Unintended Consequences

by John Holbo on January 7, 2009

Over the past few years, a certain argument form has become fairly common: yes, I was wrong (about Iraq, financial stuff), but critics on the other side, even if they were right about the overall dynamics of how things went wrong, were substantially mistaken about the details. So – in the invincible words of Monty Python’s Black Knight – ‘let’s call it a draw’.

I predict that, for some strange reason, the folks who entered this characteristic defensive crouch will uncurl, re-affix rhetorical arms and legs, and become altogether more aggressive after Obama takes office. It will be argued that the stimulus package/health care reform/etc. will inevitably be afflicted with bad unintended consequences. But, for some strange reason, those who make this argument will not feel obliged to predict, in detail, exactly what things will go wrong. They will feel it is sufficient to sketch, in a broad way, why the dynamics of certain policy directions seem fraught with potential hazards.

I somewhat regret that I haven’t been bothering to document the argumentative trend of which I speak, so I suggest that we make a collective effort in comments: who has made the ‘yes I was wrong, but the critics didn’t get the details exactly right so it’s a tie’ argument? For future reference.

Those more inclined to monger twiddly philosophy angels-on-a-pinhead-type problems can, alternatively, tackle the following: the defensive crouch of which I speak seems to presuppose a broadly Russellian theory of the objects of thought. That is, you shift blame for unintended consequences by subscribing to a highly stringent theory of intentionality – of the objects of thought. The theory would seem to be this: you can’t really be thinking about X – e.g. any Bush-era debacle – unless you have in mind a definite description of X. So those who quite clearly heard the drumhoofs of financial apocalypse but mistakenly thought the first rider’s name was ‘The collapse of the dollar’ didn’t really hear that guy who was actually riding up. Alternatively, on a more Kripkean view of the determination of the objects of our thoughts, it seems that critics could have been warning about the very financial crisis that we actually suffered, even if they couldn’t, in advance, give an accurate definite description. So we have an ontological issue about the identity of apocalypses across possible worlds. Discuss. Preferably with Twin-Earth cases. And Larry Kudlow. If possible, you should fly the actual Larry to Twin-Earth and leave him there.

{ 57 comments }

1

Thomas 01.07.09 at 4:40 am

Yes, partisans often switch sides in predictable ways, and then accuse the other side of hypocrisy. So, John, is the ‘yes I was wrong, but the critics didn’t get the details exactly right so it’s a tie’ position one you expect to adopt in 2010?

2

John Holbo 01.07.09 at 5:00 am

Thomas, does that sound like a good position to adopt to you? It doesn’t sound very good to me.

3

Thomas 01.07.09 at 5:12 am

Oh, I don’t know. I fully intend to argue that the stimulus package/health care reform/etc. will inevitably be afflicted with bad unintended consequences, but for some strange reason I don’t feel the obligation to predict in detail how things will go wrong, and I see that you concede that the details don’t matter much. The rest is predictable enough too, so would it suffice to say that I think the Obama administration will be afflicted with bad unintended consequences?

4

Donald Johnson 01.07.09 at 5:45 am

How is this different from the argument against the Iraq War? People said it would be a disaster, but they weren’t always sure exactly what form the disaster would take. For instance, some antiwar groups said that Saddam’s army might fight it out in the streets of Baghdad, turning into a charnel house with tens or hundreds of thousands of dead civilians. Didn’t happen, not right away, though in the long run the bodies did pile up on the scale predicted.

So if some rightwinger wishes to predict that Obama’s stimulus package will prove disastrous without getting specific, that’s fine. If it proves disastrous in some way, they can take credit for predicting it as far as I’m concerned.

5

Righteous Bubba 01.07.09 at 6:10 am

How is this different from the argument against the Iraq War? People said it would be a disaster, but they weren’t always sure exactly what form the disaster would take.

The argument against the Iraq war was that it was wrong: no details required. That one’s still holding up well.

6

John Holbo 01.07.09 at 6:22 am

Thomas, since, as you say, it is obvious that the stimulus package – in virtue of its sheer bulk – is bound to be afflicted with some significant degree of unintended consequences, I would suggest that you not ‘argue’ for this proposition. Much clearer to take it as a premise – to which, of course, all sensible Democrats will readily accede. (Is anyone really going to argue that, in a trillion dollar affair, some significant amount of cash isn’t going to end up somewhere that looks sort of bad?) The interesting question is really whether the stimulus package will be afflicted with unintended consequences to such a degree that it is a bad idea. I fail to see how ‘the details’ could be irrelevant to a determination of whether that is the case. So I would be curious to know what the ‘strange reason’ is that makes you feel free to ignore these in making your prediction.

“How is this different from the argument against the Iraq War?”

