When Prophecy Fails
By PAUL KRUGMAN
Back in the 1950s three social psychologists joined a cult that was
predicting the imminent end of the world. Their purpose was to observe
the cultists’ response when the world did not, in fact, end on schedule.
What they discovered, and described in their classic book, “When
Prophecy Fails,” is that the irrefutable failure of a prophecy does not
cause true believers — people who have committed themselves to a belief
both emotionally and by their life choices — to reconsider. On the
contrary, they become even more fervent, and proselytize even harder.
This insight seems highly relevant as 2012 draws to a close. After all, a
lot of people came to believe that we were on the brink of catastrophe —
and these views were given extraordinary reach by the mass media. As it
turned out, of course, the predicted catastrophe failed to materialize.
But we can be sure that the cultists won’t admit to having been wrong.
No, the people who told us that a fiscal crisis was imminent will just
keep at it, more convinced than ever.
Oh, wait a second — did you think I was talking about the Mayan calendar thing?
Seriously, at every stage of our ongoing economic crisis — and in
particular, every time anyone has suggested actually trying to do
something about mass unemployment — a chorus of voices has warned that
unless we bring down budget deficits now now now, financial markets will
turn on America, driving interest rates sky-high. And these prophecies
of doom have had a powerful effect on our economic discourse.
Thus, back in May 2009 the Wall Street Journal editorial page seized on
an uptick in long-term interest rates to declare that the “bond
vigilantes,” the “disciplinarians of U.S. policy makers,” had arrived,
and would push rates inexorably higher if big budget deficits continued.
As it happened, rates soon went back down. But that didn’t stop The
Journal’s news section from rolling out the same story the next time
rates rose: “Debt fears send rates up,” blared a headline in March 2010;
the debt continued to grow, but the rates went down again.
At this point the yield on the benchmark 10-year bond is less than half
what it was when that 2009 editorial was published. But don’t expect any
rethinking on The Journal’s part.
Now, you could say that The Journal’s editors didn’t give a specific
date for the fiscal apocalypse, although I doubt that any of their
readers imagined that they were talking about an event at least three
years and seven months in the future.
In any case, some of the most prominent deficit scolds have indeed been
willing to talk about dates, or at least time horizons. In early 2011
Erskine Bowles confidently declared that we would face a fiscal crisis
within around two years unless something like the Bowles-Simpson deficit
plan was enacted, and Alan Simpson chimed in to say that it would be
less than two years. I guess he has about 10 weeks left. But again,
don’t expect either Mr. Simpson or Mr. Bowles to admit that there might
have been something fundamentally wrong with their analysis.
No, very few of the prophets of fiscal doom have acknowledged the
failure of their prophecies to come true so far. And those who have
admitted surprise seem more annoyed than chastened. For example, back in
2010 Alan Greenspan — who is, for some reason, still treated as an
authority figure — conceded that despite large budget deficits,
“inflation and long-term interest rates, the typical symptoms of fiscal
excess, have remained remarkably subdued.” But he went on to declare,
“This is regrettable, because it is fostering a sense of complacency.”
How dare reality not validate my fears!
Regular readers know that I and other economists argued from the
beginning that these dire warnings of fiscal catastrophe were all wrong,
that budget deficits won’t cause soaring interest rates as long as the
economy is depressed — and that the biggest risk to the economy is that
we might try to slash the deficit too soon. And surely that point of
view has been strongly validated by events.
The key thing we need to understand, however, is that the prophets of
fiscal disaster, no matter how respectable they may seem, are at this
point effectively members of a doomsday cult. They are emotionally and
professionally committed to the belief that fiscal crisis lurks just
around the corner, and they will hold to their belief no matter how many
corners we turn without encountering that crisis.
So we cannot and will not persuade these people to reconsider their
views in the light of the evidence. All we can do is stop paying
attention. It’s going to be difficult, because many members of the
deficit cult seem highly respectable. But they’ve been hugely, absurdly
wrong for years on end, and it’s time to stop taking them seriously.
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