Krugman disses students that want to rethink economics

27 Nov, 2013 at 19:12 | Posted in Economics | 14 Comments

Paul Krugman today rides out — like his brother in arms, Simon Wren-Lewis — to defend mainstream economics. According to Krugman, yours truly and others of that ilk are wrong in blaming mainstream economics for not being relevant and not being able to foresee the crisis. To Krugman there is nothing wrong with “standard theory” and “economics textbooks.” If only policy makers and economists stick to “standard economic analysis” everything would be just fine.

I’ll be dipped! If there’s anything the last five years have shown us, it is that economists have gone astray in their shed of tools. Krugman’s “standard theory” — neoclassical economics – has contributed to causing todays’s economic crisis rather than to solving it.
Rethinking econ_0Reading Krugman’s post, I guess a lot of the young economics students in UK and US that today are looking for alternatives to the autistic mainstream neoclassical theory are deeply disappointed. Rightly so. But — although Krugman, especially on his blog, certainly tries to present himself as a kind of radical and anti-establishment economics guy — when it really counts, he shows what he is —  a die-hard teflon-coated neoclassical economist.

Perhaps this becomes less perplexing to grasp when one considers what Krugman said already in 1996, when he was invited to speak to the European Association for Evolutionary Political Economy. So here – right from the horse’s mouth – I quote from the speech (emphasis added):

I like to think that I am more open-minded about alternative approaches to economics than most, but I am basically a maximization-and-equilibrium kind of guy. Indeed, I am quite fanatical about defending the relevance of standard economic models in many situations.

I won’t say that I am entirely happy with the state of economics. But let us be honest: I have done very well within the world of conventional economics. I have pushed the envelope, but not broken it, and have received very widespread acceptance for my ideas. What this means is that I may have more sympathy for standard economics than most of you. My criticisms are those of someone who loves the field and has seen that affection repaid. I don’t know if that makes me morally better or worse than someone who criticizes from outside, but anyway it makes me different.

To me, it seems that what we know as economics is the study of those phenomena that can be understood as emerging from the interactions among intelligent, self-interested individuals. Notice that there are really four parts to this definition. Let’s read from right to left.

1. Economics is about what individuals do: not classes, not “correlations of forces”, but individual actors. This is not to deny the relevance of higher levels of analysis, but they must be grounded in individual behavior. Methodological individualism is of the essence.

2. The individuals are self-interested. There is nothing in economics that inherently prevents us from allowing people to derive satisfaction from others’ consumption, but the predictive power of economic theory comes from the presumption that normally people care about themselves.

3. The individuals are intelligent: obvious opportunities for gain are not neglected. Hundred-dollar bills do not lie unattended in the street for very long.

4. We are concerned with the interaction of such individuals: Most interesting economic theory, from supply and demand on, is about “invisible hand” processes in which the collective outcome is not what individuals intended.

Personally, I consider myself a proud neoclassicist. By this I clearly don’t mean that I believe in perfect competition all the way. What I mean is that I prefer, when I can, to make sense of the world using models in which individuals maximize and the interaction of these individuals can be summarized by some concept of equilibrium. The reason I like that kind of model is not that I believe it to be literally true, but that I am intensely aware of the power of maximization-and-equilibrium to organize one’s thinking – and I have seen the propensity of those who try to do economics without those organizing devices to produce sheer nonsense when they imagine they are freeing themselves from some confining orthodoxy.

So now all you young economics students that want to see a real change in economics and the way it’s taught — now you know where you have Krugman & Co. If you really want something other than the same old neoclassical catechism, if you really don’t want to be force-fed with neoclassical mumbo jumbo, you have to look elsewhere. 


  1. Maybe (3) ‘individuals are intelligent’ should be ‘individuals are short-sighted but intelligent’? Krugman’s approach seems okay in the short-run. The problem is, the longer-run sometimes happens, as in 2006/7/8. It seems to me that the key thing about Keynes was not that he had a different view of the current phase of the economy, but that he was taking some responsibility for the future.

  2. […] “…although Krugman tries to present himself as a kind of radical and anti-establishment economics guy…”… […]

  3. As Limit of Economics education approaches 0 = change major.

    Do not waste youth donating to a false education or religion.

  4. Krugman has already commented on this but let me cite your 1996 quoting of Krugman – “I am basically a maximization-and-equilibrium kind of guy”. They may have been his approach 17 years ago but it was not the approach of Keynes in 1936. Krugman has dusted off the General Theory in the meantime as the New Classical approach which dominated macroeconomics in graduate schools has utterly failed. Keynes welcomed fresh thinking and I suspect Paul Krugman does too.

  5. Krugman has been disregarded (at best) and villified (at worst) by politicians in the US and EU who refuse to consider the new-Keynesian models Krugman employs. With their economies mired in a liquidity trap, these politicians steadfastly continue to employ their failed models and discredited austerity measures that only make a bad situation worse.

    Now you accuse Krugman of behaving as his adversaries are behaving. In fact, it is not Krugman’s “mainstream economics that spectacularly failed” but rather the politicians’ antiquated economics that have failed consistently and spectacularly.

    You need to rethink your position. How can you accuse Krugman of being “mainstream” when no leader except Abe in Japan will utilize Krugman’s analysis and recommendations.

  6. The crisis was caused by financial de-regulation.

    If the powers that be took advantage of the low interest rates and built some infrastructure, the crisis would be long over.

    No fancy complicated economics needed.

  7. […] This fellow finds a very good quote where Paul Krugman defends himself as an establishment economist… We should all wonder: if the year was 1968, would Paul Krugman be considered left-of-center or right-of-center? […]

  8. […] Krugman and Simon Wren-Lewis have been widely criticized (for example here) as defending  “mainstream” economics that spectacularly failed during the crisis (and […]

  9. I do believe that Krugman has a point, a very good one, when he claims that standard textbook analysis is (almost) all you need to understand the current crisis, and to implement the correct policy solutions.
    The point is WHICH textbook analysis. He refers to IS-LM models that virtually disappeared from graduate curricula because too simplistic, not grounded on optimization, not intertemporal, and so on and so forth.
    I personally was exposed to these ideas in my undergraduate studies in Italy, and I still teach them (besides using them to discuss the crisis with my students). But they were nowhere to be found during my graduate studies at Columbia (not a Freshwater school). None of the macro I studied in graduate school, as interesting as it was, could give me insight on the crisis. IS-LM macro with minor amendements (most notably in properly taking care of expectations) remain a powerful tool to understand current phenomena.

  10. It is useful to note that Althusser claimed ideology was a science, or could be understood scientifically!!!

  11. It suffices to read the reader picks comments of Krugman’s article to see that he has not been very convincing.

  12. Thank you for stimulating thinking and for being honenst as an economist.

    I apologize in advance if my aspects of my article are offending but I write the way I feel.

  13. I think it’s pretty remarkable that Krugman cherry picks what parts of “standard” or “textbook” economics should have been followed in his defense. Any cursory glance at the mainstream opinion within the economics profession would reveal that most thought financial crises were all but impossible and monetary policy could always stabilize an economy. Just look at Ben “Great Moderation” Bernanke.

    It’s one thing to do that ex post facto, when mainstream economics has been exposed for what a fraud it is; it’s another to do it ex ante, which is something none of the proponents of neoclassical economics were able to do.

    Also, lel at “I’m a proud neoclassicist”. I need to throw that in the face of every mainstream economist who insists that “neoclassical economics” is just a strawman on the part of the heterodox folks.

  14. I found his post – i.e., Krugman, to be convincing overall.

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