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Here’s the conclusion of “How Did Economists Get It So Wrong?” a long, brilliant piece in the forthcoming NYT magazine by the leading progressive economist:
VIII. RE-EMBRACING KEYNES
So here’s what I think economists have to do. First, they have to face up to the inconvenient reality that financial markets fall far short of perfection, that they are subject to extraordinary delusions and the madness of crowds. Second, they have to admit — and this will be very hard for the people who giggled and whispered over Keynes — that Keynesian economics remains the best framework we have for making sense of recessions and depressions. Third, they’ll have to do their best to incorporate the realities of finance into macroeconomics.
Many economists will find these changes deeply disturbing. It will be a long time, if ever, before the new, more realistic approaches to finance and macroeconomics offer the same kind of clarity, completeness and sheer beauty that characterizes the full neoclassical approach. To some economists that will be a reason to cling to neoclassicism, despite its utter failure to make sense of the greatest economic crisis in three generations. This seems, however, like a good time to recall the words of H. L. Mencken: “There is always an easy solution to every human problem — neat, plausible and wrong.”
When it comes to the all-too-human problem of recessions and depressions, economists need to abandon the neat but wrong solution of assuming that everyone is rational and markets work perfectly. The vision that emerges as the profession rethinks its foundations may not be all that clear; it certainly won’t be neat; but we can hope that it will have the virtue of being at least partly right.
Read the whole damn indictment. Any politician, journalist or opinion maker who worships at the feet of the false gods of neo-classical economics is no better than Bernie Madoff (see “Is the global economy a Ponzi scheme?“).
Some of my friends would have liked a more searing indictment of all of economics, including microeconomics. As a humorist once said,
This piece doesn’t get into the necessary disemboweling of the entire global Ponzi scheme. And, of course, we have the catastrophic failure of the economics community in modeling catastrophic climate impacts (see “Harvard economist: Climate cost-benefit analyses are “unusually misleading,” warns colleagues “we may be deluding ourselves and others”).
But Krugman can’t be faulted for not taking on everything all at once, especially since he has been doing some great work on climate:
- Nobelist Krugman attacks “junk economics”: Climate action “now might actually help the economy recover from its current slump” by giving “businesses a reason to invest in new equipment and facilities”
- Nobelist Krugman takes on the “fantasists” of the “burn-baby-burn crowd” for opposing climate action that costs Americans 18 cents a day
- Nobelist Krugman calls climate science denial by House conservatives “a form of treason — treason against the planet”
- Nobelist Krugman slams Reaganite Feldstein on global warming economics
- Nobelist Krugman: Fear of carbon markets and speculation is “99% wrong and bad for the planet”
- Nobelist Krugman strongly endorses Waxman-Markey: “The claim that carbon taxes are better than cap and trade is, in my view, just wrong.”
One final amusing note — the cartoon above comes by way of Greg Mankiw, who likes Krugman’s piece.
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It amazes me how those who study what is essentially the science of the transaction of goods between humans, have such an outrageously ridiculous understanding of human behavior. They focus on their math and statistics without first getting right–and without testing–their ideas about human behavior. These folks have so much to learn from climate science, or even parts of ecology, with their emphases on mechanistic understanding. They could make a big start by talking to the psychologists and sociologists.
Short story: their models fail because they don’t understand human behavior, just lots of empirical correlations, trends etc. Won’t suffice.
EO Wilson said that we have the emotions of cavemen and the technology of Star wars.
Modern civilization seems far too tolerant of the unethical, immoral and criminal leaders who so successfully pander to the population.
Climate destabilization stages a wonderful drama of classical survival struggles.
And he didn’t even mention e.g. the fundamental role of energy flow in economy. c20th economists’ rearguard battles…
Bravo to Paul Krugman, And . . .
I look forward to reading the full article. Of course, I haven’t done that yet.
But — admitting that I haven’t read the full article yet — I’m hoping that something is made more explicit than the excerpts (above) make it.
In my view, economics should achieve a much better, more grounded, and more informed interrelationship with the realities of the physical/natural world.
