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David Korowicz: Ignorance by Consensus

November 19, 2012 • Daily Email Recap

Below is an essay by David Korowicz, titled “Ignorance by Consensus“, which points out, among other things, the relationship between “consensus” and “fringe” opinions on the state of affairs on our planet.

Ignorance by Consensus

The current economic situation is in many ways better than what we have experienced in years. Against that background, we have stuck to the rebalancing scenario. Our central forecast remains indeed quite benign: a soft landing in the United States, a strong and sustained recovery in Europe, a solid trajectory in Japan and buoyant activity in China and India. In line with recent trends, sustained growth in OECD economies would be underpinned by strong job creation and falling unemployment.

OECD Economic Outlook 2007: “GNP growth will average around 3.75% per annum between 2008-2015 – even if there is a down- turn and US instability.

The above quotes might give one cause for derision. How could such acknowledged experts, well resourced, stuffed with economists and consulted by governments, get things so wrong?

Especially when the risk at issue, the popping of a credit bubble, was about as vanilla as an economist could get. So precisely wrong too, certainly not 3.5% or 4%!

In reality quite a few people saw the risk of the bubble bursting, some not even professional economists, but they tended to operate on the fringes of established consensus, and by extension, a social periphery. Thus their views could be dismissed precisely because they represented a fringe view. In such a way consensus defends itself.

A consensus becomes established out of the persistence of what it attempts to describe. It is inherently retrospective. It tends to assume that what has been, must continue. A couple of decades of low interest rates and stable global economic growth, and well, it becomes the natural order of things. Here’s Ben Bernanke in 2005:

“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….”

Of course subsequent events proved that just because something never happened before does not mean it could never happen.

Please see here for full essay:

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