The State of Macro

Paul Krugman has a very good article in the New York Times on the state of macroeconomics and how the profession got blindsided by the credit crisis. As an economics writer, there simply isn’t anyone better at bringing complex issues to the average reader. As a partisan political writer, well, that’s a different matter.
I only have two minor quibbles. The first is that I think Krugman overstates the importance that economic ideas have on theory. Just because a lot of professors who write in journals and show up at conferences believe in efficient markets doesn’t mean that impacts policy at all. That’s a tough line to draw from theory to results.
The second point is that I think he overstates the faith in efficient markets. I could be wrong here, but I’ve rarely met a trader of professional investors who believes in, or even cares about, efficient markets. Krugman makes it sounds as if this were a widely held doctrine that was suddenly exposed by the housing bubble. For many economists, that could be correct. I would think the tech bubble, which Krugman doesn’t mention, was a better refutation of efficient markets.
Anyway, those are minor points. It’s a good read.

Posted by on September 4th, 2009 at 10:31 am


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