Too many times, it seems to me, economic analyses are divorced from some of the realities of human psychology (as the excerpt mentions), AND they are ALSO divorced from key realities of the physical/natural world. Sometimes, economics seems to be seen and practiced more as if it’s an “elegant mathematical art” — and almost as if it’s a mathematical video game, largely divorced from reality — than as if it’s a genuine science meant to understand, reflect, and model how real people function in real societies that are subject to real resource conditions and the very real dynamics of the natural world. We have to move from the paradigm of “economics as elegant video-gaming” to that of “economics as real science and trustable tool”.
I’m looking forward to Paul’s piece, and I also love (and appreciate) his writing on the climate problem.
Cheers,
Jeff Huggins
Oh, brother. Here we go again.
I’ll keep this iteration of my speech very brief:
I’m an economist by training.
WE’RE NOT ALL STUPID, EVIL MANIACS.
Some of us ARE stupid, evil maniacs.
Distinguishing between the Good Guys and the Bad Guys in any group–economists, dentists, plumbers, whatever–benefits everyone. SO DO IT.
[JR: I think the difference between the economists and most other professions is that the core teaching -- the core philosophy -- has no basis in actual fact, no record of actual success, and is, arguably, a contributor to inaction on the gravest threat humanity faces. The same is not true of plumbers or, indeed, most disciplines. Many individual economists recognize this, but unlike most professions, I would say the world as a whole would be better off if there had never been neoclassical economics and professional economists, or if nobody listened to the ones we have today calling the shots..]
Jeff: Your characterization of economics is disturbingly accurate. Was that you, two rows over, in my PhD micro class when I was in grad school?
You point out the number one problem with economics: It is so tied to the ceteris paribus assumption (”all other things being equal”), that nearly all of it implicitly assumes that things like real world limitations on resources or waste sinks simply don’t exist. The field is so consumed by trying to figure out how things work in an idealized world that it spends far too little time and effort to include those messy real world details, which often push the conclusions and analyses of economists into the range of unknown.
Graduate microeconomics, when I took it, was literally nothing but N-dimensional topology. At least once a week, all the student in my class would head to the library to look for math books and try to teach ourselves enough of it to keep up with the economics lectures.
Macro wasn’t nearly as bad, by comparison, as they actually talked about things like public policy from time to time.
I try to read St. Paul of Princeton regularly but you don’t have to take even his word for the failure of markets. Listen to what former former Federal Bank Chairman Alan Greenspan said he “made a mistake” in trusting that free markets could regulate themselves without government oversight.
“Evil” I don’t believe in as meaningful in the characterization of humans. Stupid yes, and better yet, ignorant or deceived. And I thought Krugman did quite well making distinctions regarding various levels of ignorance.
Any science that gets fascinated with the numbers at hand instead of investigating black boxes is bound to find trouble. Ecology’s had its own history there.
Ecological economics talks about the fact that the economy is embedded in nature. Herman Daly is the best known ecological economist, and he calls for an end to economic growth.
Krugman is talking about how to control the business cycle, how to controll inflation and recessions, not about ecological economics. He tends to call for faster economic growth.
Of course, it is impossible to talk about everything at once; you do have to pull out one subject to analyze, such as the business cycle.
But I think Krugman is missing the key issue of our time by generally ignoring ecological economics and sticking with the old progressive line that the government should stimulate more rapid growth. That old progressive ideology made sense when FDR backed it in the 1930s, it made less sense when LBJ backed it in the 1960s, and it makes absolutely no sense now.
…models fail because they don’t understand human behavior
Complex systems (us included) tend to be chaotic.
This is one lesson we need to take on board, but or some reason we don’t.
To Charles (Comment 9):
So then, how do we get Daly and Krugman into the same room for long enough to “come together”? Perhaps they should also be joined by a few natural scientists and informed psychologists, to help them make sure that they don’t ignore or violate any of nature’s fundamental principles or assume anything unrealistic about human behavior?