I don’t think it’s different. I think it’s what I’m talking about. Obviously anyone who predicted that the Iraq War would be a disaster because our conventional military would get bogged down right at the start was just wrong. But many people predicted that the war would go badly because they were more or less correctly predicted how the reconstruction and political aftermath would look. And – wrongly – some people have refused to admit that this latter class of Iraq skeptics saw and understood something they themselves did not.

In general, it’s pretty clear that the correct answer is this: if someone puts forward a broadly correct (and not just trivially correct, Thomas) theory of how a policy/course of action is going to go very wrong, it is best to concede that their view was broadly correct, rather than quibbling about the fact that they didn’t get the details right.

This is so obviously right that it seems snarky even to mention it. Could anyone seriously miss it?

Well, people are really nurturing ‘clock right twice a day’ reservations. That is, they figure that many critics of Bush were knee-jerk critics. But they ought to see that this is irrelevant at least at the first stage of the argument. (You don’t deny that the time is what it is, just because a stopped clock happens to be right right now.)

Second, it is particularly silly for Burkeanism to transmogrify into a kind of headlong reverse Burkeanism, according to which the difficulty of predicting bad consequences accurately in detail becomes a get out of jail free card for all sorts of stupid policies. This is what you might call Burkean Jacobinism. It is strange enough, as hypocrisies go, that it is worth singling out from mere garden variety hypocrisy.

7

momama 01.07.09 at 8:31 am

Kripke beats Russel, hands down, with one hand tied on his back

8

Martin Wisse 01.07.09 at 8:38 am

The argument I’ve heard most often is not “Yes, I was wrong about the War on Iraq but my opponents were wrong about the details, but “Yes, I was wrong about it, but it was the right position to take because the antiwar side were dirty hippies|uncivil|Saddam appeasers”.

9

Dave 01.07.09 at 8:48 am

Are you seriously suggesting that ideologically-motivated political actors should refrain from shaping their appreciation of reality through their ideology?

Why would they do that? And moreover, why are you the one that gets to pick which bits are ‘reality’ and which are ‘ideology’?

10

John Holbo 01.07.09 at 9:19 am

“And moreover, why are you the one that gets to pick which bits are ‘reality’ and which are ‘ideology’?”

Gosh. I get to do that? This is going to be fun!

11

Tracy W 01.07.09 at 10:11 am

yes, I was wrong (about Iraq, financial stuff), but critics on the other side, even if they were right about the overall dynamics of how things went wrong, were substantially mistaken about the details.

I was wrong to bet on black on the roulette table. You were right to bet on the red. Therefore you must have a brilliant technique for forecasting roulette calls?
Working out the likelihood of some person’s forecast being right because of sheer luck versus their forecast being right because of good understanding is difficult when we can’t easily run repeated trials (which means it’s really difficult to figure out who really understands macroeconomics). But the more you can manage to be right about, the more likely it is that you were right by good understanding, not good luck.

12

trane 01.07.09 at 10:27 am

First, I think the idea expressed in this post is right, and I am confident that there will be many future examples to refer to, across a variety of topics. The immediate practical implication is to have easy reference to such examples by labelling posts with a ‘let’s call it a draw’ category.

Second, I think Martin Wisse is very right also. “Yes, I was wrong about it, but it was the right position to take because the antiwar side were dirty hippies|uncivil|Saddam appeasers”

A variation of this is in the area Global Warming where ‘skeptics’ will sometimes say that “Yes, the ‘warmers’ were right about all the details, and the general climate picture, but they don’t have the right ATTITUDE. And besides they are against freedom, democracy and the holy market, so they can’t be trusted anyway.”

13

Dave 01.07.09 at 10:52 am

Once again with feeling – if a position involves acknowledging that people to whom you are ideologically opposed were right, and people of your own ideology were wrong, why would an ideologically-motivated hack adopt it – where’s the gain? The only point of interest comes, as it has done in several interviews with former GWB staffers, when the ideological motive seems to slip into some more ironic mode, dirt is dished, and one can for a moment begin to believe that the ‘reality-based community’ is more than just a slur. Otherwise, it’s business as usual.

14

Guano 01.07.09 at 11:24 am

Iraq, in 2002 and early 2003, was not invading anywhere, was not about to invade anywhere and was not threatening to invade anywhere. Iraq had nothing to do with Al-Qaida. Iraq might have had WMD, but once the weapons’ inspectors were in Iraq there was a perfectly good “Do nothing” option. The onus was on those in favour of an invasion to come up with a coherent argument for an invasion, and they failed to do so. As Righteous Bubba says, the argument against the invasion of Iraq was not that it would be a disaster but that it was wrong. The fact that it has been a disaster is an illustration of why international law was framed to make it more difficult to start wars and why we should not lightly discard international law: wars tend to have unintended consequences and the phrase “it’ll all be over by Xmas” is usually a hollow joke. But the main argument against the invasion was that no coherent argument was made for it (except assertions like “we know Iraq has WMD” which proved to be wrong).

