There’s another article I’d like to recommend to you, Paul Krugman’s article for the New York Times Magazine, How Did Economists Get It So Wrong?. By Dr. Krugman’s standards this article is pleasantly light on partisan acrimony.
In the article Dr. Krugman attributes the failure of economists to appreciate that the financial system and the economy it services were on the brink of a serious recession for a number of reasons:
- The triumph of incorrect econometric models
- Overly optimistic macroeconomists
- The disconnect between macroeconomics and finance
- Ignoring the naysayers
- Failing to embrace the idea of fiscal stimulus through a large spending package soon enough
There are some things that I think Dr. Krugman does not himself appreciate. Economics is still not a predictive science and it may never be. It is a descriptive science. Its principles are handy for understanding what we see going on around us but we shouldn’t let that seduce us into believing that economists hold the answers to the real life problems that bedevil us.
But even more than that economics is a science of human behavior and, first and foremost, its findings must spring from observing that behavior rather than trying to impose a beautiful mathematics on inherently messy phenomena.