Of course, they are both brilliant, but several heads are often better than one, at least if they can get along.
I’m looking forward to Krugman’s piece, but given your characterization, I am curious whether he’ll show a deep respect for, and understanding of, nature’s limits.
Thanks for your comment.
Jeff
Jeff:
How can we get Krugman to question the cult of growth? I wish I knew. It is a very fundamental ideological bias, like creationism.
Krugman clearly does see that nature has limits: you can’t avoid that nowadays. But he tends to talk about investing in clean technology to spur faster growth, as well as using macroeconomic policies to spur growth.
I think work time is the the key issue that he overlooks. He focuses on the need for growth to reduce unemployment – but he doesn’t seem to realize that there are two ways of reducing unemployment, by increasing output or by reducing work time, as Keynes himself said.
Of course, he is not alone. The idea that we need rapid growth to fight unemployment has been the conventional wisdom since the Great Depression.
“To err is human; to get paid for it, divine.”
Lou Grinzo (6) — Good crtique! Recommend economists read
http://www.eoearth.org/ article/ Global_human_appropriation_of_net_primary_production_(HANPP)
and, of course, other resource constraint articles.
Good piece….
4 Problems That Could Sink America
http://www.usnews.com/ blogs/ flowchart/ 2009/ 09/ 02/ 4-problems-that-could-sink-america.html
Jeff, your ideal invitation (#11 above) is what I’m working to do.
For a number of years I’ve been asking Krugman, “Are there limits to growth?” and he began with econ-speak and is getting closer to a comprehnsible answer each year, though he’s not where Ecological Economist Herman Daly, Physicist Al Bartlett, Ecologist Garrett Hardin, Biologist Paul Ehrlich and Sociologist William Catton have been for an average of at least four decades.
Each of these have seen the limits to growth, how exponential growth cannot and will not be sustained, the Tragedy of the Commons and how the growth of population and per capita consumption is at the root of what is unsustainable.
I’ve also asked Krugman who he’d most like to join on a panel – anyone from any field – and he said NASA’s Jim Hansen.
So I’m working on this. Bartlett has said that “For every PhD there is an equal an opposite PhD” and by that he contrasts physicsts (such as himself and Joe, a discipline which appears consistent with common sense) and economists (a discipline which does not). He also points out the Nobel Prize in Economics is self-awarded by the profession and has no real relation to those given in the physical sciences – haberdashers and croupiers could have just as easily given themselves Nobels as well.
Until economists recognize, as Bill McKibben, Joe Kennedy and others have said, that the entire human economy is a wholly-owned subsidary of nature, economics is not science at all, but a collection of equations describing something unknown and indescribable outside of something we should consider instead: reality.
By the way, my September 12 town meeting (where I invited Joe Romm to be keynote but he respectfully and kindly declined) features Bill McKibben, Al Bartlett, Kevin Trenberth, Brian Toon, Diane McKnight and Bob Henson. Google their names or mine (Richard Brenne) and you should get to Colorado Chautauqua’s site. There’s no one I’d rather have participate in these conversations than Joe Romm and his readers like you, Jeff.
Lou (#5).
The role played by publically visible economists in modern times is exactly that played by augurs (http://en.wikipedia.org/wiki/Augur) in Roman times, with the exception that economics has less basis in reality. Their function is to justify and legitimize the actions of the powerful, after the decisions have been made.
The economic problems of our world are problems of fairness, not those of absolute scarcity. Economics-the-intellectual-discipline has signally failed to address these real-world problems, instead preferring to try to evade them through the “magic of perpetual growth”. This evasion is inexcusable in a discipline that describes itself as “the study of people in their everyday life”.
I wrote briefly on this on my blog, hoping to start a similar conversation. The critical mass being here, I have closed commentary there and asked people to comment here instead. Here is what I said:
==
In a lengthy article, Paul Krugman bemoans the collapse of macroeconomic intellectual underpinnings. This is a guy with a “Nobel” prize in economics! So now when I say so, I have some authority I can point to.
