Summary: Krugman implies that most economists either believe in the simplistic Keynesian theory, or the absurd efficient market theory. Neither viewpoint was helpful in predicting the 2008 downturn. But Krugman suggests that another theory, behavioral economics, may have useful predictive ability.
[end summary] Perhaps behavioral economics may have more predictive ability than Keynes or EMT. If so, I would like to know why so few economists have been making useful predictions with BE. Behavioral economics is not brand new -- elements of it have been published for decades, and it has certainly received plenty of attention in the past 10 years. If politicians are so concerned with helping the economy, why did they not warn us long ago about impending trouble based on the predictions of people like Shiller and Roubini? Instead of Bernanke reassuring everyone that things were fine just before the 2008 downturn, shouldn't the politicians have been warning us for years that trouble was coming unless we reduced leverage and eliminated all the incentives to sell mortgages to people who could not afford them? Politicians figure that voters do not like Cassandras. They may be right. Perhaps what is needed more than a theory of behavioral economics is a theory of behavioral politics. _______________________________________________ http://mccmedia.com/mailman/listinfo/brin-l_mccmedia.com
