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Paul Krugman on How did Economists get it so wrong ?

nytimes.com

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Re: Paul Krugman on How did Economists get it so wrong ?

#21

Post by bokonist »

jfornear wrote: post #17
kiba wrote: post #8

Earlier quoted context omitted.

Nobel prizes do not mean anything when polar opposite in economics thought have also won prizes, ie. Hayek.

Krugman won the Nobel prize for his work in international trade theory, and I don't think his ideas were incompatible with Austrian thought. I align with Austrians most of the time and I don't remember having any objections to his trade theory when I studied it a while ago. Nonetheless, I do think Krugman has been venturing a little far from his expertise lately.

What about his trade theory was both novel and true (honest question, one I've asked before and that no one has answered http://news.ycombinator.com/item?id=669831)?

Re: Paul Krugman on How did Economists get it so wrong ?

#23

Post by christofd »

mynameishere wrote: post #13

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 economi…

Hmm... they have the capability of scientists: take current financial theory, e.g. Journal of Finance... these guys are high caliber mathematicians and physicists...

Also, the work done in Econometrics and Statistics in the field is totally solid. So, I wouldn't say they're not scientists. Or take Game Theory etc. - a lot of fields in Econ could just as well be in AI.

Anyway, macro's set of classical assumptions of modeling aggregate decisions based on rationality/ price-taking is too simple. Eventually we'll have to embrace more ideas out of complex systems analysis... but then all those neat macro formulas might not work out so well.

My two cents.

Re: Paul Krugman on How did Economists get it so wrong ?

#24

Post by hristov »

kingkongrevenge wrote: post #3
jeremymims wrote: post #2

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.

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.…

"yet never acknowledges that nobody can identify a bubble that has happened without government manipulation of the market"

Well, let me identify some for you. The tulip bubble, which is the classical example of a bubble had absolutely nothing to do with government manipulation. The internet stocks bubble of the late 90s also was largely unrelated to government manipulation. The housing bubbles of some eastern european countries also had nothing to do with the government as those governments did not subsidise housing. Even with the US housing bubble government involvement was rather tangential, the most troubled assets were not in any way subsidized by the government.

" He goes on at length about Keynesian stimulus with no mention of its dismal failures, most notably in Japan."

Japan is not an example of failure of Keynesian economics, because it is not really an example of keneysian economics. There haven't been the large public works project perscribed by keneysian economics in japan. Japan has tried to get out of the recession mostly by secretly subsidizing its banks.

Re: Paul Krugman on How did Economists get it so wrong ?

#25

Post by hristov »

kiba wrote: post #9
larryfreeman wrote: post #7

Earlier quoted context omitted.

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…

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 a…

Sorry this does not show that it was the governments fault. This shows that the money supply in the Netherlands was essentially based on precious metals without any government involvement. The only thing the bank of Amsterdam did was keep the gold and silver in a central place and issue a receipt for it, so that people could more easily trade with the receipts rather than the actual gold. In fact this situation is pretty close to the gold standard that Chicago school people yearn about. Thus, any increase of the money supply was caused by the free market for precious metals not due to any govt involvement. So it is not "the government's fault."

Also the tulip mania cannot be explained by an increase of money supply. If that is the reason than why only tulips? If there is inflation and the market behaves efficiently and rationally everything should have gone up in price not only tulips. Why for example did one contemporary state that tulips became more expensive than the ground they were grown in? If the only reason is inflation, than the ground the tulips were grown on would increase in price proportionally to the tulips.

Re: Paul Krugman on How did Economists get it so wrong ?

#26

Post by roundsquare »

yummyfajitas wrote: post #19
mynameishere wrote: post #13

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 economi…

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 econom…

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

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

Re: Paul Krugman on How did Economists get it so wrong ?

#27

Post by kingkongrevenge »

TomOfTTB wrote: post #5
kingkongrevenge wrote: post #3

Earlier quoted context omitted.

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.…

Krugman is a guy who preaches to the choir while ignoring anyone who might challenge him. Which is why he gets away with such omissions. Take this paragraph... "During the golden years, financial economists came to believe that markets were inherently stable — indeed, that stocks and other assets were always priced just right. There was nothing in the prevailing models suggesting the possibility of the kind of collap…

Yeah, the main point of the efficient market hypothesis is that high alpha (CAPM) is very, very hard to achieve, not that markets are steady and only react to new information.

Re: Paul Krugman on How did Economists get it so wrong ?

#28

Post by kingkongrevenge »

hristov wrote: post #24
kingkongrevenge wrote: post #3

Earlier quoted context omitted.

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.…

"yet never acknowledges that nobody can identify a bubble that has happened without government manipulation of the market" Well, let me identify some for you. The tulip bubble, which is the classical example of a bubble had absolutely nothing to do with government manipulation. The internet stocks bubble of the late 90s also was largely unrelated to government manipulation. The housing bubbles of some eastern europea…

> There haven't been the large public works project perscribed by keneysian economics in japan.

At one point Japan was the single largest concrete importer in the world. They were building roads and bridges and train lines like crazy. It temporarily juiced the markets but did nothing to sustainably restart the economy.

Japan didn't so much subsidize the zombie banks as simply allow them to float along insolvent forever. They never forced bankruptcy or write-downs.

> The internet stocks bubble of the late 90s also was largely unrelated to government manipulation.

The NASDAQ went parabolic in 1999 just after Greenspan cut interest rates as a precautionary measure to juice the economy in preparation for Y2K.

Tulips are addressed elsewhere. I don't know anything about Eastern European housing, but I'll bet its riddled with subsidies and tax advantages just like it is here.

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