Yet, despite a brief nod to “externalities” at the beginning of his essay, Krugman says nothing about the phase change of the human population, the transition from an essentially infinite planet to an essentially finite one, nothing about nature, nothing about the environment, nothing about intergenerational or international equity. It’s all about the theory failing, and nothing at all about the theory paying no attention to salient facts. It doesn’t leave much room for optimism regarding the next theory.
==
I too have asked Krugman to weigh in on these matters, and I recently asked Revkin, who seems to be starting to get the message, to try to reach Krugman. But these requests were likely lost in the barrage of mail those people get. Maybe someone with closer connections could prevail.
It may be too much to ask the Krugmans & Stiglitzes of the world to give up on their ideology and start reasoning from the actual facts. But it may be a good moment to make the attempt.
A rigorous mathematical economic theory that treats economic behavior as embedded in the environment rather than merely tenuously related to it would be an enormously important contribution.
Reminds me of an old joke that starts with three Ph.D.s marooned on the proverbial desert island. The discussion starts with the need for fire. The chemist notes he has seen some strata containing minerals with the needed ingredients for matches, the physicist says he saw some dried coconuts above the high tide line that would provide tinder they could probably light by using his eyeglass lenses and the economist starts by saying -(are you ready for this)- “Assume we had…..
That’s all folks.
An Arranged Threesome: Economics, the (other) Human Behavioral Sciences, and the Natural Physical Sciences
(to Richard, Charles, Michael, David, Greg, Lou, and etc.)
Although these three areas seem to be flirting with each other, and in some camps are becoming more and more connected, it sounds like there’s still far too much distance, lack of understanding, and lack of intimacy among them, at least among many practitioners.
Of course, avoiding intimacy is a good way to protect one’s feelings from getting hurt. But it also prevents fruitful outcomes.
If we were talking about the development of video games, such things wouldn’t matter much. But, many people use these economic tools to help guide public policy, major economic decisions, and all sorts of other real-life stuff, right? Yikes!
(I say “Yikes!” as an unfair generalization, of course. But as we’ve all pointed out, there is much room for improvement.)
An admission: As a chemical engineer long ago, I spent a good deal of time modeling physical processes: for example, big refinery processes. “Discipline” was supplied by nature’s real principles, the empirical data, and the stakes involved: If you got something important wrong, and if the plant was actually built that way, you might blow people up, literally. Or at a minimum, the product might turn out wrong.
Later, at McKinsey, I did quite a lot of economic/financial modeling (probably a bit too much for my tastes) of individual businesses, industries, and also a few financial instruments, for example, leveraged airplane leases. And at McKinsey and in the toy business, I did a good amount of “consumer” modeling: how many people might buy a new product priced and marketed a certain way?
So, the more I hear about modern economics, the more “amazed” I am at how theories and models that are supposed to reflect reality and be useful and trusted tools are (in so many cases) divorced from key physical realities and from some vital realities of human behavioral dynamics. Again, yikes!
Of course, in that case, if you get it wrong, you don’t blow up a process unit in a refinery, or sink a new toy. Instead, you mess up an entire economy, strip the world of resources, or generate growing injustice on a large scale, or perhaps all three!
I do hope someone can help get these disciplines more “together”. Perhaps an interim rule should be passed that no economic model should be trusted, or even allowed into a policy meeting, until and unless it satisfies vital requirements that reflect all parties in the threesome.
And of course, it’s easy to point out the problems. Like others of you, I’d enjoy a good dialogue about the solutions, if there’s a reasonable chance that such a dialogue here can make a difference.
(I’m looking forward to reading Krugman’s piece. I do enjoy his stances on a good number of issues.)
Cheers,
Jeff
It would be good to get Krugman and Daly together and I hope they connect, but don’t underestimate Gus Speth’s ability to get Krugman et al to understand something about the natural sciences. Speth does an excellent job at bridging this divide in his new book The Bridge at the Edge of the World.
But it is ALL of our responsibility to bridge this gap for everyone else who is not a Nobel laureate or who has set policy for presidents. We can start, today, by getting our ‘elevator phrases’ down to explain this to others. When the people lead, the leaders will follow.
