(L1) Paul Krugman - 2009 - How Did Economists Get It So Wrong? NewYorkTimes Flashcards
What was the general attitude of economists before the financial crisis, as highlighted by Krugman?
Economists were overly confident, praising their achievements and believing they had resolved major macroeconomic disputes.
How did economists fail in relation to the financial crisis?
They largely didn’t predict the crisis, underestimating the possibility of a market economy’s catastrophic failure.
What was a major flaw in economists’ approach before the crisis, according to Krugman?
They overemphasized elegant mathematical models, often overlooking real-world complexities like human irrationality and market imperfections.
What shift in economic thought does Krugman trace from Adam Smith to Keynes?
The evolution from Smith’s trust in markets to Keynes’ recognition of market failures and the need for government intervention.
What change in economic theory occurred post-World War II?
Neoclassical economics, emphasizing market efficiency and minimizing government roles, became dominant.
How has the recent crisis influenced economic thought, according to Krugman?
There’s been a resurgence of Keynesian ideas, stressing market limitations and the importance of regulatory mechanisms.
How did Keynes view financial markets?
Keynes was critical, likening them to beauty contests driven by speculation, which he saw as harmful for important business decisions.
What was Keynes’ perspective on the Great Depression, as described by Krugman?
Keynes saw it as a ‘colossal muddle’ caused by mismanagement of a complex system not fully understood, leading to vast economic waste.
What does Krugman say about the state of macroeconomics between 1985 and 2007?
He describes it as a period of ‘false peace,’ with mild recessions and controlled inflation, but the financial crisis revealed the inadequacy of existing policies.
What shift in economic analysis does Krugman advocate for?
He suggests moving towards recognizing market imperfections, advocating for a more realistic view that incorporates these flaws and frictions.
What is Krugman’s stance on re-embracing Keynesian economics?
He argues for acknowledging the imperfections of financial markets and the importance of Keynesian economics in understanding recessions and depressions.
