Dumb and Dumber To

5 Nov, 2014 at 09:27 | Posted in Economics | 1 Comment


lucasbob-1Macroeconomics was born as a distinct field in the 1940s (sic!), as a part of the intellectual response to the Great Depression. The term then referred to the body of knowledge and expertise that we hoped would prevent the recurrence of that economic disaster. My thesis in this lecture is that macroeconomics in this original sense has succeeded: Its central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades.

Robert Lucas (2003)

In the past, I think you have been quoted as saying that you don’t even believe in the possibility of bubbles.

eugeneEugene Fama: I never said that. I want people to use the term in a consistent way. For example, I didn’t renew my subscription to The Economist because they use the world bubble three times on every page. Any time prices went up and down—I guess that is what they call a bubble. People have become entirely sloppy. People have jumped on the bandwagon of blaming financial markets. I can tell a story very easily in which the financial markets were a casualty of the recession, not a cause of it.

That’s your view, correct?

Fama: Yeah.

John Cassidy

And in case you think that one shouldn’t be rude about people you disagree with, let me be very clear on the issue.

respectEvery now and then I get some upset comments from people wondering why I’m not always respectful of people like Eugene Fama, Robert Lucas, Greg Mankiw and others of the same ilk. Here’s a good hint at why it might sometimes be quite appropriate to be disrespectful:

Why can’t I be serious and respectful? Well, the answer is that we’re not having a serious conversation. There are real debates in economics — for example, about how much slack remains in the economy, how effective unconventional monetary policy really is, etc.. For those debates a respectful tone is appropriate. But when people resurrect 80-year-old fallacies, then claim that they never said what they said, then come right back with the same thing, we need colorful language to convey the deep unseriousness of their position.

Paul Krugman

1 Comment

  1. As a lay person, it strikes me the point that people put so much effort in such a trivial thing as new classical/ new keynesian macro, and if that critique has the implicit reductio ad absurdum: “Since this is clearly false, mine is True”. I can’t but start to feel suspicious of all economics no matter what the school from which is coming from
    So what I’m asking is fairly simple, can anybody provide with an honest and thorough critique of DSGE macro than the usual finger-wagging?

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