Paul Krugman's Presidential Address to the Eastern Economic Association,
"The Profession as well as the Crisis," has been published inward the Eastern Economic Journal. Some excerpts:
On the shortcomings of economic science inward recent years: "There is a existent feel inward which times similar these are what economists are for, merely every bit wars are what career armed forces officers are for. OK, perchance I tin permit microeconomists off the hook. But macroeconomics is, higher upwards all, nearly agreement as well as preventing or at to the lowest degree mitigating economical downturns. This crisis was the fourth dimension for the economic science profession to justify its existence, for us academic scribblers to exhibit what all our models as well as analysis are proficient for. We select not, to set it mildly, delivered."
On the failure of many economists to come across the housing bubble: Well, from my dot of persuasion — which, because I’m similar everyone else, is that what I saw as well as no to a greater extent than is what everyone should select seen — it all the same seems bizarre how many economists failed to come across that nosotros were experiencing a monstrous housing bubble. As Robert Shiller has documented — and, crucially, was documenting inward existent fourth dimension circa 2004–5–6 [Shiller 2005] — the rising inward existent housing prices afterwards 2002 or as well as hence took them into completely unprecedented territory. It was the clearest marketplace mispricing I’ve seen inward my professional person life, fifty-fifty to a greater extent than manifestly out of work than the dot-com bubble, which at to the lowest degree had the excuse that it involved novel technologies alongside unknown potential; houses select been alongside us for 7,000 years or so, as well as nosotros should select a reasonable thought of what they’re worth. ...
What nearly what would hap when the bubble burst? I personally failed to realize how large the “knock-on” effects would be; as well as according to the self-justifying principle, I’m tempted to say that nobody could reasonably select been expected to larn that right. But actually, nosotros should select seen that coming every bit good — perchance non inward amount detail, but fifty-fifty a casual walk through historical crises should select indicated that a housing bust was probable to convey large fiscal as well as balance-sheet problems inward its wake. I kicking myself every in 1 lawsuit inward a land for failing to intend that component through. ...
Still, every bit Yogi Berra said, it's tough to brand predictions, particularly nearly the future. There are as well as hence many things going on inward the world, many of them off whatsoever modeler's radar, that the profession's failure to come across this crisis coming is not, inward my mind, anything unopen to its biggest sin."
A furnish to the macroeconomic Dark Ages?
"But what became clear inward the policy fighting afterwards the 2008 crisis was that many economists — including many macroeconomists — don’t know the simplest multiplier analysis. They literally know zip nearly models inward which aggregate need tin last determined yesteryear to a greater extent than than the quantity of money. I’m non maxim that they select looked into such models as well as rejected them; they are unaware that it's fifty-fifty possible to tell a logically consistent Keynesian story. We’ve entered a Dark Age of macroeconomics, inward which much of the profession has lost its quondam knowledge, merely every bit barbarian Europe had lost the noesis of the Greeks as well as Romans. ...
All of this would select been OK if the triumph of anti-Keynesianism was justified yesteryear superior empirical success. But it wasn’t. As I read the history of the equilibrium approach, it's a even out of failing upward. Lucas-type models clearly failed to concern human relationship for the duration of slumps; rather than reconsider flexible prices as well as rational expectations, Lucas's followers moved on to existent concern cycles (RBC). RBC models failed to generate whatsoever strikingly successful predictions, as well as inward fact lost whatever plausibility they had in 1 lawsuit productivity started becoming pro-cyclical rather than counter-cyclical. But yesteryear that fourth dimension the people doing these models didn’t know that at that spot was whatsoever alternative.
And the resultant was that faced alongside a severe economical crisis, the profession spoke alongside a cacophony of voices. Or perchance a amend means to set it is that the policy fighting of 2009–2010 was virtually indistinguishable from the policy fighting of 1931–1932. Long-refuted doctrines that should select been consigned to the dustbin of history were stated every bit if they were fresh novel ideas — as well as they were fresh as well as novel to many economists, because our profession had lost as well as hence much of its heritage.
In short, inward responding to the crisis, the profession presented a distressing spectacle of unnecessary ignorance that didn’t fifty-fifty recognize itself every bit ignorance, of bitter fighting over issues that were resolved many decades earlier. And all of this, of course, made the profession to a greater extent than oftentimes than non useless at a fourth dimension when it could as well as should select been of non bad service. Put it this way: nosotros would select responded amend to this crisis if macroeconomics had been frozen at the degree of noesis it had inward 1948, when Paul Samuelson published the showtime edition of his famous textbook. And the resultant has been to larn out actual policy news without whatsoever champaign of report from the people who should last shaping that discussion: politicians as well as officials select been gratis to follow their prejudices as well as intuitions, never hear the lessons of history as well as analysis. Economists select failed to fulfill their social function."