Let’s Blame Keynes

I was looking at Steven Landsburg’s BLOG today (he’s an economist at the University of Rochester), and he had some interesting quotes from the BIG THINK website on the financial crisis.  These are from an interview with hedge fund manager Peter Thiel:

I believe the villain is Keynes and there was a Keynes line that in the long run we are all dead. Whether or not that is true, I believe that in the long run Keynesianism will be dead and that the problem with never thinking about the long run is that in the long run, the short run becomes the long run. And I wonder whether the crisis of 2008-2009 was not just a crisis about finance or about technology, but also a crisis about short run thinking and it was a point in time where short run thinking had run out and there was no more time to think about the short term and that actually a lot of long term problems we have been putting off and deferring had finally come home to roost.

There were many people who failed to understand the housing bubble. I think that there were many different reasons because we were trying to analyze the psychology of it. The one that I find fascinating is why, how it was possible to have a housing bubble only five years after we had a tech bubble. One would have thought that you could not have had the same kind of massive financial delusion happen within five or six years. And normally, you require all the people who lived through one of these things to die before you can have this happen again and one would have thought nothing would happen for 50 or 60 years. So, I think the fascinating question in my mind is why this happened. I’m tempted to give sociological answers along the lines that the baby-boomers were America’s dumbest generation ever, but I don’t really know – I don’t have a good answer on why.