Other people's deep thoughts on economists dropping the ball

Paul Krugman writes something worth reading, his profession's mea culpa. Some great pictures too.

http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html

MISTAKING BEAUTY FOR TRUTH

FROM SMITH TO KEYNES AND BACK

PANGLOSSIAN FINANCE

THE TROUBLE WITH MACRO

NOBODY COULD HAVE PREDICTED . . .

THE STIMULUS SQUABBLE

FLAWS AND FRICTIONS

RE-EMBRACING KEYNES <boo>

TNR's Noam Scheiber thinks Krugman wasn't critical enough. He also fleshes out some ides from behavioral finance. A profile of behavioral finance is to come. Suffice to say that it is a solid positive step away from normal distribution models and equilibrium. But negative points for Shreiber putting Shiller and chinfat Summers in the same sentence.

http://www.tnr.com/blog/the-stash/krugman-too-optimistic-about-the-economics-discipline

“The one thing that makes me optimistic--and it's a subtext of the Krugman piece--is that I think knowledge in economics is pretty countercyclical. That is, during good times, lots of economists (though by no means most or all) don't feel a particular urgency about solving important, real-world problems. They feel free to stroll off into sumo-wrestling corruption, or whatever. But in the aftermath of the biggest economic crisis since the 1930s, I suspect a lot more super-smart people are going to focus on fundamental problems like asset-price bubbles and long-term unemployment, to say nothing of how we re-establish self-sustaining growth after a deep recession. Economists are just like anyone else in that respect--they respond to the world around them.”

This is one of those, don't focus on the author just look at the ideas, things. Even though I've never heard of this guy he lays down some common sense observations about a profession that doesn't believe in common sense.

http://seekingalpha.com/article/161612-how-did-economists-blow-it-part-3-the-assumed-markets-theory

“I disagree with the 'our models are wrong because people are idiots' crowd and think that, as a group, society is extraordinarily smart, logical and rational. When we act in a herd it is because we are all getting stuck by the same cattle prod and being bit at by the same sheepdog. Instead of saying people are dumb and friction exists in markets, economists should spend their time trying to understand the common sociological, governmental, psychological and economic stimuli that motivate each and every one of us.”

A concise but useful discussion of the various models and schools of thought in modern economics. Krugman is very long winded in his where are we now explanation and this article fills some of those holes.

http://economistsview.typepad.com/economistsview/2009/09/who-has-all-the-answers.html

“There is no grand, unifying theoretical structure in economics. We do not have one model that rules them all. Instead, what we have are models that are good at answering some questions - the ones they were built to answer - and not so good at answering others. “

and he recounts this gem in an exposition on Howard Minsky - “There is nothing wrong with macroeconomics that another depression [won't] cure.”

AND hopefully you are still reading cause I save the best for last. A magnificent writeup of Robert Shiller. AKA Case-Shiller went from embryo to #1 housing indicator in only a couple of years. AKA Greenspan's foil. AKA it took two crashes for academic (read: Fed) economists to take him seriously.

http://www.yalealumnimagazine.com/issues/2009_09/shiller032.html

“Anyone who heeded the central lesson of Shiller and Campbell's analysis -- as well as the lesson of a subsequent chart, created by Shiller, on the housing market -- could have avoided some of the worst pain of the financial crisis. If Alan Greenspan had taken The Chart seriously during the late 1990s, Greenspan's reputation might be in better shape today. So might the United States economy. Nouriel Roubini, the doomsday-prophesizing finance professor at New York University who has lately become a media darling, credits The Chart for much of his clairvoyance.”

The theme song for this forum thread is from Atlanta's own Gorilla Zoe and Yung Joc – Juicebox: http://www.youtube.com/watch?v=-UyzY7Ry9NQ

The spirit animal for this forum thread is the Sea Cucumber