Must-Read: Paul Krugman: What Have We Learned from the Crisis?
Must-Read: The highly-esteemed Mark Thoma sends us to Paul Krugman. In praise of real science: “Some people… always ask, ‘Is this the evidence talking, or my preconceptions?’ And you want to be one of those people…”:
Paul Krugman: What Have We Learned From The Crisis?:
We’re talking about an… episode… longer than the famous era of stagflation in the 1970s and early 1980s….
The costs… were also much larger than those of the stagflation era…. But here’s a funny thing…. Stagflation had a huge impact on economic thinking, both at the level of academic research and on conventional wisdom among policymakers. The global financial crisis and the recession/stagnation that followed seem to have had much less impact. To a remarkable extent, economists and economic policymakers are still saying the same things in 2016 that they were saying in 2007. For some reason, there doesn’t seem to be a clear consensus about what, if any, lessons we should draw from years of terrible economic performance….
We’ve seen a lot of vindication for old, unfashionable ideas–oldies but goodies that got deemphasized, and in some cases effectively blackballed, in the decades following the 1970s, but have turned out to be remarkably useful practical guides…. There have been… revelations about… liquidity and the failure of arbitrage… that have definitely changed how I see the world, and have important policy implications…. We’ve made some important and uncomfortable discoveries about the politics and sociology of economics itself–about the resistance of both the economics profession and public officials to changing their views in the face of contrary information.
At this point you’re going to ask me for a solution…. I don’t… have one, except to urge everyone… to be… bit self-aware. Nobody is pure; everyone is tempted to read evidence as supporting what he or she wants to believe. But some people… always ask, “Is this the evidence talking, or my preconceptions?” And you want to be one of those people. If your initial reaction to the incredible and terrible events of the past 9 years is that they just show that you were right all along, consider how unlikely that is, and challenge yourself. If there’s any offsetting benefit to economic crisis, it is that it can be a learning experience. Let’s not waste that opportunity.