Tuesday, April 11, 2017

Paul Krugman talks about econ theories


Paul Krugman is an influential economist best known for his contributions to trade theory and his support for liberal economic policies. Krugman is arguably the most recognizable economist in the world today. Econ blogger Noah Smith says,
As to the question of whether he is the most important American public intellectual of our time...well, I'm having a hard time thinking of who else would fit that description.
In 1990, the famous 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.
Krugman has an interesting philosophy of economics. Krugman is known for both criticizing modern economics and defending formal economic analysis. This post is a collection of quotes describing Krugman's philosophy of economics.

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)

"I have no sympathy for those people who criticize the unrealistic simplifications of model-builders, and imagine that they achieve greater sophistication by avoiding stating their assumptions clearly. The point is to realize that economic models are metaphors, not truth. By all means express your thoughts in models, as pretty as possible (more on that below). But always remember that you may have gotten the metaphor wrong, and that someone else with a different metaphor may be seeing something that you are missing." (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)

"What I believe is that the age of creative silliness is not past. Virtue, as an economic theorist, does not consist in squeezing the last drop of blood out of assumptions that have come to seem natural because they have been used in a few hundred earlier papers. If a new set of assumptions seems to yield a valuable set of insights, then never mind if they seem strange." (How I Work, 1993)

"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)

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