There isn’t a “Do nothing” option about the economy. Something has to change. Any change will create pain for somebody. So it isn’t enough to point out the disadvantages of a plan for the economy, as all plans will have disadvantages. Any critique has to take into account the balance between potential benefits and costs and specifically who will gain and who will lose.

15

Michael Mouse 01.07.09 at 11:53 am

So those who quite clearly heard the drumhoofs of financial apocalypse but mistakenly thought the first rider’s name was ‘The collapse of the dollar’ didn’t really hear that guy who was actually riding up.

I still think they were right that that particular rider is on the way, though. If I were a betting person I would not be betting on the mighty greenback staying that way.

(The main reason I’m not actively shorting the dollar is that even deep-pocketed and market-savvy types like George Soros can get bitten badly by Keynes’ very relevant observation that “markets can remain irrational longer than you can remain solvent”.)

16

engels 01.07.09 at 12:23 pm

What Guano said. It is inappropriate to evaluate the Iraq war (a clear moral wrong, or, less contentiously, a grave violation of important moral norms eg. peace, sovereignty) in the same way as the health plan (a morally neutral policy choice which may turn out to have good or bad consequences). These should be assesed in different ways. If you commit a moral crime then you must shoulder a greater responsibility for the negative consequences that flow from your action then you would have to in the general case.

17

engels 01.07.09 at 1:07 pm

I agree about Larry Kudlow, though. And I’ll happily spring for any pre-phylloxera claret he wants to drink on the trolley en route.

18

James Wimberley 01.07.09 at 1:13 pm

Guano in #13: “wars tend to have unintended consequences and the phrase “it’ll all be over by Xmas” is usually a hollow joke.”
Distinguish these propositions. There are quite a few examples of quick wars: France-Prussia 1870-71, Israel’s 6-day War of 1967, and the two Gulf Wars come to mind. If you break WWII down into campaigns, many of these were walkovers. The law of unintended consequences is a much stronger hypothesis. Each of these short wars had nasty long-term consequences. Bismarck for example was forced by public opinion and the triumphant German Army, against his better judgement, into the annexation of Alsace-Lorraine which made a permanent enemy of France and contributed to WWI.

19

James Wimberley 01.07.09 at 1:40 pm

John H in the post: “So we have an ontological issue about the identity of apocalypses across possible worlds. Discuss. Preferably with Twin-Earth cases.”
We only have one earth. Read. My. Apocalypse.

20

engels 01.07.09 at 1:47 pm

Along Martin Wisse’s lines I think in many cases the syllogism ran something like this:

Since nobody reasonable says otherwise (only a bunch of stupid hippie shits) going to war is perfectly reasonable.
Since going to war is perfectly reasonable anybody who says it’s not must be a stupid hippie shit.
ERGO going to war is perfectly reasonable and anyone who says it’s not is a stupid hippy shit.

21

Thomas 01.07.09 at 2:37 pm

Ah, I see. So, despite saying in no. 2 that you wouldn’t adopt that position, by no. 6 you’ve in fact adopted it in advance. Which has its advantages I guess, and its a wonder your political opponents didn’t think of it years ago. Broad strokes work for those we like, while for others I’m afraid we need to see the details.

22

novakant 01.07.09 at 3:19 pm

Is it just me or does the first paragraph of #6 make no sense whatsoever?

23

Kevin Donoghue 01.07.09 at 3:36 pm

Is it just me or does the first paragraph of #6 make no sense whatsoever?

Remember that as new comments emerge from moderation the numbers change. As I write, No. 6 is by John Holbo and FWIW it makes sense to me.

24

John Holbo 01.07.09 at 3:39 pm

“Is it just me or does the first paragraph of #6 make no sense whatsoever?”

It certainly is rather florid, that first paragraph of #6. The author’s point seems to be that there is a version of the unintended consequences argument that is always correct, hence trivial. He is alleging that his interlocutor in #3 is perpetrating the aforementioned.

25

Alex Hughes 01.07.09 at 3:53 pm

I am not sure that invoking Kripke here does you any favors. The Kripkean picture of the determination of the objects of thought and speech is a causal one — in which part of what fixes the objects of thought and speech is the existence of a causal relation between that object and the thinker/speaker. Since you’re interested in evaluating our thoughts/speech about future events (or what were, then, future events), and since causes preceed their effects in time, you would do better to invoke a different picture of the grounding of intentionality.

Interestingly, it is often claimed by the successors of Kripke that one cannot directly refer to things that do not now (but will later) exist.

