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Tuesday, April 11, 2017

Paul Krugman and economic theories


Photo source: Wikimedia Commons, Prolinserver

Photo license: CC BY-NC-SA 2.0


Paul Krugman is an influential economist best known for his contributions to trade theory and his support for liberal economic policies. Economist Paul Samuelson said,


"I am proud of my generation of policy economists. You know their names: Walter Heller, Milton Friedman, John Kenneth Galbraith, Arthur Okun, Herbert Stein, Peter Drucker, and many more. But, as some sage has said, science progresses funeral by funeral. Paul Krugman is the rising star of this century and the next, and the world beats a path to his door." (Forward to Krugman's The Age of Diminished Expectations, 1990)


The rest of this post is some quotes from Krugman.


Critique of mainstream economics


"As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth." (How Did Economists Get It So Wrong? 2009)


"Few economists saw our current crisis coming, but this predictive failure was the least of the field’s problems. More important was the profession’s blindness to the very possibility of catastrophic failures in a market economy." (How Did Economists Get It So Wrong? 2009)


"We’re living in a Dark Age of macroeconomics. Remember, what defined the Dark Ages wasn’t the fact that they were primitive — the Bronze Age was primitive, too. What made the Dark Ages dark was the fact that so much knowledge had been lost, that so much known to the Greeks and Romans had been forgotten by the barbarian kingdoms that followed." (A Dark Age of Macroeconomics, 2009)


"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." (Economics 4th edition, 2015)


"Economics is harder than physics; luckily it is not quite as hard as sociology." (Peddling Prosperity, 1994)


Support for formal economic analysis


"I do not mean to say that formal economic analysis is worthless, and that anybody's opinion on economic matters is as good as anyone else's. On the contrary! I am a strong believer in the importance of models, which are to our minds what spear-throwers were to stone age arms: they greatly extend the power and range of our insight." (How I Work, 1993)


"Many of the stories economists tell take the form of models—for whatever else they are, economic models are stories about how the world works." (Economics 4th edition, 2015)


How to make a good economic theory


"Here, then, is a revised version of Marshall's rules: (1) Figure out what you think about an issue, working back and forth among verbal intuition, evidence, and as much math as you need. (2) Stay with it till you are done. (3) Publish the intuition, the math, and the evidence - all three - in an economics journal. (4) But also try to find a way of expressing the idea without the formal apparatus. (5) If you can, publish that where it can do the world some good." (Two Cheers for Formalism, 1998)


"The strategy is: always try to express your ideas in the simplest possible model. The act of stripping down to this minimalist model will force you to get to the essence of what you are trying to say (and will also make obvious to you those situations in which you actually have nothing to say). And this minimalist model will then be easy to explain to other economists as well." (How I Work, 1993)


"If you want a simple model for predicting the unemployment rate in the United States over the next few years, here it is: It will be what Greenspan wants it to be, plus or minus a random error reflecting the fact that he is not quite God." (What should trade negotiators negotiate about? 1997)