Why Economics Failed, by Krugman
Last edited Fri May 2, 2014, 12:02 PM - Edit history (1)
On Wednesday, I wrapped up the class I’ve been teaching all semester: “The Great Recession: Causes and Consequences.” (Slides for the lectures are available via my blog.) And while teaching the course was fun, I found myself turning at the end to an agonizing question: Why, at the moment it was most needed and could have done the most good, did economics fail?
I don’t mean that economics was useless to policy makers. On the contrary, the discipline has had a lot to offer. While it’s true that few economists saw the crisis coming — mainly, I’d argue, because few realized how fragile our deregulated financial system had become, and how vulnerable debt-burdened families were to a plunge in housing prices — the clean little secret of recent years is that, since the fall of Lehman Brothers, basic textbook macroeconomics has performed very well.
But policy makers and politicians have ignored both the textbooks and the lessons of history. And the result has been a vast economic and human catastrophe, with trillions of dollars of productive potential squandered and millions of families placed in dire straits for no good reason. . .
So why didn’t we use the economic knowledge we had?
One answer is that most people find the logic of policy in a depressed economy counterintuitive. Instead, what resonates with the public are misleading analogies with the finances of an individual family, which is why Mr. Obama began echoing Mr. Boehner.
And even supposedly well-informed people balk at the notion that simple lack of demand can wreak so much havoc. Surely, they insist, we must have deep structural problems, like a work force that lacks the right skills; that sounds serious and wise, even though all the evidence says that it’s completely untrue.
Meanwhile, powerful political factions find that bad economic analysis serves their objectives. Most obviously, people whose real goal is dismantling the social safety net have found promoting deficit panic an effective way to push their agenda. And such people have been aided and abetted by what I’ve come to think of as the trahison des nerds — the willingness of some economists to come up with analyses that tell powerful people what they want to hear, whether it’s that slashing government spending is actually expansionary, because of confidence, or that government debt somehow has dire effects on economic growth even if interest rates stay low.
Whatever the reasons basic economics got tossed aside, the result has been tragic.
http://www.nytimes.com/2014/05/02/opinion/krugman-why-economics-failed.html?hp&rref=opinion
= new reply since forum marked as read
I guess it was late when I posted it! Did edit the title.