Best,
D
Hi Dano (21), and “Get real!”
Yes, I agree that it is all of our responsibility and that we should communicate in more down-to-Earth fashion. Great point. And it brought this to mind:
Boiling it down, here is a two-word phrase for what we’re talking about:
Get real!
Get real in terms of human behavior, and get real in terms of reflecting the fact that the economy lives within, and depends upon, the principles and resources of nature.
Of course, these sentiments are nothing new. But getting it all down to two words is not bad!
The point is, of course, more words aren’t needed. What’s needed is to take these two words (and what they mean) seriously. That’s a matter of repetition (in advertising, they call it frequency), conveying the two words with genuine weight, and not accepting anything less than theories and models that do “get real”.
What do you think?
Cheers for now,
Jeff
;o)
Another short statement I saw in a comment thread but can’t find now:
How long are we in this humanity game for anyway? We are acting like we don’t want to play for that long.
Best,
D
I’ve been distracted today but have finally finished reading the Krugman’s article. A hawk made a meal of a ringneck dove that was part of my flock, and that—among other things on this holiday weekend—had ramifications. Anyway, the print version of the article has pictures so it is easier to read!
From what I read I hear Krugman saying that the profession is no longer sure about their differing sureties about the macroeconomics. What I found most interesting was the categorization of freshwater and saltwater economists. This division is very much in line with what Jonathan Haidt’s studies of morality have turned up. The separation has a high correlation with the “blue/red” divide. Richard Brenne (are you the author of _The Truth About Everything_?), if you are successful organizing the interchange you speak of, including Haidt could make the conversation very interesting. Jeff, with your work on morality, you too may have insights to share relative to Haidt’s modeling and studies as they relate to economics.
Anyway, much of what I posted about economics in the thread of comments associated with the Duke Energy post has relevance to the uncertainty about macroeconomics Krugman argues in this article (see http://climateprogress.org/ 2009/ 09/ 02/ duke-energy-quits-clean-coal-front-group-accce-over-climate-bill-ge-caterpillar-alstom/ comment-page-1/ ). I hope to get back to this later this weekend with a more detailed and cogent response relative to this thread. In the meantime, isn’t the bubble that is bursting that of an economy based on fiat currencies and consumer credit, and the housing bubble only a subset? Krugman’s reference to Charles Mackay’s work,_Extraordinary Popular Delusions and the Madness of Crowds_ (just before the section Joe excerpted), which I quoted from in other comments. Referencing this seminal work, isn’t he saying that all the dominate macroeconomic assumption are in an at-risk category of being delusions—and I would argue, moral delusions? It seems to me that to the degree the moral concept of a no growth economy has trouble gaining traction, it suggest that moral delusions drive the current divergent and conflicted macroeconomic theories. Anyway, they are non-rational relative to the founding principles of our nation. The global iteration of capitalism they’ve enabled, regulated and not, is systemically destroying (and may already have destroyed)—like a cancer—the means by which humanity can sustainable exist as part of the planet’s biome.
See: “Life, Inc.; how the world became a corporation and how to take it back” by Douglas Rushkoff, 2009. Rushkoff says that centralized money is designed to make the rich richer and the poor poorer and that is the objective. He says decentralized medieval money was much better, more equalitarian, and led to a better result in general. He says that the middle ages were good times for the common man. Since further degradation of the masses is the objective, jobs are bad from the point of view of the rich.
Quick Thoughts (pre-article)
Economics, the (other) human behavioral sciences, the life sciences, the dynamics and limits of nature (as we try to understand them via the natural sciences), and the sciences and philosophy having to do with morality/ethics, are all intimately interrelated, of course. If you ignore central considerations or real limits in any of these areas, you get the answer — or acceptable range — wrong.
It’s still early here (Pacific Coast) and I haven’t read the article yet. After that, I’ll try to post some thoughts/reactions here, although that might not be until some time tomorrow. And I look forward to the dialogue.
