Here are the first two paragraphs of Paul Krugman’s review of a new book by NYT writer Jeff Madrick:
The economics profession has not, to say the least, covered itself in glory these past six years. Hardly any economists predicted the 2008 crisis — and the handful who did tended to be people who also predicted crises that didn’t happen. More significant, many and arguably most economists were claiming, right up to the moment of collapse, that nothing like this could even happen.
Furthermore, once crisis struck economists seemed unable to agree on a response. They’d had 75 years since the Great Depression to figure out what to do if something similar happened again, but the profession was utterly divided when the moment of truth arrived.
Well said. That’s why Krugman earns the big bucks and I merely earn the upper middle class bucks. I actually don’t think we should be blamed for not predicting the crisis (and I think Krugman would agree.) And while I never claimed it was impossible, I plead guilty to believing it was very unlikely. Krugman was ahead of me on that point. On the second paragraph I think he’s actually being too kind. It’s not just that economists are “utterly divided,” even where they agree they are often wrong. Thus I’m pretty sure that Joe Stiglitz and John Cochrane both believed Fed policy was expansionary in late 2008, and both were wrong, as were almost all other economists. I am pretty sure they both believe the Fed was out of ammunition by the end of 2008, and if so they were wrong on that point as well. So it’s not just that economists were divided on many issues, even where they agreed they were often wrong. Krugman continues:
In “Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World,” Jeff Madrick — a contributing editor at Harper’s Magazine and a frequent writer on matters economic — argues that the professional failures since 2008 didn’t come out of the blue but were rooted in decades of intellectual malfeasance.
As a practicing and, I’d claim, mainstream economist myself, I’m tempted to quibble. How “mainstream,” really, are the bad ideas he attacks? How much of the problem is bad economic ideas per se as opposed to economists who have proved all too ready to drop their own models — in effect, reject their own ideas — when their models conflict with their political leanings? And was it the ideas of economists or the prejudices of politicians that led to so much bad policy?
I haven’t read Madrick’s book, but as Krugman describes his views I’m pretty sure I would disagree with Madrick on virtually everything. But I am puzzled by the mysterious accusation in the next paragraph. Who might Krugman be referring to? Are there any famous economists who had conventional neoliberal policy views in the 1990s, but then suddenly seemed to adopt policy views that were very different in the 2000s? Is there someone who developed a model of the liquidity trap for Japan, and argued (in the 1990s) that it showed that Japan should rely on monetary stimulus, not fiscal stimulus, who then switched to supporting fiscal stimulus in the 2000s—using the same model? Someone who moved sharply to the left, from being a moderate neoliberal who favored free trade, to one that now expresses doubt? Someone who used to claim unemployment compensation reduces employment, and no longer does? Can anyone help me out?
HT: Cyril Morong