Friday, September 4, 2009

Krugman on macroeconomics

Excellent and fairly balanced article by Nobel laureate Paul Krugman: "How Did Economists Get It So Wrong?" coming out in NYT Sunday magazine. Well worth reading. I must admit that I always found the extreme versions of "freshwater" macroeconomics a bit hard to swallow. However, I am not buying Krugman's call to put Keynes at the centerpiece of modern macro thinking. Even if every economist on the face of the earth used Keynesian modelling, would it have made any difference over the last year? Who besides Nouriel Roubini (aka Dr. Doom) forecasted the severe recession accurately? And before you give Roubini too much credit, please realize some economist somewhere is always saying "the end is near!"

Finance students: be sure to read about Larry Summers theory of ketchup economics!

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