26

bianca steele 01.07.09 at 3:59 pm

novokant@22:
I’ve given up prophetizing for the New Year, but I’ll make an exception in a good cause.

I think what John is saying is that the arguments of philosophy being abstract and universal, an argument from philosophy, and by extension a comment on an argument from philosophy, has real-world relevance only in so far as a stopped clock is right twice a day. The practical consequences being, either argue differently or accept ineffectuality.

Oh, I see John has contradicted me in a comment he posted after I composed this comment. Never mind.

27

Barry 01.07.09 at 4:01 pm

Tracy W 01.07.09 at 10:11 am

“I was wrong to bet on black on the roulette table. You were right to bet on the red. “

At this point, we can pretty much dismiss you as a liar. A bet as you describe (unless the wheel is strongly biased *and* you know about the bias) is pretty much a toss-up; the frikking artificially constructed situation is *set up to make it that way*. The Iraq War was clearly based on lies, which were falling apart even as the Bush administration plastered new ones up to cover the gaps. In addition, the war plan was clearly “drive a tank column to Baghdad, topple the King and declare ‘check mate!'”; in other words Everything Will Go According to Our Plan.

So please STFU and let the people who’ve not proven their dishonesty talk.

28

Barry 01.07.09 at 4:12 pm

Guano in #13: “wars tend to have unintended consequences and the phrase “it’ll all be over by Xmas” is usually a hollow joke.”

18 James Wimberley 01.07.09 at 1:13 pm:
“Distinguish these propositions. There are quite a few examples of quick wars: France-Prussia 1870-71, Israel’s 6-day War of 1967, and the two Gulf Wars come to mind. “

James, an important point. The first Gulf War was a walk-over; the second was and is not. The Cheney/dead-ender trick of proclaiming an end to a war where convenient is not one we should accept. And in terms of practicality, it’s like me and you in a bar, with me planning on punching a guy out, and having no plan whatsoever for dealing with the rest of the bar fight which would likely develop. You wouldn’t accept such a declaration of success then; you shouldn’t now.

We’re also seeing that in Wall St, where a lot of the top guys pulled down tens of millions of $ per year, for ongoing deals which turned out to be money-losers. In their case, the ‘end’ was declared every year, when they got their bonuses. If half of those bonuses were subject to five-year clawback clauses, then they’d have behaved differently.

29

SamChevre 01.07.09 at 4:34 pm

In general, it’s pretty clear that the correct answer is this: if someone puts forward a broadly correct (and not just trivially correct, Thomas) theory of how a policy/course of action is going to go very wrong, it is best to concede that their view was broadly correct, rather than quibbling about the fact that they didn’t get the details right.

OK, and I agree. But “broadly correct” and “how” are key here. It seems that most of the argument is “how correct is ‘broadly correct'”?

30

Tracy W 01.07.09 at 5:23 pm

Barry, I was making a general point about the difficulty in telling the difference between correct judgment and good luck when someone gets a forecast right. The invocation of the roulette table was to point out that someone can get a prediction right even when the setup is artificially set up to be purely random, as you pointed out. The point was that being skeptical of someone’s claims to be right when that person got the details wrong can be the right thing to do (it depends on how detailed the details were and how many details they got wrong or right).

My argument is valid or invalid independent of how honest or dishonest I am as it does not rely on my honesty.

31

Uncle Kvetch 01.07.09 at 5:29 pm

Engels’ syllogism is, of course, in full swing once again here in the US, with regard to a certain international conflict that shall remain nameless.

32

Donald Johnson 01.07.09 at 5:54 pm

“Obviously anyone who predicted that the Iraq War would be a disaster because our conventional military would get bogged down right at the start was just wrong”

Actually, this is the point where I disagree. It was entirely possible that Saddam could have ordered his military to turn Baghdad into Stalingrad and so antiwar critics were justified in listing this as one of the reasons the Iraq War could have been a disaster. As it happened, Saddam did not do this, but there was no way to know this ahead of time. The Iraq War was virtually certain to be a disaster, but one reason we knew (or should have known) this was because there were so many different ways it could have gone wrong. People who listed those ways are not discredited because some of them didn’t happen.

That’s my point. If you think a policy is wrong, you are obligated to explain what bad consequences might ensue and if some of those consequences occur and others do not, you are vindicated, unless you predicted that all of them would certainly occur.

But I have no interest in defending the rightwingers that John Holbo is attacking. In fact, I’m attacking their argument.

33

Donald Johnson 01.07.09 at 5:56 pm

“But I have no interest in defending the rightwingers that John Holbo is attacking. In fact, I’m attacking their argument.”

Though rereading my original post, I muddled things up a bit by expressing some sympathy for Holbo’s unnamed targets.

