Via his NY Times blog, yesterday, Princeton economics professor and Nobel Prize-winner Paul Krugman released the text of a speech he gave in Lisbon, Portugal, just over a week ago. It’s pretty lengthy and fairly wonkish; but, here are some of the opening “money” lines…
Economics in the Crisis
Paul Krugman
New York Times, “Conscience of a Liberal” blog
March 5, 2012, 8:42 am
ECONOMICS IN THE CRISIS
Paul Krugman
For delivery 27 February, 2012
To say the obvious: we’re now in the fourth year of a truly nightmarish economic crisis. I like to think that I was more prepared than most for the possibility that such a thing might happen; developments in Asia in the late 1990s badly shook my faith in the widely accepted proposition that events like those of the 1930s could never happen again. But even pessimists like me, even those who realized that the age of bank runs and liquidity traps was not yet over, failed to realize how bad a crisis was waiting to happen – and how grossly inadequate the policy response would be when it did happen.
And the inadequacy of policy is something that should bother economists greatly – indeed, it should make them ashamed of their profession, which is certainly how I feel. For times of crisis are when economists are most needed. If they cannot get their advice accepted in the clinch – or, worse yet, if they have no useful advice to offer – the whole enterprise of economic scholarship has failed in its most essential duty.
And that is, of course, what has just happened...
...In what follows I will talk first about the general role of economics in times of crisis. Then I’ll turn to the specifics of the role economics should have been playing these past few years, and the reasons why it has for the most part not played this role. At the end I’ll talk about what might make things better the next time around.
Crises and useful economics
Let me start with a paradox: times of economic disturbance and disorder, of crisis and chaos, are times when economic analysis is especially likely to be wrong. Yet such times are also when economics is most useful.
Why the paradox? Well, first of all, consider what economics can contribute in calm times.
The answer, I’d submit, is surprisingly little. OK, economists can explain why the system works the way it does, and offer useful advice about reforms that would make it better; there’s always use for good microeconomics.
But if you’re trying to make predictions, economists won’t have much to contribute…
…The problem, of course, is exactly the one Keynes himself diagnosed in his most famous quote:
“But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.”
And, as his colleague
Joseph Stiglitz noted a few weeks ago,
Krugman also reminded us, early last month, that “the storm” is far from “past.”
“Things Are Not O.K.” Not by a longshot…
“Saez' 2010 Inequality Update: Incomes of 1% Grew 11.6%, Incomes of 99% ‘Grew’ 0.2%”
“We're ‘Adrift in a Sea of Economic Data,’ Because ‘Economics Is People Not Arithmetic’”
“A Stunningly Somber Wake-Up Call And A Must-Read: Alexander Eichler On Poverty And Income Inequality”
“Michael Olenick: Debunking the ‘Housing Has Bottomed’ Meme”
“Now Playing In Europe: Wall Street Backdoor Bailout Redux”