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Krugman’s article offers a detailed critical analysis of the economics profession and its failure to foresee the economic collapse. He faults the economics profession by arguing that the economists failed to predict the current messy economic situation. He is quick to note that the economists are filled with mathematical pride and depend on reliable market theories to predict the market stability (Krugman 6) which ends up overshadowing the true situation.
Though he admits that there are some economists who predicted a likelihood of the market fall, most of them had put their trust in the market system. He however points out that the economists who fall in this class of ‘neoclassical economics’ are the modern professionals (Krugman 9). Being an avid supporter of Keynesian economics, he advocates for the economists to embrace the Keynesian framework. This framework, he argues, remains the best platform to assess recessions and depressions (Krugman 76).
Is Krugman Right or Wrong?
The article offers a critical review of the economics profession in a way that captivates the reader’s mind. However, Krugman’s argument stands to be faulted for failure in providing sufficient evidence to support his claims. He has further been criticised as being partisan by most economists because he fails to look at both sides of the coin. His idea of adapting the old Keynesian model as a means of restoring the economics profession’s reputation lacks authenticity.
Economists are aware that the model cannot be relied on to clarify the nominal GDP growth rate. One of the leading economists of his time ,Allan Meltzer, gave a solid argument in 1988 by stating that a fiscal policy is determined when a monetary policy fails to be effective (Budd 46).
If the ineffectiveness is at zero rate, then it becomes obvious that there is a positive inflation rate as opposed to fiscal stimulus. Krugman on his part argues that a zero rate is not sufficient to end the current recession (Krugman 54). He faults the Obama administration for failing to support the economy and allowing the state to be up against the zero low rate.
By criticising the economists and their failure to foresee the economy’s downfall, Krugman is being hypocritical. He argues that the education being offered to modern economists is to blame for the current situation. However, he fails to acknowledge the ‘Great Moderation’ period which recorded a great flawless macroeconomic achievement.
The economists predicted a long period of stable markets by relying on a workable market theory. This is a clear indication that the market system can be relied upon besides the few times that the financial markets become irrational. Krugman further fails to specifically give some of the key reasons that can lead to a severe recession but instead bashes the economics profession.
Though the article is very insightful, Krugman disregards many things in his attempt to discredit the economics profession. By recommending the Keynesian model, he fails to clearly state how it can be applied to support the current economic situation. He offers a solution by suggesting to the economists that they start realising that financial markets are not perfect as they have been led to believe.
They should further be willing to re-embrace the Keynesian economics model as a framework of assessing and projecting recessions and depressions. Lastly, they should come up with a model of absorbing the financial realities into macroeconomics (Krugman 73).
As much as these solutions make sense, he fails to suggest how this agenda should be implemented. Many economists would argue that the failure to absorb financial realities into macroeconomics is not out of ignorance but due to lack of knowledge on how to implement them. Krugman should have come up with workable solutions and not mere suggestions.
Budd, Christopher. Finance at the Threshold: Rethinking the Real and Financial Economies. New York: Gower Publishing Ltd, 2011. Print.
Krugman, Paul. “How Did Economists Get It So Wrong?” The New York Times. Web.