Email of the Day: Robert Waldmann emails, apropos of my question of whether Paul Krugman has an article about development economics in which he argues that we knew more in the 1960s than the development economics models could contain:
Robert Waldmann: "Dear Brad...
...He does: http://web.mit.edu/krugman/www/dishpan.html.
Between the 1940s and the 1970s something similar happened to economics. A rise in the standards of rigor and logic led to a much improved level of understanding of some things, but also led for a time to an unwillingness to confront those areas the new technical rigor could not yet reach. Areas of inquiry that had been filled in, however imperfectly, became blanks. Only gradually, over an extended period, did these dark regions get re-explored...
This would tend to be an argument against models -- the insights were lost because they couldn't be formalized if one insisted on perfect competition. The model that started the recovery process was: "The Big Push", by Murphy, Shleifer, and Vishny .
[In this paper] Krugman's line was [that{macro was hampered by not enough Dixit (and Stiglitz) [model building]... a tractable example of imperfect competition was needed and [was] missing....
This risks bringing us back to Paul Romer on mathiness and that whole story--which is all here, at too-great length, in this post to which you kindly linked http://rjwaldmann.blogspot.it/2015/09/paul-romer-has-3-questions.html
Ciao...
