As I discussed in a recent post, we need to be sure what caused the Great Recession if we are to decide upon the best means to return to a growing economy and reduce unemployment.
In this light, it’s worth considering that those who predicted the recession are probably worth listening to – and that those who thought the economy was functioning just fine during the boom are perhaps not.
Ben Bernanke, the head of the US Federal Reserve, has this to say in 2005:
INTERVIEWER: Tell me, what is the worst-case scenario? Sir, we have so many economists coming on our air and saying, “Oh, this is a bubble, and it’s going to burst, and this is going to be a real issue for the economy.” Some say it could even cause a recession at some point. What is the worst-case scenario, if in fact we were to see prices come down substantially across the country?
BERNANKE: Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So what I think is more likely is that house prices will slow, maybe stabilize: might slow consumption spending a bit. I don’t think it’s going to drive the economy too far from its full employment path, though.
This was just one of a set of seriously bad predictions. Should we trust him to steer the US economy through setting interest rates and quantitative easing when he cannot even detect the presence of the housing bubble?
Meanwhile, Peter Schiff, an American businessman, predicted the crisis numerous times leading up the bust:
What of the politicians? Of the Republican candidates, only Ron Paul saw the recession coming. Mitt Romney hasn’t got a clue. And of course Obama subscribes to the Keynesian model that caused the crisis in the first place.