Larry Summers: Has economics failed us? Hardly: "My friend Fareed Zakaria... writing... “The End of Economics?,” doubting the relevance and utility of economics and economists. Because Fareed is so thoughtful and echoes arguments that are frequently made, he deserves a considered response. Fareed ignores large bodies of economic thought, fails to recognize that economists have been the sources of most critiques of previous economic thinking, tilts at straw men and offers little alternative to economic approaches to public policy...
...Many critics of economics hold out the failure of the economics profession to predict the financial crisis as an indictment.... [But] market breaks are inherently unpredictable because one that was predicted would have already occurred as everyone moved to sell. Even so... Janet L. Yellen, Raghuram Rajan, Robert Shiller and me (2006, 2007, 2007, 2008), were concerned about risks to the financial system and the real economy in the years and months preceding the crisis. Fareed quotes Paul Krugman on the economics profession’s “blindness to the very possibility of catastrophic failures in a market economy.” Yet he quotes Krugman selectively. Krugman is indeed critical of economics but has also argued for many years that textbook macroeconomic theory could explain much of the financial crisis and its aftermath.... I have long shared Paul’s views on the excessive fetishization of mathematical elegance in macroeconomics, but this is very different from discarding textbook macro, which has stood up very well.
Fareed... attacks the economics profession for the use of GDP.... Yet all the serious efforts to move beyond GDP have their roots in research by card-carrying economists.... Jim Tobin and Bill Nordhaus... Partha Dasgupta on sustainability, Amartya Sen on... Human Development... Tony Atkinson and Thomas Piketty on inequality. It is argued that the common economic assumption that everyone is rational and optimizing is hardly valid. Of course.... Milton Friedman... talking about why people buy lottery tickets. Andrei Shleifer and I... on “noise traders” more than a quarter-century ago... speculative prices are not fully rational and reflect greed... amply clear in the writings of many others, including Kindleberger, Shiller, Thaler and DeLong.... Policy ideas like transactions taxes and “nudges” that are premised on irrationality have mostly come from economists...
#noted #economicsgonewrong #economicsgoneright #fiscalpolicy #publicsphere #moralresponsibility
