Three of the costliest policy failures in recent decades—the 2008 financial crisis, the Covid lockdowns and the campaign for rapid decarbonization—share a pathology we call the Consensus Trap. Problems began with the output of complex, unvalidated models presented as facts. Institutions and public figures under pressure to appear authoritative ignored uncertainties. Along with the press, these institutions and people became arbiters of truth, amplifying the declared consensus rather than critically assessing the evidence. Once “the science” was declared, dissent was treated as misconduct.
In all three cases, as we examine in a paper with Terrence Keeley, the consensus was wrong and the public suffered severe consequences, while the architects of failure avoided accountability. The 2008 crisis is the clearest example of a Consensus Trap in economic policy. Political incentives to expand homeownership, fee-driven enthusiasm on Wall Street, and Basel II capital rules built around rating-agency models combined to make a multitrillion-dollar subprime structure look safe when it was fragile.
When economist Raghuram Rajan warned at Jackson Hole, Wyo., in 2005 that the system could crack, Lawrence Summers dismissed his premise as “slightly Luddite.” Mr. Rajan was right. Millions of workers lost their jobs, and millions more lost their homes. Taxpayers paid for enormous bailouts, and no top executive of a major Wall Street bank went to prison. Scientists are as prone as anyone else to groupthink, and stifling dissent often produces disaster.
Source: Wall Street Journal Markets · Summarized by HeadlinesBriefing