Another response to the Queen:
When you visited us last year you asked why economists were so useless – although you were kind enough not to put it that way. ...
You asked why we failed to predict the credit crunch. ...[L]et us assume that we had predicted the credit crunch.
What would have been the result? Would bankers have heeded our warnings? Would regulators have confronted the banks? Would craven politicians have acted to limit a popular credit boom? We think not.
So we cannot be said to have failed ... since the outcome would have been the same. To speak up, therefore, would have been an inefficient use of our resources.
With no incentive to deliver the warning, we instead all went off and wrote books like Freakonomics about how economics can explain the real world. They may not have done much to avert the crunch but they did very nicely for us, thank you.
So the question, your Majesty, is not why did we fail to predict the crunch but why did you all fail to incentivise us to predict it?
In highlighting the right question to ask, we hope we have shown you the true value of economists. ...