(Hi Greg!)
Cheers,
Jeff
Jeff, Dano, Charles, Michael, David, Greg, Lou and all others:
Jeff and Dano, I took your suggestion after recently getting on an elevator and said, “Get real!” There was an excrutiatingly awkward silence for quite a while until I also told the hotel’s old-school elevator operator what floor I wanted.
(Next time you get on a crowded elevator visited by that peculiar crowded-elevator awkward silence, turn to the person you’re with and loudly whisper, “I really didn’t think the old fellow’d bleed so much.” Alfred Hitchcock suggested this. I think it’s fair to say I digress.)
In addition to Jeff’s “Get Real!” (which I like, just a couple of lame jokes above), I’m proposing to Bill McKibben and others, “Cut it in half!” Meaning CO2 (headed with businesses as usual to maybe 700, which needs to be 350) square footage of our houses (or doubling the occupancy or efficiency of existing houses), halving our driving miles (or doubling the efficiency of our vehicles), etc. By the way, the slogan in no way refers to a Bris or anything like that.
All that said, I’m wondering what the rules of this blog are. We just created our new website, but before its officially up I’m using e-mail to communicate with people like you, Jeff, Dano, Charles, Michael, David, Greg, Lou and all others. Are we permitted to post our e-mail here?
By the way, a really first-rate conversation here, all of you.
Dear Richard (27),
Thanks for your comment. I don’t normally put my e-mail address in blogs, but if that’s what you meant, you can reach me via my website, www DOT ObligationsOfReason DOT com — by using the “CONTACT THE AUTHOR” page of the site. Then, I’ll send an e-mail back, with my e-mail address of course. If that’s what you meant by your question.
I still have to read the article: I’m looking forward to it, but chores have gotten in the way so far.
Cheers,
Jeff
“Get real!” — says it all.
The c21st challenge to Homo S “Sapiens”.
BTW, Richard, Zeke Hausfather is credited in Speth’s new book I mentioned above.
Best,
D
Economist: Eco? No. Mist!
A Few Thoughts On The Piece
I finally had time to read Paul Krugman’s piece and thought I’d offer a few observations.
First, a few points of context: I enjoy many of Paul’s views on key world issues, e.g., the need to address climate change. And, I enjoy much of his writing. And I admire his courage! And, of course, as someone else had said, a person can only cover so much territory in a single piece—even a long one.
In many ways, I found the piece helpful, thought provoking and enjoyable.
OK, now for the observations.
In my view, Paul left out of the piece some VITAL things. Of course, as mentioned, one piece can only cover so much. And perhaps in “economics speak”, some of these things are implicitly included or are understood “between the lines”. But, in my view, they should be KEY parts of the picture, considered and discussed explicitly.
I’ll mention three key considerations that the piece didn’t consider explicitly, as far as I could tell:
Nature/Environment/Resources — Of course, as many here have noted, and as some economists note, economies and “economics” all occur within an environment, subject to nature’s most foundational laws and limits, including resource constraints. In the piece itself, I didn’t see much mention of this very important (to put it mildly) consideration. As mentioned earlier, economics needs to “get real”. I would imagine that Krugman understands this, and this point is certainly consistent with his passionate concern about climate change. But, if economics is going to change, people who write about it will have to put much more of a focus on this consideration. Indeed, it’s not just a “consideration”: It’s a reality. Economics will never be “correct”, and certainly not responsible, until it deeply incorporates and reflects this reality. And of course, this has to do with the subject of genuine sustainability. A mere mathematical “sustainability”, regurgitated by some computer model that reflects assumptions programmed into it, and that is entirely divorced from nature’s limits, is not genuine sustainability. Nor would it become genuine sustainability even if such mathematics gained the consent of BOTH saltwater and freshwater economists. The point is this: Unless NATURE herself “consents”, an agreement between saltwater and freshwater economists means little.
