
Paul Krugman on How did Economists get it so wrong ? - anirudh
http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?_r=1&hp=&pagewanted=print
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mynameishere
_In late nineteenth century, the term "political economy" was generally
replaced by the term economics,_

<http://en.wikipedia.org/wiki/Political_economy>

Economics isn't a science. Physicists can agree on 99.99 percent of what they
talk about, and the other .01 percent is agreed to be unknown or arguable.
Economists can barely, just barely, hold a tenuous consensus on things like
comparative advantage. The reason economists "get it wrong", is:

1\. They want to direct the money into XYZ set of pockets instead of ABC set
of pockets, thus they're always "wrong" as for as ABC is concerned, and

2\. They don't have the predictive consistency typical of scientists
because...they aren't scientists.

~~~
yummyfajitas
Physicists working on something close to relativity, mechanics, E&M or QM (not
including foundations of QM) can agree on 99% of what they talk about.

Systems biologists can't, nor can climate scientists, oceanographers,
ecologists, geophysicists or astronomers.

A few fields (namely the ones taught to physics majors) have a simple unified
theory that every sane person can agree to. The rest are messy, much like
economics.

~~~
roundsquare
> Systems biologists can't, nor can climate scientists, oceanographers,
> ecologists, geophysicists or astronomers.

Notably, all fields where you can't do controlled experiments.

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chasingsparks
I just ordered Krugman's book, so this is a premature hypothesis but: I think
Krugman says things he knows to be false but thinks are worth saying in order
to pull the median voter towards his line of thinking. His NYT editorials are
not only written for a general audience, but are written at such a simplified
level that they are absurd. However, they are instantly touted across the
blogosphere by self-styled progressives. His Nobel is a big stick to carry --
I think he is using it in a utilitarian (from his perspective) way.

~~~
jhancock
If economists ever expect us to view them even remotely in the same league as
scientists, they may want to start by dropping the approach of trying to
"persuade" and move on towards "proof".

Krugman's not bad, he writes good mainstream stuff, which is hard to do. I
would be far more impressed if he had spent the last 5 to 10 years writing to
the mainstream, screaming his head off about the dangers of the bubble we were
in. And if his answer is that he wasn't certain is was a dangerous bubble, he
can hand over his Nobel to me, because I sure as hell knew.

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jeremymims
Paul Krugman continues to write the best articles about the state of the
economy for laymen. I'm continually impressed (despite his years of research,
training, and a nobel prize to boot) with his ability to explain what is
happening and why.

Sometimes I lament the fact that instead of running the show, he's left to
opine about the policies of others.

~~~
kingkongrevenge
He seems kinda clueless to me. A whole article on the economic theory of
recessions with no mention of malinvestment? He goes on at length about the
efficient market hypothesis and bubbles yet never acknowledges that nobody can
identify a bubble that has happened without government manipulation of the
market. He goes on at length about Keynesian stimulus with no mention of its
dismal failures, most notably in Japan.

There are always these rather ridiculous omissions and oversimplifications
with krugman.

~~~
larryfreeman
I think that someone can have a meaningful discussion on recessions without
mentioning the "dismal failures" of the Keynsians.

For the record, there are plenty of bubbles that have not been caused by
government manipulation. For example, the Tulip bubble that happened in the
Netherlands (<http://en.wikipedia.org/wiki/Tulipmania>) (not to mention
bubbles caused by people like Madoff and other con men).

Also be careful. The government is always involved with any economic crisis
and you can always blame a government action for making a bubble worse. If you
believe that without a doubt the government is the cause of all bubbles, then
no one will ever "prove" you wrong. If you are open minded and use the
simplest explanation for a given set of facts (i.e., Occam's Razor), then you
will find that not all bubbles have happened because of government
manipulation.

~~~
kiba
Some people still say that the tulipmania is government's fault.

<http://mises.org/story/2564>

 _The story of Tulipmania is not only about tulips and their price movements,
and certainly studying the "fundamentals of the tulip market" does not explain
the occurrence of this speculative bubble. The price of tulips only served as
a manifestation of the end result of a government policy that expanded the
quantity of money and thus fostered an environment for speculation and
malinvestment. This scenario has been played out over and over throughout
history._

~~~
larryfreeman
Thanks for the link. Interesting analysis.

Still, I think it proves my point that you can always blame the government if
you want to.

In my view, the reasoning has one major flaw. If money supply was the cause,
then why weren't there other bubbles in addition to tulipmania?

If you correctly identify the cause, then it should be both sufficient and
necessary for the result. If the cause was the Dutch monetary policy, then
there should have been other bubbles contemporary with the monetary policy.

As far as I understand it, the tulipmania did not cause a recession or
depression even if some very rich people lost all their money. If the author's
reasoning was correct, then there should have been other bubbles caused by the
same government policy.

~~~
kiba
Do you mean by this?

 _But what made this episode unique was that the government policy did not
expand the supply of money through fractional reserve banking which is the
modern tool. Actually, it was quite the opposite. As kings throughout Europe
debased their currencies, through clipping, sweating or by decree, the Dutch
provided a sound money policy, which called for money to be backed one hundred
per cent by specie. This policy, combined with the occasional seizure of
bullion and coin from Spanish ships on the high seas, served to attract coin
and bullion from throughout the world._

I do not know of any more of this monetary policy implemented. Perhaps you
could illustrate some examples from history.

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known
If it moves, tax it. If it keeps moving, regulate it. And if it stops moving,
subsidize it. --Reagon