34

engels 01.07.09 at 5:58 pm

Equating the issue of whether or not one was ‘right about Iraq’ with one’s ability to make any kind of forecast about how it would unfold in military terms seems weird to me (and maybe also a bit elitist). People had all kinds of reasons for opposing the war: the case as presented seemed like BS to them, the debate in the run up to the war had been overwhelmed with propaganda and opposing voices were being silenced, they didn’t trust Bush or the American ruling class more generally, they were opposed to aggressive war on principle, they didn’t want to offer support to US/British militarism/imperialism, etc. All these seem to be respectable reasons for refusing to sign up to it, imo, not ‘knee-jerk’ reactions that disqualify them from being credited with good judgment.

35

Donald Johnson 01.07.09 at 6:05 pm

I hope that wasn’t aimed at me, engels, but in case it was, I agree with you. “Explaining what bad consequences might ensue” can be as simple as saying “lots of people are going to die for no good reason”. But yeah, maybe my post came across as too elitist.

36

engels 01.07.09 at 6:12 pm

It wasn’t aimed you, Donald, and it was perhaps a little too hectoring in any case.

37

Sebastian 01.07.09 at 9:53 pm

“So those who quite clearly heard the drumhoofs of financial apocalypse but mistakenly thought the first rider’s name was ‘The collapse of the dollar’ didn’t really hear that guy who was actually riding up. Alternatively, on a more Kripkean view of the determination of the objects of our thoughts, it seems that critics could have been warning about the very financial crisis that we actually suffered, even if they couldn’t, in advance, give an accurate definite description. “

You say that you are generally talking about the Iraq war, and that is fine because it involves argumentation of this type.

A: I propose that we invade Iraq.
B: I object, that seems fraught with peril and unintended consequences and *we would be better off not risking it*. The peril especially includes the idea that we can’t defeat Saddam, that it will cause a civil war, or that a ridiculous number of civilians will be killed.
A: I’m ignoring you.
[time passes and we get the current state of things]
B: Wow this doesn’t look worth it.

The problem in the economic sphere is that a huge proportion of the people you are talking about (those who pegged A crisis on the dollar) really can’t get a substantially similar kind of credit. They were offering all sorts of policy prescriptions to fix the ‘dollar problem’ which would have had nearly no effect whatsoever on the actual crisis.

They are much closer to the people who say: If you smoke you’re going to die, if you eat too much fat you’re going to die, if you run near a swimming pool you’re going to slip and fall and die…

They don’t get to feel vindicated if you get hit by a bus and die. Or rather they can, but it is silly. The problem is that for the most part, predicting a falling dollar disaster has almost nothing whatsoever to do with the current disaster. If we had followed the prescriptions of the dollar alarmists it wouldn’t have made a big difference in the current crisis. The predicted an economic crisis. But like predicting ‘a death’, doing so is trivial.

Which is not to say that no one got it generally right (though almost no one realized that the fairly apparent housing market bubble in the US would cause the enormous collapse that it did). But in the example you use, people harping on the valuation of the dollar did not in broad detail even come close to diagnosing THIS economic crisis. In fact many of the policy prescriptions desired by someone who is worried about the dollar as potentially causing a financial catastrophe would have made THIS actual crisis MUCH WORSE.

38

roy belmont 01.07.09 at 10:48 pm

Given that THIS crisis isn’t all tidied up and over with it seems a little premature to describe it as a finished thing, from which fairly precise conclusions as to its nature and its fit to various predictions can be drawn. Unless Sebastian and others are privy to knowledge unavailable to the man in the street, of which I am clearly one, as to the finished and complete nature of THIS crisis.
So, given its ongoingness, MUCH WORSE remains available.
As to the specific charge of lack of specificity as regards various behavior-related warnings etc, i.e. the bus fatality, observing someone smoke crack cocaine in an increasing and daily program of indulgence it’s possible to say with confidence and concern something bad will inevitably befall them, but the range of bad outcomes is pretty vast.
Anyone telling that person well there then now bad things are on the way, should get some credit and status r.e. any further predictions, especially from that person.
As opposed to those exhibiting various enabling behaviors etc. including supply and encouragement.
As to also the Iraq war, which may seem relatively tidied up and just about over with, but what it really was, the invasion and continuing occupation and vicious destruction of infrastructure of that one country being only a symptom of a larger pathology with which we will evidently remain engaged for some time yet, it’s the same myopia that will allow us to talk about it as a finished thing, that war, when in fact that war is a stage in a processional series of actions and events still unfolding.
Yet those who spoke against it as a bad idea from the get were, and remain, correct.

39

Twin-Earth Tomas 01.08.09 at 8:20 am

Twin-earth calling. We have our own Larry Kudlow here, and he is a cleaner of public toilets in eastern Beijing in our world. We have no need for additional Larry Kudlows, especially now of the variety you people have.

