A decade after the beginning of the global financial crisis, I have come to realize the inability of macroeconomists to understand the role of transparency in the global financial system has only three possible explanations.
First, Upton Sinclair was absolutely right when he observed:
It is difficult to get a man [or woman] to understand something, when his [her] salary depends on his [her] not understanding it.
Second, the inability of macroeconomists to understand the Information Matrix is group think driven hubris. Group think driven hubris allows macroeconomists to dismiss as unworthy any ideas originating from someone who isn’t a PhD economist. Of course, this is ironic when you realize Adam Smith, Walter Bagehot, and John Maynard Keynes between them did not have a PhD in economics.
Third, confessing they don’t understand transparency and the role it plays in preventing and ending financial crises would also open the door to the realization the policies championed by the economics profession for responding to the Great Financial Crisis have actually made it worse.
Readers might rightly ask why did it take me a decade to realize this about the macroeconomics profession?
Call it the triumph of hope over experience. Having worked with many macroeconomists while at the Fed and having met since the crisis began dozens more who work in academia, for financial regulators, in think tanks and as columnists, I kept hoping these otherwise very bright people wouldn’t fall into one these categories. Unfortunately, they do.
By the way, outside of the macroeconomics profession, the Information Matrix is readily understood. Not only is it understood, but the reason for why the global financial system is designed based on transparency is also understood.
This fact should be troubling for all economists because it strongly suggests macroeconomists and by extension they too do not have a clue what they are talking about. A suggestion that is confirmed by the macroeconomics profession’s failure to see the financial crisis coming and the failure of its policy recommendations to generate a self-sustaining recovery.