Even Mr. Paulson, for all his Wall Street experience and market savvy, occasionally appears flummoxed by the scale and complexity of the current crisis.
"Funny," she remarked. "You and I are humble parish priests, and yet we saw this coming two years ago. Why is one of the world's most powerful money-men flummoxed?"
She was quite correct as to the fact; two summers back, flush with prenatal nesting hormones, we had briefly considered the purchase of a home. Eventually, however, we decided not to buy, because it was clear to us that said home -- although attractive and so beautifully located that it breaks my heart to think of it -- had been dramatically overpriced by a market that was already weakening. Although we could have obtained a mortgage, the terms would have included provisions for low initial rates followed by much higher ones within a few years, and that was plainly foolish.
In other words, two naive and unsophisticated potential buyers, armed with nothing but the facts available from the Times and a few visits to a realtor, could see the housing bubble beginning to burst, and could project from that the inevitable crisis which would affect both families that had accepted predatory mortgages, and banks which had bundled those mortgages into securities. None of it made sense, even to us.
So how did the world banking community miss it? And why are they "flummoxed" today?
This is just one among many recent instances of policy failures which appeared likely from the outset to even casual observers, but which have surprised the supposed experts.
For example, beginning the in the mid-1970s, it was pretty obvious to Father A., then a schoolboy in short pants, that an economy based upon fossil fuels was not viable over the long term. There were three reasons, both obvious and widely discussed at the time: (a) carbon emissions (or as we said in those days, "air pollution"); (b) a finite supply which could not keep pace with a rapidly escalating demand; and (c) the political instability of the region from which much of our petroleum was purchased. One need not have been a child during the oil embargo to have seen all this clearly, but it may have helped. But all you really needed was a subscription to the Mother Earth News, which ran monthly articles on the fiscal virtue of energy derived from the sun and wind. Father A. recalls a college course on environmental physics in which, after examining the evidence (all of it available in a textbook by then) and doing a few basic equations, the only policy question left was whether to ditch petroleum in favor of solar or in favor of nuclear.
So if a teenager knew that stuff thirty years ago, why is the government still not stepping up the plate with some serious R&D funding for wind farms and the like?
By the late 1980s, well ahead of the curve, Father A. -- by then, an adventurous young man with a proclivity for visiting exotic places -- had observed the popularity of light trucks fitted out as luxury cars in Haiti and Central America, and predicted the later rise of the American SUV. But, already having thought through the environmental and financial implications, he always knew the craze would end abruptly, and that the market for used gas-guzzlers would shrivel to nothing. So he feels no pity for the US auto industry, which -- already in peril -- chose to stake its fortune on the dumbest vehicle it possibly could.
The list goes on. Iran-Contra didn't surprise anybody who had paid attention to (a) the Reagan Administration's support for Central American death squads and insurgencies, as well as (b) Reagan's own strained relationship with facts. Airline deregulation hasn't worked out so well, either. We've always argued that federal subsidies for highways over railroads are perverse, and suddenly we're not alone on that, either.
Now, in all fairness, we have sometimes been wrong. Despite our prediction, Bush I's Gulf War is generally considered a success, by everybody except the soldiers with a mysterious illness for which no cure is known, and the land itself, now littered with depleted uranium.
But the big one, still, is Iraq. In the months preceding the US invasion of Iraq, a great many people, both in the United States and outside it, argued forcefully that the war would be a mistake. These arguments followed several main lines: (a) America had been attacked by stateless terrorists based in Afghanistan, Pakistan and the Sudan, so we needed to focus our attention on those people and those places; (b) a war in Iraq would be a drain on America's financial resources and the human resources of the military; (c) the status of Iraq's weapons of mass destruction was unclear, but a significant minority doubted their existence, and UN inspectors -- the people with the most detailed first-hand information -- practically begged for more time to do their work. (Does anybody even remember Hans Blix and Scott Ritter anymore?)
The Bush Administration either ignored these concerns, or responded to them with deceit and misdirection. A link between Iraq and 9/11 was widely adverted, most notably by Dick Cheney, the member of the Administration likeliest to become fabulously wealthy if a war ensued. Congress was assured that the adventure would be brief ("Six days, maybe six weeks, I doubt six months") and self-financing. Colin Powell stood before the UN and showed maps, photographs and scary white powder, all meant to somehow "prove" the existence of the WMDs that didn't exist.
Now, we at the Egg don't claim to be prophets. (Nor are we knee-jerk peaceniks; ask us about Afghanistan sometime). When we worried that the pending invasion would be a mistake, we were not by any means a lone voice crying in the wilderness. Millions of people in hundreds of cities all over the world took to the streets in protest, making the same statement. Pope John Paul II sent his special envoy, Pio Cardinal Laghi, to ask Bush personally not to begin a war, which would be a "defeat for humanity" and neither legally not morally just.
But the war happened anyway, and it is a mess of historic proportions, one which -- along with our financial woes, and the rise of our Asian competition -- bids fair to reduce America's prosperity at home and influence abroad, quite possibly signaling the beginning of the end of American hegemony.
And so our question is: Aren't these people experts? So why -- if a paunchy cleric with neither economic nor scientific training can routinely predict the failure of an American policy -- are the supposed experts who run our government and our large corporations routinely unable to do so? And if they aren't experts, why do we let them run things?