Economic Models and Economic Predictions

[MindMover]

The initial triumph of Keynesianism had a lot to do with the fact that big increases in government spending as war approached did indeed lead to higher output and employment; so much for the Treasury View. Wartime spending is still the best evidence for fiscal effectiveness.

What happened in the 1960s and 70s was that economists who thought about microfoundations — who tried to understand price stickiness in terms of more or less rational behavior — made a big prediction: that the apparent tradeoff between unemployment and inflation would break down in the face of persistently higher inflation, and worsen. This prediction was right, and that had a big impact. I remember lunchroom discussions when I was in graduate school in the mid-70s, when the emergent freshwater school was being discussed; some of my classmates would say, with some worry, that those people had been right so far, so might they not be right now?

http://krugman.blogs.nytimes.com/2012/03/03/economic-models-and-economic-predictions/

Deflation is more likely than inflation in today's economic world.....how much is your house worth???