How Did Economists Get It So Wrong?

[elleng]

Krugman

I. MISTAKING BEAUTY FOR TRUTH

It’s hard to believe now, but not long ago economists were congratulating themselves over the success of their field. Those successes — or so they believed — were both theoretical and practical, leading to a golden era for the profession. On the theoretical side, they thought that they had resolved their internal disputes. Thus, in a 2008 paper titled “The State of Macro” (that is, macroeconomics, the study of big-picture issues like recessions), Olivier Blanchard of M.I.T., now the chief economist at the International Monetary Fund, declared that “the state of macro is good.” The battles of yesteryear, he said, were over, and there had been a “broad convergence of vision.” And in the real world, economists believed they had things under control: the “central problem of depression-prevention has been solved,” declared Robert Lucas of the University of Chicago in his 2003 presidential address to the American Economic Association. In 2004, Ben Bernanke, a former Princeton professor who is now the chairman of the Federal Reserve Board, celebrated the Great Moderation in economic performance over the previous two decades, which he attributed in part to improved economic policy making.

Last year, everything came apart.

Few economists saw our current crisis coming, but this predictive failure was the least of the field’s problems. More important was the profession’s blindness to the very possibility of catastrophic failures in a market economy.

http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?em

[Mythsaje]

1. So what they're saying is that they were either stupid or lying to themselves and us

when WE (not only people like Krugman and others on the "left", but many DUers) as well were predicting exactly what ended up happening. The collapse of the housing bubble, the inevitable backlash of over-reliance on credit to fill the gaps, and the hidden effects of the outsourcing and of middle class jobs all came together into a perfect storm of economic woe.

Why are THEY surprised? They shouldn't be.