I suggest you try to negotiate with Bizzaro-earth, but then I think you might have to take Bizzaro-Krugman back with you, and he is crazy i tells ya.

40

jholbo 01.08.09 at 9:55 am

Usually comment threads in which lots of people are going ALL CAPS are uncivil. I’m glad I’ve been able to channel that sort of affect in a more socially-beneficial direction: namely, indexical precision in picking out objects across possible worlds.

Right. Sebastian, you are right that it isn’t completely obvious that all doom-seers deserve credit. Fair enough. It seems to me, however, that a good analogy might be this: the boiler is about to blow up. Its not clear what valve or pipe or gasket or section of boilerplate is going to give first, but it’s bloody obvious the rumbling thing is gonna go soon enough that we should be worried about it. It seems to me that lots of people are not giving enough other people credit for noticing this, and that their excuse is the one I’m complaining about: you weren’t right unless you called the boiler bit that was going to blow first.

41

Tracy W 01.08.09 at 10:29 am

Roy, the effect of crack cocaine on individuals is far better understood than macroeconomics or financial economics. There are after all hundreds of thousands of people, if not more, who take crack cocaine, while there is only one world economy, and you can observe people who take crack cocaine directly in a way you can’t observe the economy because it’s too big and a lot of it isn’t physical. Furthermore we can do controlled medical experiments but not controlled macroeconomic experiments. Your analogy from medicine just isn’t applicable to macroeconomics or financial economics for these reasons. (As Barry presumably will not take my word for this, I suggest he, and anyone else doubting my statements here, goes out and tries to observe the economy directly.)

What macroeconomists try to do is to work backwards from predictions about the economy to figure out what the economy is truly like (sometimes of course this takes the place of reviewing historical data and seeing how it matches up with predictions, eg testing the Solow growth model). In macroeconomics, getting the prediction of a crisis right, but getting the overall dynamics wrong, tells us that the macroeconomic theory that generated the forecast was not an accurate description of the world economy. An economist who got the prediction of a crisis right, and the overall dynamics right, does deserve credit for that. Of course, we can argue over what is “overall dynamics” and what is “details”, and I suspect that macroeconomists will be doing this for decades.

42

Daniel 01.08.09 at 10:54 am

Donald makes a very important point

The Iraq War was virtually certain to be a disaster, but one reason we knew (or should have known) this was because there were so many different ways it could have gone wrong.

Here’s a free bit of investment advice; looking out for situations in which there’s a load of ways to lose money and only a few ways to make it, and avoiding them, is the basis of sensible securities analysis.

Sebastian

The problem in the economic sphere is that a huge proportion of the people you are talking about (those who pegged A crisis on the dollar) really can’t get a substantially similar kind of credit. They were offering all sorts of policy prescriptions to fix the ‘dollar problem’ which would have had nearly no effect whatsoever on the actual crisis.

Surely in your example it would have been:

A: The fundamentals of the US economy are strong, and our free market system is vastly preferable to blah blah blah.

B: I disagree and think that there’s a massive great dollar crisis on the way. I’m gonna short SP500 futures and buy yen versus USD

I would say that in this case, even though he didn’t make any policy prescriptions, B would deserve your respect, and even if you disagree he still has the money.

43

Jason 01.08.09 at 3:28 pm

So, then, you guys aren’t doing the whole “examples” thing? For future reference? You could probably just scrape S,N! a get a bunch of stuff from The Corner at bargain rates. I can’t be bothered.

44

engels 01.08.09 at 4:51 pm

It seems to me, however, that a good analogy might be this: the boiler is about to blow up. Its not clear what valve or pipe or gasket or section of boilerplate is going to give first, but it’s bloody obvious the rumbling thing is gonna go soon enough that we should be worried about it.

Oddly enough the same thing happened with the last boiler, the one before that and the one before it. And each time the people who sold me the boiler told me that this time I’d got a new model which was perfectly safe. It almost makes me wonder if there are other ways of heating my house.

45

Sebastian 01.08.09 at 5:07 pm

“Its not clear what valve or pipe or gasket or section of boilerplate is going to give first, but it’s bloody obvious the rumbling thing is gonna go soon enough that we should be worried about it. It seems to me that lots of people are not giving enough other people credit for noticing this, and that their excuse is the one I’m complaining about: you weren’t right unless you called the boiler bit that was going to blow first.”

Daniel’s example is much closer to what you are talking about. “I don’t really know what is wrong, but I think something is so I’m shorting the S&P500.”

