Travel means I’m a bit late linking to this, but given I’ve been trying to track the debate on economics post-GFC, and given the furore it's caused, it is still worth noting Paul Krugman's recent article in the New York Times Magazine asking, 'How did Economists get it so wrong'?
Krugman's essay has prompted a whole bunch of responses, ranging from the approving (six of the seven responses in this selection from the National Journal) to the extremely hostile. Krugman's reply to the latter kind of feedback has been typically robust. While the shrill tone of the debate has been entertaining for some, others such as Free Exchange have found it counterproductive.
Mark Thoma at Economist's View has done a great job of pulling together a lot of the reactions to the essay so far, as well as a bunch of related stuff (also related, this piece in The Age provides an interesting look at how the Australian Treasury’s David Gruen views recent developments, and this paper by Robert Gordon looks like it will repay a read).
At least three aspects of the current furore have struck me.
First, there is Krugman's own conclusion that the solution is to re-embrace Keynes. As I’ve noted before, at the broad-brush level of policy, this debate is over, at least for now: policymakers have been quick to turn to some of the basic propositions of Keynesian economics. One consequence of this shift is the emergence of something of a mini-industry in writings on the great economist, with new books by Robert Skidelsky and Peter Clarke recently published.
Second, one reason Krugman's article seems to have particularly annoyed some of his critics is that, while his main argument as to where economics went wrong focuses on mistaking beauty (complex mathematics) for truth, he also suggests 'shifting political winds' and 'financial incentives' explained the route taken by the profession (actually, this focus on incentives is also present in Barry Eichengreen's earlier analysis).
Now at one level, it's not at all a surprise that this kind of assertion infuriates people: nobody likes to be accused of having been bought or having trimmed their sails to the prevailing political winds. But on another, if there is any profession that should be sympathetic to this kind of analysis, it should be economics.
After all, as Steven Landsburg notes right at the start of his book The Armchair Economist, 'Most of economics can be summarised in four words: “People respond to incentives”. The rest is commentary.' So in that sense at least, an argument like that of Krugman or Eichengreen, postulating that the profession has responded to incentives, should not be especially controversial.
Last, the way the debate is dividing economists in the US in particular seems to be pretty closely related to many of the participants' political beliefs. With policy prescriptions dictated, at least in part, by political preference, economics is still a fair way off from Keynes' vision of economists as 'as humble, competent people on a level with dentists'. Of course, this should not really be a surprise, since some of the issues at stake are inherently political.
Photo by Flickr user Taekwonweirdo, used under a Creative Commons license.