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Paul Krugman Explains Why Economics is Bankrupt as a Profession--And an Explanation.

Posted by: Bruce Nussbaum on September 08, 2009

The most important thing written over the weekend was not about health care but about the dismal profession of economics by Paul Krugman. It’s important for innovators, designers and just about everyone to read this splendid story of how economists, especially the math-based, market-manic Chicago-school economists, have hurt the US and much of the rest of the world.

The Krugman piece reaffirms my own view of the economics profession. I began my journalism career writing for The Far Eastern Economic Review while I was still in the Peace Corps in the late 60s. The Review was run by Brits and its analytic paradigm was that of British political economy. Economics and business was seen within the context of real people, policy, society and politics. Economics was relevent to undertanding what was happening to our personal lives.

When I went to the University of Michigan, I discovered this was no longer the case. I still have six incompletes in my economics courses because every time I took one, the professor began with “imagine an equilibrium.” Why in the world would you want to imagine an equilibrium when you wanted to discuss growth, mobility, inequality, trade, currencies? Why pretend? The answer was so we can generate equations that were long on elegance but short on explanation.
So I gravitated to Anthropology and Sociology and loved them. Political Science was still great then as well, although it later went the road of Eonomics.

Krugman shows how economics as practiced in the US left all this behind to become an arcane, narrow and ultimately hollow social "science." It has to be reinvented. And it is. Behavioral economics and Innovation economics are beginning to replace it. None too soon.

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Reader Comments

Ron Strauss, Brandzone LLC

September 8, 2009 05:55 PM

Several decades ago, as a freshman taking macro economics at Cornell, I worked on an assignment to prescribe economic development schemes for Indonesia. I quickly realized that tribal and social mores at that time severely limited the role of men in terms of their role in labor. My paper dealt with this limitation. I was told by my economics professor that 'sociology' had no place in economics. That taught me that 'classical' economics was detached from the real world - and was of limited value in explaining complex, inter-related systems.

Telly Talk

September 8, 2009 06:15 PM

Well worth seeing the University of Chicago Nobel Prize winner Robert Lucas defending his faculty's economics, but also admitting some problems here ...

Laurence Weiss

September 8, 2009 08:43 PM

Having spent time as both a saltwater economist ( phd Harvard ‘77, colleague of Paul Krugman at Yale (1977-1980) and as a freshwater economist ( colleague of Robert Lucas, University of Chicago 1980-1984) I must object to Krugman’s characterization of the difference. It is not that one group is pragmatic pro-government realists and the other right wing idealogues The difference is saltwater economists aspire to write Sunday New York Times articles, while freshwater economists write for other economists. Milton Friedman, the quintessential “Chicago” economist decamped for the saltier environs of the west coast when he realized this.

When I first met Krugman at Yale in 1977, I asked him why he became an economist. His one word answer was all I needed. “Policy”, he said. The only correct answer is “truth”. I knew we would never get along.

At Yale, I admit to having been one of those culprits “seeking an intellectually elegant approach”, which, according to Krugman, is “the central cause of the profession’s failure”. I take “intellectually elegant” to mean understandable and usable knowledge. The problem with Krugmans “New Keynesian”, (and the old Keynesianism for that matter) is not that it is wrong. It is vacuous. If it explains everything does it explain anything?
Are there any facts Krugman would take to disprove the master?

At Yale, I heard many jokes about the University of Chicago, especially about Gary Becker and “The Economics of Toothbrushing” (lampooning his important work on the economics of the family and marriage) At the University of Chicago, I don’t remember ever hearing a joke about Yale. They were far too serious.

I too share Krugman’s disappointment with the field of macroeconomics. To blame this on the University of Chicago and the quest for academic rigor seems to me unhelpful. But maybe it will help Krugman implement “policy”.

Laurence Weiss

Chris Widman

September 9, 2009 02:07 AM



September 9, 2009 01:01 PM

It's only a matter of time before Economics returns to it's true mathematical roots, re-vitalized. If Economics is really a science (it is), then why pretend that equations are not required?

Behavior, Innovation, Herd Mentality, Bubbles, and even Madness can be modeled in those equations.


September 9, 2009 07:01 PM

One thing I find interesting is that economics has been relegated to the confines of a single type of economic system. Everyone relies on an a priori assumption that capitalism, by default, is infallable. In doing so, economists have attempted to analyze the phenomena, as opposed to the core principles.

If we are to treat economy as a science, we owe it to the process to critique the very fundamental elements of the system of capitalism. If we don't want to rock the boat, fine, I can accept that. But, then let us also accept that capitalism's survival requires a "Keynesian" approach or an otherwise "government hand" in the economy. If not, consider what this country would be like if there were no slavery, if there were no WWII, if there were no Economic Stimulus, and if there were no $4 trillion Fed Discount window for BS-backed commitments.

We can also choose to be scientists and may have to accept that capitalism has fundamental flaws. But, if we start from that premise, we quickly realize that, policy-wise, the main difference between Keynes and Marx is that one approach is reactionary and the other proactive; one is lagging and one is planned.

Rob Thompson

September 9, 2009 07:59 PM

An interesting view on this article from a friend of mine:

"It seems to me that Krugman has a lot of good points and one huge gaping problem with his article. He's right that free-market economists get it wrong when they dismiss the Great Depression and other such events as no more than random errors. But then he has that one disingenuous paragraph when he says "the 1970s cast some doubt on Keynes" and then moves on. He's doing to the 1970s the very thing he accuses Chicago Schoolers of doing to recessions. It's as if he believes there are only two possible worlds, Chicago or Keynes, and if Chicago is wrong then by definition Keynes must be right. But maybe they're *both* wrong, or *both* have some merit. It's a throw-away paragraph, but it quickly lays bare a troubling dichotomy Krugman seems to have accepted."

JS OBrien

September 14, 2009 04:17 PM

I suppose that, had I been asked why I study mass human behavior, I might have answered "policy" or something very similar to it. Perhaps this explains why those of us who value any field of scientific (supposedly) endeavor in light of its ability to predict real world conditions have so little patience for economics ... or for that matter, theology. Both, it would appear, at least according to Mr. Weiss, should pursue "truth."

Since I've spent most of my career in mass psychology, one thing that is evident to me is that the economic man model (or expectancy/valence model if you prefer) is only one of three models that predict some human behavior some of the time. As neuropsychology emerges, it's becoming clear that Heider's consistency theory is actually more useful in predicting human behavior, even mass human behavior, than economic theory in, perhaps, a majority of situations.

Modern economics is to behavioral reality as the Ptolemaic solar system is to physical reality. Psychologists have known this for at least eight decades. What is most maddening, though, is that the pronouncements one reads from "leading economists" in the media are quite often couched in terms befitting the certainty of physics -- not the mushiness that really characterizes economics.

I suggest that economists consider muzzling themselves in the public arena until they have, in fact, built a science equal to that of physics and chemistry. On that day, I will listen to them. Until then, I might as well just attend my Unitarian Universalist church. The information from both venues will be equally precise.

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