So these three graphs, in my non-expert opinion, show us exactly What's Wrong with America's Economy:

The short version is this: We used to be a nation that saved more money, consumed fewer goods and produced more stuff. Generally speaking, from the '30s through the '70s we had either trade surpluses or modest trade deficits and we saved more than we consumed. Starting in the Reagan era, though, all that began to change. Our personal consumption rates went up, our saving rates went down and we started running ever-widening trade deficits.

Or put more simply, we bought a lot of cheap crap from overseas while letting our own productive capabilities rot. In place of creating useful stuff, our economy came to rely more and more on stupid bulls*** to maintain our standard of living. So instead of having General Motors or John Deere as our major economic drivers, we came to rely on Pets.com stock certificates and synthetic collatoralized debt obligations. Oh, and of course we took advantage of ever-expanding home prices to finance more consumption by essentially using our homes as credit cards. Needless to say, as we've seen since the fall of 2008, basing your economy on stupid bulls*** isn't all that sustainable.

I bring this up because there have been a great many people in the economics profession who have actively encouraged the transition to a bulls***-based economy and who continue to hold positions of high power and influence despite the fact that they've been proven disastrously wrong. One such economist is Austan Goolsbee, whom President Obama just tapped to chair his Council of Economic Advisers. For those of you unfamiliar with Goolsbee, this op-ed tells you pretty much all you need to know about him. It was written in March, 2007 and it heaped praise upon the financial wizards whose ingenious innovation gave us the massive expansion of the subprime loan market. No, really:

‘Irresponsible’ Mortgages Have Opened Doors to Many of the Excluded By AUSTAN GOOLSBEE

March 29, 2007 “We are sitting on a time bomb,” the mortgage analyst said — a huge increase in unconventional home loans like balloon mortgages taken out by consumers who cannot qualify for regular mortgages. The high payments, he continued, “are just beginning to come due and a lot of people who were betting interest rates would come down by now risk losing their homes because they can’t pay the debt.” He would have given great testimony at the current Senate hearings on subprime mortgage lending. The only problem is, he said it in 1981 — when soon after several of the alternative mortgage products like those with adjustable rates and balloons first became popular. When Senator Christopher J. Dodd, Democrat of Connecticut, gave his opening statement last week at the hearings lambasting the rise of “risky exotic and subprime mortgages,” he was actually tapping into a very old vein of suspicion against innovations in the mortgage market. Almost every new form of mortgage lending — from adjustable-rate mortgages to home equity lines of credit to no-money-down mortgages — has tended to expand the pool of people who qualify but has also been greeted by a large number of people saying that it harms consumers and will fool people into thinking they can afford homes that they cannot. Congress is contemplating a serious tightening of regulations to make the new forms of lending more difficult. New research from some of the leading housing economists in the country, however, examines the long history of mortgage market innovations and suggests that regulators should be mindful of the potential downside in tightening too much. A study conducted by Kristopher Gerardi and Paul S. Willen from the Federal Reserve Bank of Boston and Harvey S. Rosen of Princeton, Do Households Benefit from Financial Deregulation and Innovation? The Case of the Mortgage Market (National Bureau of Economic Research Working Paper 12967), shows that the three decades from 1970 to 2000 witnessed an incredible flowering of new types of home loans. These innovations mainly served to give people power to make their own decisions about housing, and they ended up being quite sensible with their newfound access to capital.

You get the idea.

Basically, the financial "innovation" that Goolsbee praises was nothing more than alchemy. Lenders didn't have to worry about enforcing lending standards since they could effectively shield themselves from the consequences of crappy loans by shipping them directly to Wall Street to be repackaged as mortgage-backed securities that were then put into collatoralized debt obligations and similar financial instruments of mass destruction. This, in turn, fed the housing bubble, which in turn spurred lenders to hand out even more absoludircrous mortgages. The result was the biggest economic crash since the Great Depression.

Now, I know that a lot of very prominent people were incorrect about the dangers that multi-trillion dollar housing bubbles posed to the US economy. But throughout last the decade there were people like Dean Baker and Nouriel Roubini who were screaming bloody murder about the impending implosion of the US housing market. Perhaps it would be better to appoint people like them to key economic positions rather than the people who were wrong about everything*? It's just a thought.

*OK, so Goolsbee isn't literally wrong about everything. But he, like most of the economics field, were wrong about the housing crash. And in my book that's a pretty significant thing to be wrong about. Perhaps it's time to look around for more outside-the-box types who were right about this stuff.