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Learn to live with messiness.

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How Did Economists Get It So Wrong? - NYTimes.com (Paul Krugman, 09/07/2009)

In his New York Times Column, The Conscience of a Liberal, recent Nobelist Paul Krugman published an interesting long article about how economists have been blind “to the very possibility of catastrophic failures in a market economy.” In part, he argues that the economics profession, as a group, has “mistook beauty, clad in impressive-looking mathematics, for truth.”

Interestingly, Paul Krugman categorizes macroeconomics scholars into two factions: (1) “saltwater” economists (mainly in coastal U.S. universities), who more or less share a Keynesian view of recessions as inadequate demand due to irrational behavior or idiosyncratic imperfections of markets; and (2) “freshwater” economists (mainly at inland schools such U. Chicago and UMN), who hold the neoclassical assumption of perfect market or perfect rationality, and consider unnecessary to fight recessions as “the economy’s adjustment to change.”

I am not specialized in macroeconomics and so not have to take a stand in the argument. From a policy scholar’s perspective, however, I do support the columnist’s points that we ought to pay more attention “to the limitations of human rationality that often lead to bubbles and busts; to the problems of institutions that run amok; to the imperfections of market ...; and to the dangers created when regulators don’t believe in regulation.”

“Economists will have to learn to live with messiness,” Krugman argues. For theoretical building, I understand economists’ enthusiastic pursue of beautifully clean mathematical models; when it goes to practice, however, economists -- as well as all all other policy scholars -- should be very careful in providing recommendations to real world policy issues before they take into full consideration of that “messiness.”

But the Economists DIDN'T Get Everything Wrong (Justin Fox, 09/04/2009)

Two days after I read the article by Paul Kurgman, I came across this Times article by Justin Fox. The defense reads weak to me, even just from the title. Nobody would blame that the economists “get everything wrong.” The proud profession were just expected to have been more right with policy issues as critical as recessions.

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