The problem with your example however is that it essentially gets to the point of “you are going to die”. It isn’t much of a prediction. We are all going to die. “At some point in the future there will be a financial crisis” isn’t a very interesting prediction because almost anyone can predict the virtually certain. I will also confidently predict that the sun will not have ceased to burn by 5 years from now, that wind will blow the leaves from the tree in front of my yard down the canyon, and that if you smoke for a long time you will eventually die of something. These predictions are accurate in an unuseful way.

Donald’s point “The Iraq War was virtually certain to be a disaster, but one reason we knew (or should have known) this was because there were so many different ways it could have gone wrong.” is correct, but it doesn’t extend to the economic analysis so easily as you (Holbo that is) seem to want it to. Donald’s point is correct when you have a policy choice. We don’t choose to have an economy, we choose certain policies about how governments interact with the economy. “This economy is a mess” is a perfectly acceptable broad based analysis, but isn’t very helpful. “This economy is a mess because of the policies which are leading to a high dollar and we should correct that by doing X” is a different proposition entirely.

If you don’t like the current economic crisis now, you really wouldn’t like it if the US had engaged in policies along the lines of what is prescribed if you think the major problem is the dollar. It would have been this crisis plus much worse due to a deliberate tightening of the credit market by the fed. And that is the problem. The fact that we have this crisis doesn’t add credibility to people whose policy prescriptions would have made the current crisis work.

I think it will become clearer if take the analogy back to the Iraq war. There was a broad judgment in 1992 and 1993 that Islamic Terrorism was a problem. This is the level of generality of “the Economy is in trouble” that you seem to be talking about.

Now some people thought we should deal with it entirely through police procedures.

Some people thought we needed to increase spying.

Some people thought we needed to invade Afghanistan.

Some people thought that after we needed to invade Afghanistan we also needed to invade Iraq.

All of these are policy choices, influenced by the general policy judgment that “Islamic Terrorism” is a problem. You can admit that Islamic Terrorism is a problem without agreeing that invading Iraq was a good way of dealing with the problem.

Put another way, the March 11, 2004 bombings in Madrid and the July 7 2005 bombings in London (suggesting that for some definitions of Islamic Terrorism it was indeed a problem) do not validate the invasion of Iraq (a particular policy choice about how to fix it) .

Likewise, the current economic crisis (suggesting that there is something wrong with the economy) does not validate the analysis of those who thought the problem was the dollar. Their prescription would have made things worse. Being right about the general problem just can’t be considered impressive when your prescription would have made things worse.

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dsquared 01.08.09 at 5:41 pm

The problem with your example however is that it essentially gets to the point of “you are going to die”. It isn’t much of a prediction. We are all going to die. “At some point in the future there will be a financial crisis” isn’t a very interesting prediction because almost anyone can predict the virtually certain.

Counterpoint: Predicting a financial crisis is almost the most interesting type of prediction you can make if you’re prepared to put your money where you’re mouth is, and the great thing is that you always do, in fact, get an answer about whether you’re right or wrong, in the form of money. Someone who had made this prediction and acted on it would definitely be in a position to say to Sebastian “If I’m not smart, how come I’m so rich?”. (and it is clearly not a situation like a casino game; it’s more like a racetrack)

Furthermore, implicit in the prediction “I think there’s going to be a financial crisis so I’m short SP500” is the prediction “I think that said financial crisis is going to arrive before the next big leg up, which would obviously kill my short futures position”. This isn’t a trivial prediction at all – someone who predicted in 1998 that dot com stocks were going to crash would have lost their shirt and their job (and several did).

I will also confidently predict that the sun will not have ceased to burn by 5 years from now, that wind will blow the leaves from the tree in front of my yard down the canyon, and that if you smoke for a long time you will eventually die of something. These predictions are accurate in an unuseful way.

“Money talks and bullshit walks” (proverb)

If you don’t like the current economic crisis now, you really wouldn’t like it if the US had engaged in policies along the lines of what is prescribed if you think the major problem is the dollar

Not at all true. Lots of people (Brad Setser, for one, I think) thought that the current crisis would take the shape of a dollar crash and back in 2002 were arguing for an overall tighter monetary policy stance[1] which would have prevented a bubble from forming. When the bubble was in full inflation, they didn’t have a “policy solution which would make things better”, but this isn’t their fault (just as I remember losing my temper in 2004/5 with you personally because you kept asking for “constructive solutions” in Iraq).

[1] Which would obviously have been much easier to accomodate if we hadn’t been trying to finance the Iraq War, by the way.

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Justin 01.08.09 at 6:01 pm

I’m pretty sure that Ross Douthat has pulled some version of the “you were right, but not about the details” with regard to the Iraq War. I’m not gonna dig through his archives for the citation, so I hope I’m not slandering him.

