Morning Must-Read: Paul Krugman: How to Get It Wrong
Paul Krugman: How to Get It Wrong: "The enormous intellectual failure of recent years took place at several levels...
...In what sense did economics go astray?... The widespread conviction among economists that such a crisis couldn’t happen... an idealized vision of capitalism, in which individuals are always rational and markets always function perfectly.... Assuming away irrationality and market failure meant assuming away the very possibility of the kind of catastrophe that overtook the developed world six years ago. Still, many applied economists retained a more realistic vision of the world, and textbook macroeconomics, while it didn’t predict the crisis, did a pretty good job of predicting how things would play out in the aftermath.... But while economic models didn’t perform all that badly after the crisis, all too many influential economists did--refusing to acknowledge error, letting naked partisanship trump analysis, or both: 'Hey, I claimed that another depression wasn’t possible, but I wasn’t wrong, it’s all because businesses are reacting to the future failure of Obamacare.'... Would it have mattered if economists had behaved better? Or would people in power have done the same thing regardless?...
The big problem with economic policy is not, however, that conventional economics doesn’t tell us what to do. In fact, the world would be in much better shape than it is if real-world policy had reflected the lessons of Econ 101. If we’ve made a hash of things--and we have--the fault lies not in our textbooks, but in ourselves.
