Posner's A Failure of Capitalism -- X
Chapter eight of Failure tries to answer the question why economists did not anticipate trouble. Aside from a few outliers (Judge Posner mentions Nouriel Roubini, Raghuram Rajan, Paul Krugman, Martin Feldstein, and Robert Shiller), economists "whether in academia, the government, or business" gave warnings too late or not at all.
In Judge Posner's opinion, this failure to see what was approaching arose not from "obtuseness" (he acknowledges that "the leading macroeconomists and finance theorists are brilliant people"), but from "disbelief" that we were facing anything more than another manageable recession. Likewise, the failure to warn did not result from over-reliance on "abstract mathematical models." Many of the economists under consideration had real-world experience with financial markets.
One cause that Judge Posner offers is something he has mentioned before: "an overinvestment . . . in a free-market ideology that opposes aggressive governmental interventions in the operation of the economy." Yet he is quick to add that free-market leanings are not confined to conservatives -- "economists can be liberal in the sense of being egalitarian and favoring redistributive policies without wanting to regulate corporate practices."
He also notes that depressions are not well understood; they're hard to model and occur rarely, in disparate settings that are not readily comparable. Consequently, a preference for one theory over another will be more than usually influenced by "preconceptions." The public and politicians have no basis for crediting one position or another -- they "wander in an untracked wilderness."
Nonetheless, current experiences add to our stock of data. Judge Posner offers Ben Bernanke as an example of a "conservative economist" who has "come to doubt that a depression can be averted or cured by monetary policy alone." Unspoken is that Judge Posner himself, while not by profession an economist, could be added to the list of those who have altered their views based on events.