The “Aim” To Be Facilitated? — Socrates said that the unexamined life is not worth living. The article doesn’t state whether economics (as a discipline) should see itself as trying to facilitate “Aim X” or “Aim Z” or “Aim Q”, or whether it will be an aimless exercise (even though its policies will facilitate “something” even if the profession itself prefers to avoid the subject). I’m not suggesting, of course, that every thought and action within an economy must consciously pursue the same narrow aim, of course. But means are “meaningless” in many ways without aims. More precisely, I’m not trying to make some grand philosophical statement that doesn’t apply in all cases. Instead, I’m just saying this, of course: Economic policies and decisions, when implemented in the world, will facilitate “something”. What would we prefer that “something” to be? Are we trying to facilitate the achievement of a healthy combination of human health and happiness, in the context of genuine sustainability? Or, are we trying to facilitate the achievement of GDP growth or stock market valuation as ends in themselves? The answer to that question matters. Indeed, it goes to the heart of the matter. If economists don’t ask and answer that question—in a way that is grounded, sensible, compelling, and in harmony with scientific understanding—they’ll flunk the Socrates test. How many years has it been since one or two small countries adopted happiness as an explicit goal? How many years has it been since Richard Layard wrote “Happiness: Lessons From A New Science”?
Morality/Ethics/Justice/Etc. — Of course, all of the subjects (in this message) are intimately interrelated. That’s part of the point, of course. Yet, I wanted to make the present point (i.e., Morality/Ethics/Etc.) explicit along with the others. As far as I could tell, these matters weren’t mentioned in Paul’s piece. That leaves me with many questions. How does Paul see “economics” as being related to these matters? Indeed, how does Paul see the relationship between economics and basic aspects of human social-moral dynamics as they exist in real humans? Just as one example, to what degree does Paul agree with John Rawls? How would Paul define the difference between a “just and responsible” economic system and an unjust and irresponsible one? To what degree do ideals and values play a role, and/or to what degree is the relevance of these matters primarily related to the stability of the economic system itself? (In other words, from the standpoint of economists, is the ONLY important thing the stability and productivity of the economic system, OR are higher ideals of justice and fairness important also?) I’d enjoy hearing Paul’s views on these matters. Or, IN ANY CASE, these matters can’t be ignored by economics. They are very REAL matters.
In sum, I realize that a single piece can only cover so much. And, I enjoyed yesterday’s piece and found it very helpful. But, the three topics mentioned above are VITAL. Economics won’t be fixed, or practical in any responsible way, until it reflects and addresses all three of these areas, deeply and well.
Just as one example (of a zillion): People should realize by now that “trust” is a big factor in an economy, not to be taken for granted. Well, trust has much to do with the way human psychology works (of course), including the matters of morality/ethics/justice/fairness. An economy that facilitates and builds trust is NOT at all the same as one that diminishes and ultimately kills trust, and the net results of those economies are going to be far different, in economic and other terms.
It would be great if Paul would write a whole series on all of these subjects. More than one change will be necessary if economics is going to get on a better track to help the world.
I understand that I’m not (at all) the first one to notice these things. But, it seems to me that they need all the repeating they can get.
Cheers,
Jeff
I’m a big fan of Krugman for his critique of market failures, and for his support of strong action on climate. Yet I fail to understand his enthusiasm for cap-and-trade, as currently envisaged. Yes, markets can play a role in stopping climate change, but they have to be structured the right way. If we leave it to the same crowd that brought us the financial meltdown, we know what to expect. See my posts Carbon Markets to Serve the Planet http://climateinc.org/ 2009/ 07/ carbon-markets-to-serve-the-planet/
and A Tale of Two Meltdowns http://climateinc.org/ 2009/ 08/ a-tale-of-two-meltdowns/
BTW, Richard, Zeke Hausfather is credited in Speth’s new book I mentioned above.
Krugman’s piece is very, very bad. It gives a pretty flawed view of the state of economics and of macroeconomics in particular. I would urge you all to read the response by John Cochrane, an economists who actually knows about finance.
http://caseymulligan.blogspot.com/ 2009/ 09/ lapses-in-economic-analysis.html