{"id":5640,"date":"2010-12-28T16:12:04","date_gmt":"2010-12-28T21:12:04","guid":{"rendered":"http:\/\/ssgreenberg.name\/PoliticsBlog\/?p=5640"},"modified":"2010-12-28T16:13:25","modified_gmt":"2010-12-28T21:13:25","slug":"the-era-of-instability-where-we-went-wrong","status":"publish","type":"post","link":"https:\/\/ssgreenberg.name\/PoliticsBlog\/2010\/12\/28\/the-era-of-instability-where-we-went-wrong\/","title":{"rendered":"The Era of Instability: Where We Went Wrong"},"content":{"rendered":"

In the article The Era of Instability: Where We Went Wrong<\/strong><\/a>, Paul Krugman discusses a little bit of economic theory.<\/p>\n

Witnessing the failure of economic policy over the past three years has led me to suspect that the kind of moderate economic policy regime that Mr. DeLong and I support – one that largely takes a hands-off approach to the markets, but where the government is always standing by to rein in excesses and fight slumps – is inherently unstable.<\/p>\n

It can last for a generation or two, but not much longer. And I am not only referring to financial instability – intellectual and political instability are equally crucial.<\/p><\/blockquote>\n

In discussing Paul Samuelson’s contributions to economic theory of combining traditional microeconomics with Keynesian macroeconomics, he concludes:<\/p>\n

It\u2019s a deeply reasonable approach – but it\u2019s also intellectually unstable, because it requires some strategic inconsistency in how you think about the economy. On the micro scale, you must assume that individuals are rational and markets will rapidly clear (that markets will adjust so that supply is equal to demand); on the macro scale, you must assume that there will be market frictions and individuals will sometimes behave irrationally.<\/p>\n

Economists were bound to push at the dividing line between micro and macro -which in practice has meant trying to make macro more like micro, basing more and more of the theory on optimization and market-clearing. And it was probably inevitable that a substantial number of economists would simply ignore the realities of the business cycle that didn\u2019t fit their models.<\/p><\/blockquote>\n

Fortunately we have the relatively new field of behavioral economics that might be making micro more like macro.\u00a0 Behavioral economists study the way people actually behave economically rather than the way the theory says they should behave.\u00a0 We find that even at the micro level there is some behavior that is far from rational and optimal.<\/p>\n

If only the politicians and business people could catch up to the behavioral economists before our economy is sent to ruin, we might all survive the current Great Recession.<\/p>\n","protected":false},"excerpt":{"rendered":"

In the article The Era of Instability: Where We Went Wrong, Paul Krugman discusses a little bit of economic theory. Witnessing the failure of economic policy over the past three years has led me to suspect that the kind of moderate economic policy regime that Mr. DeLong and I support – one that largely takes […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[166],"tags":[],"class_list":{"0":"post-5640","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-stevegsposts","7":"czr-hentry"},"_links":{"self":[{"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/posts\/5640","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/comments?post=5640"}],"version-history":[{"count":2,"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/posts\/5640\/revisions"}],"predecessor-version":[{"id":5642,"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/posts\/5640\/revisions\/5642"}],"wp:attachment":[{"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/media?parent=5640"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/categories?post=5640"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/tags?post=5640"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}