In the last six months I have heard that the current economic crisis proves that free market capitalism is a failure. I have also heard that it proves that government intervention is responsible for market booms and busts. I have read that the causes of the current crisis are greed, irrationality, easy money, low interest rates, preverse incentives, complex financial instruments, subprime mortgages, people believing that house prices would always rise, people insisting that houses must be made affordable, the US congress laws that force banks to provide a certain percentage of subprime mortgages, the capital ratio requirements on banks being less for subprime mortgage backed securities than for prime mortgages, the distortion of mortgage lending by government sponsored entities (Freddie Mac and Fannie May), the lack of an exchange for credit default swaps creating un-noticed systemic counterparty risk, mark to market valuation of bank assets, too little government regulation, too much government regulation, the government scaring us, the government not scaring us enough, the lack of a bail out (stock market falls) , the delay of a bail out (stock market continues to fall), and the bail out (stock market carries on down).
Why am I talking about this? Because these circumstances are precisely the kind in which we in general and experts in particular indulge in a certain kind of epistemic irresponsibility: over-confidence in belief. When the stakes are high and circumstances highly uncertain it appears that we can hardly bear to conform our belief to the uncertainty. Paradoxically, uncertainty turns us to dogmatism.
What, then, should I believe? A first reply is that perhaps I shouldn’t believe anything. The problem here is that various proposals by governments require my tacit or explicit approval or rejection (if only retrospectively via the ballot box) and so it is not clear that I can suspend all belief. For whatever happens, I will have to assess not only how it has turned out but how it would or might have turned out had the government acted otherwise, and any such counterfactual assessment requires some beliefs about the nature and causes of what happened.
Maybe instead of worrying about what to believe I should instead decide who to believe? Perhaps some of the people offering explanations know what they are talking about, and if they do know then they would be worth believing. How can I know if someone is worth believing if I cannot myself assess the claims they make? Here I will rely on the social institutions that certify the epistemic standing of experts. Unfortunately, that doesn’t help very much. There is not much agreement between warranted economic experts. Each of the many explanations mooted sounds plausible, until one notes that they could just as well be post-hoc rationalisations. They pick factors which have been in place for some time, human constants such as greed, particulars of governmental regulation and features of financial institutions, which factors taken in isolation might lead us to expect the crisis, but which do not exist in isolation: they are, rather, accompanied by many other factors which might lead us to expect the opposite. Various doomsayers believe themselves vindicated, but many have been saying the same thing for many years. Nor do I feel much confidence that time will improve the situation greatly. As far as I can tell, whilst there is some agreement that, for example, protectionism in response to the great depression was a very bad mistake, there is still not much agreement on the causes of the depression nor on whether the most of the actions of Hoover and Roosevelt were a hindrance or a help.
I think there are two significant causes of our special epistemic difficulties here. The first is that because the economy is immensely complex, when it is in turmoil it provides copious evidence pointing in all directions. Consequently, and despite some agreement on method and weighting of evidence, expert opinion is rather weakly constrained by evidence. Secondly, on any issue for which the stakes are high, most of us have strong preferences, based on our view of the good, about how we would like things to be. We would like our view of the good vindicated by the way the world works. In a situation in which evidence is only weakly constraining, wishful thinking will lead us all down our preferred ideological path. This is as true of experts as of anyone.
Of course, what we want from experts is for them to be objective, to tell us the truth despite their preferences. Academic subjects are disciplines precisely to the extent to which they discipline experts to be objective, and the discipline is exerted by constraining what members of the discipline can get away with without looking silly in front of their peers. But when evidential constraints are weak, what can be got away with is wide. Consequently, exactly when we most need the objectivity of experts can be when we least have it.
It seems to me, then, that nobody really knows what is going on. We don’t know why what happened happened, we don’t know to what extent the crisis is a response to crisis mongering and to what extent it relates to fundamentals, and we don’t know what to do about it. We presently have a bad macroeconomic phenomenon when nobody knows of any reliable macroeconomic levers by which to control that phenomenon, indeed, nobody knows whether there is any such thing as a macroeconomic lever with reliably predictable effects.
Not only is our circumstance economically hazardous, but it is also epistemically precarious: we don’t know what to believe, we don’t know who to believe and we are tempted to believe whoever will promise to deliver our preferred ideological outcome. Epistemic precariousness increases the general hazard. We are faced with uncertainties we can’t resolve and of which we are intolerant. Dogmatism and ideological wishful thinking make us less flexible and less responsive than we should be given our state of ignorance. We will be inclined to consider a narrower range of actions than we ought and when we do things which make things worse we will be inclined to ignore the evidence that they are not working.
What, then, should we believe? I don’t know, but I think we can say this much: What is needed in the face of a hazard that is epistemically precarious is not the unwarranted epistemic pride to which we are prone, but is, rather, epistemic humility. Unfortunately, as we have seen, when we need epistemic humility most is when it is most difficult for us to have it.