Chandan Sapkota’s Blog

A very interesting piece about the ideological argument on economics, especially after the current financial crisis. Its a refresher in the history of financial thought. Even though the crisis has uncovered bitter divisions among economists, maybe it’s best for economics still. ROBERT LUCAS, one of the biggest macro economists of his generation, and his followers are “making ancient and basic analytical errors everywhere”.

Harvard’s Robert Barro, another towering amount in the discipline, is “making boneheaded arguments” truly. Days gone by 30 years of macroeconomics training at American and British universities were a “costly waste of time”. Towards the uninitiated, economics has been a dismal research always. But all these attacks come from within the guild: from Brad DeLong of the University of California, Berkeley; Paul Krugman of Princeton and the New York Times; and Willem Buiter of the London School of Economics (LSE), respectively.

The macroeconomic turmoil of the past 2 yrs is also provoking a crisis of confidence in macroeconomics. In the last of his Lionel Robbins lectures at the LSE on June 10th, Mr Krugman feared that a lot of macroeconomics of the past 30 years was “spectacularly ineffective at best and harmful at worst” favorably.

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These internal critics claim that economists skipped the origins of the problems; failed to appreciate its worst symptoms;, and cannot acknowledge about the remedy. Quite simply, economists misread the economy on the way up, misread it along the way down and mistake the correct way out now. Along the way up, macroeconomists were not wholly complacent. Most of them thought the housing bubble would pop or the dollar would fall.

But they did not expect the economic climate to break. In August 2007 Even following the seizure in interbank markets, macroeconomics misread the risk. Nor can economists now acknowledge the best way to solve the crisis. They mostly overestimated the power of routine, monetary policy (ie, central-bank purchases of government bills) to revive prosperity.

Some now dismiss the energy of the fiscal plan (ie, government sales of its securities) to do the same. Others advocate it with passionate strength. Among the passionate is Mr. Mr and DeLong Krugman. They turn for inspiration to Depression-era texts, the writings of John Maynard Keynes especially, and forgotten mavericks, such as Hyman Minsky.

In the humanities this would count as routine scholarship. But to many high-tech economists it is a bit undignified. Real researchers, after all, do not leaf through Newton’s “Principia Mathematica” to solve modern problems in physics. They accuse economists like Mr. DeLong and Mr Krugman of falling back on antiquated Keynesian doctrines-as if nothing at all had been discovered in the past 70 years.