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Sebastian 01.08.09 at 6:02 pm

“were arguing for an overall tighter monetary policy stance[1] *which would have prevented a bubble from forming*.”

It would have taken a dramatically tighter money policy to keep that particular bubble from forming, especially with all of the “everyone should own their own home” policy that was coming from both the left and the right at the time. And even then you haven’t demonstrated that it would have stopped the bubble from forming, as bubbles seem to be a pretty common occurrence in all sorts of different economic structures. This is especially true as the crisis in Europe is much less tied to the housing bubble and much more tied to other risky asset investments suggesting that there is something more to this than Americans and housing prices.

Now dramatically tighter monetary policy may have prevented the housing bubble, but at what cost? If approaching German levels of unemployment for a short period of time is indicative of a disaster in the US (and I would suggest that it is), would it be better to have had that all along for the past six years?

Maybe it would have been. But at least for unemployment, we haven’t even gotten to the point now where a dramatically tighter monetary policy would have had has for 5 or 6 years. So again, economics is about tradeoffs. And we should be rather more explicit about what they are don’t you think?

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Daniel 01.08.09 at 6:39 pm

So again, economics is about tradeoffs

but if you didn’t think that there was a crisis forming, then what would there have been to trade off? And if you did think there was a crisis forming, isn’t there an important sense in which you can be considered to have been “right” and people who disagreed with you “wrong”?

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doug 01.08.09 at 6:41 pm

Thanks for an engaging read, everyone. Good comment thread.

Holbo: it was Arthur who said, “We’ll call it a draw,” not the Black Knight. Strikes me as probably the only time I’ll spot a miffed pop-culture reference in your posts…

Opportunity duly seized upon ;]

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John Quiggin 01.08.09 at 8:23 pm

Following up on Daniel and Sebastian, the alternative response to the dollar crisis/housing bubble, instead of raising interest rates to burst the bubble, was to reregulate the financial sector as Stephen Bell and I proposed in 2006.

More generally, the point that housing bubble was the product of international financial imbalances was common ground – it’s Bernanke’s “global savings glut” analysis. The point of dispute was between those who correctly used terms like “bubble” and “imbalance” and those who thought that the housing boom was great and that the capital flows were a rational global allocation (or, in Bernanke’s case, a rational response to a Chinese domestic economic problem of excess savings).

Coming back to the original post, here at CT, just about all of our regular quasi-libertarian commenters has pulled the “inexact prediction” gambit. Sebastian was a late entry, but he completes the set I think.

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Sebastian 01.08.09 at 9:16 pm

“Coming back to the original post, here at CT, just about all of our regular quasi-libertarian commenters has pulled the “inexact prediction” gambit. Sebastian was a late entry, but he completes the set I think.”

Maybe. I’m willing to give an “I was wrong, you were right” about Iraq. I’m not as willing to give an “I was wrong all the financial doomsayers were right” about the financial crisis. I was pretty worried about the housing bubble, that was clearly a bad thing (you even agree with Jane Galt from years ago on that) but I didn’t believe that it would cause problems nearly this big. So for the very few people who predicted that, they were right. For people who seem to think that this vindicates them on a whole range of leftist economic points, not so much.

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Watson Aname 01.08.09 at 9:52 pm

Sebastian, how do you feel about people who have been decrying the deregulation kick of the last decades, and/or the rise of CDOs or the like? Is saying that this will all lead to grief in the long term enough for you, or do you require a mechanism for the collapse to consider them “right” ?

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Sebastian 01.08.09 at 10:28 pm

It kind of depends on what you mean by decrying the deregulation kick. The problem with philosopical deregulation is the same as that with philosophical regulation: being dogmatic doesn’t get you good outcomes. Good regulation (mostly targeting transparency) can be greatly useful. Bad regulation (often dictating outcomes) isn’t. It depends on what stance you were taking when decrying the deregulation kick. If your point was that, yes overregulation can cause problems, but we are going too far because of X and it turns out that is somewhat related to the collapse (and it very well may be) then sure. But if your solutions were Sarbanes-Oxely type regulations I’m not as convinced that you really were anywhere near the real problems.

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roy belmont 01.08.09 at 11:55 pm

Somewhere tonight some abject crackhead, having eaten only two Big Macs in the last five days, is sucking on a glass tube full of highly stimulating highly toxic smoke, right next to a cheaply-made, made to be sold rather than to last, and ill-maintained, because the maintenance staff no longer believes in much, boiler which has had its governor and its escape-valve disabled .
Heads up.

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engels 01.09.09 at 12:13 pm

Of course, I’d hate to put the boiler company out of business after everything they’ve done for people like me over the years. I suppose that would be a regrettable, unintended consequence.

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Sebastian 01.09.09 at 4:32 pm

Apartments in New York heat themselves amiright? ;)

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