they could understand such frauds without multi-disciplinary skills in criminology, regulation (real regulation, not George Stigler’s parody), law, accounting, and appraisals. In economics jargon, trying to understand the macro-economy without understanding the micro-foundations of that economy is a vain act when accounting control fraud becomes epidemic in finance.
If we applied Saint-Paul’s reasoning to regulation, he would agree that our ability as competent regulators to spot and counter major control frauds years changes economic behavior. Saint-Paul is wrong in assuming that knowledge of a dangerous environment building towards a crisis would simply accelerate the onset of the crisis and nothing would change. When a fraud epidemic is expanding and a financial bubble is hyper-inflating losses and the likelihood of a severe crisis grow very rapidly. Intervening quickly can dramatically reduce asset losses, harm to consumers and investors, and the risks of a hyper-inflated bubble, a financial crisis, and a recession. With the benefits of hindsight we now know what happens when financial anti-regulators are appointed who believe the theoclassical economic assurances that fraud epidemics are impossible. They fail to act for over eight years despite clear evidence of fraud epidemics. The result was a global financial crisis. We succeeded as regulators because of our multi-disciplinary knowledge and multi-methodological approaches allowed us to realize that the theoclassical economic theories and econometric methodologies were worse than bogus.
His Ode to Economists’ Ignorant Arrogance
Saint-Paul’s self-blindness is so total that it leaves one breathless.
“To conclude, economics is a “modest” intellectual discipline, which hopes to be helpful in understanding how the real world works. While we may sometimes sound arrogant in the public debate, it is because we tend to believe that having devoted our whole professional life to thinking about those issues, we are in a better position to talk about them than outsiders. This presumption may be proven wrong, but to my knowledge proponents of alternative approaches have not yet succeeded in offering us an operational framework with a stronger predictive power.”
To state the most obvious logical chasm, given his belief that learning from other fields would be a “catastrophe” for economists because other disciplines are “soft,” the phrase “to my knowledge” is humorous. He doesn’t study other fields lest he lose his purity of essence and his “hard[ness]” (shades of General Jack D. Ripper!). If one does not read other literature one will never have ‘knowledge’ of other fields’ “stronger predictive power.” Ignorance of other fields makes one’s home field irrefutable under Saint-Paul’s “modest” approach.
Why are other disciplines “outsiders?” Financial regulators are far more “insiders” than are economists. Accountants and appraisers are more “insiders” than are economists – and corporate officers’ decisions are commonly driven by accounting. In the real estate finance context, bank officers care greatly about appraisals. Lawyers are the quintessential insiders. White-collar criminologists are the experts on the elite fraud epidemics that drive our recurrent, intensifying financial crises. In the financial field, regulators, lawyers, accountants, appraisers, and white-collar criminologists are all encouraged to develop multi-disciplinary skills precisely because economic and financial behavior is complex. Economists are the only people in finance that are trained to avoid learning other skill sets by the Saint-Pauls of the world. Economists like Saint-Paul, therefore, are in the worst possible position of any discipline to compare the relative predictive power of other disciplines because they are clueless about other disciplines.
As I explained, Saint-Paul’s “presumption” that his discipline’s predictive power is superior to other fields that draw on a broader body of experience, theory, and research was disproven 30 years ago in head-to-head tests of predictive power. In each case, the regulators were not simply superior, the economists were so wrong that they praised the worst S&L frauds as the best S&Ls in the Nation.
Ideology Explains Saint-Paul’s Hate for Multi-Disciplinary Study
Saint-Paul’s article is redolent with the self-blindness of arrogance, but one must read his articles or book on behavioral economics to understand the true basis for his passionate desire to prevent economists from learning from other disciplines. The title of his book gives one the flavor and intensity of his ideology. The Tyranny of Utility: Behavioral Social Science and the Rise of Paternalism. It turns out that Saint-Paul has read research from another field (psychology) and multi-disciplinary literature on behavioral economics. He admits that this multi-disciplinary research is (1) sound, (2) falsifies core neo-classical claims, and (3) provides superior predictive strength. That’s the first aspect of why he despise multi-disciplinary research.
But the second, visceral source of Saint-Paul’s rage is prompted by the fact that behavioral research has falsified core neoclassical claims that he relied on to support his ultra-libertarian ideology. Without any assurance of rational choice, and with copious evidence that consumers and investors frequently make choices that are irrational and self-destructive, he finds himself faced with his deepest ideological fear. The government could play a useful role and the so-called “free markets’ could be playing a destructive role. This is a nightmare scenario for Saint-Paul. He views a democratic government that helped consumers and investors protect themselves from private sector advertising in order to reduce diabetes as a “tyranny.”
Saint-Paul despises and demeans multi-disciplinary learning not because it is “soft” or lacks predictive power, but because in his rare area of multi-disciplinary awareness he has found that multi-disciplinary research has proven so sound that it is sweeping away the theoclassical economic myths that were the foundations of faith-based economics. – myths that rendered the predictive power of faith-based economics an embarrassment. He is desperate to keep economics students from learning that the theoclassical canon’s fundamental dogmas are false and lead to anti-regulatory policies that make the financial world criminogenic.
His core concern, however, is not hiding the defects of his field, but the policy implications of correcting those defects. Those policy implications are anathema to his personal ideological views. His mission is to prevent future economics students from learning alternative viewpoints and methodologies, particularly when the rival theories have superior predictive abilities to his dogmas and could lead to successful governmental actions.
The “catastrophe” that Saint-Paul warns of should economics students learn the insights of other disciplines does not spring from those insights being “soft.” Behavioral economic insights are neither “hard” nor “soft” – they are illuminating. Saint-Paul is desperate to prevent the enlightenment of economics.