Paul Krugman has become the voice of economists for many businessmen, politicians, and lay people. Thus, when he writes an article entitled “How did Economists Get It So Wrong?” (The New York Times Magazine, September 6), it’s big news. Over the past week I’ve been continually asked by acquaintances what my view is of what he had to say. It’s difficult to respond; he’s a wonderful writer, and there’s some parts of the story he tells that are nicely expressed. But there are other parts that, from my viewpoint as an historian of economic thought and an economist watcher, he got quite wrong—sufficiently wrong to warrant a response.
The biggest general problem with the story Krugman tells is that it’s so black and white. There’s the good guys—the Keynesian gang, and bad guys—the Classical/Chicago gang. That, in my view, is seriously wrong. The real story is one of shades of grey, and full of nuances; it is a story in which it is hard to tell who are the good guys and who are the bad guys. The real story is one of systemic failure of the large part of the academic economics profession which led them to pretend, and some of them to actually believe, that they understood a complex system that they did not, and still do not, understand. It’s a story of the economics profession’s failure to express their ideas and arguments with the humility with which they deserve to be told. It’s a story of a profession that has lost the enormous insights of past economists—both Keynesian and Classical.
There are three places where I'd say Krugman gets it wrong. The first is that he does a hatchet job on Classical economics. He misses the depth of Classical understanding. The second is that he doesn't make clear what Keynesian economics he is talking about when he says that Keynesian economics is the future of macro. If he is saying that the Keynesian economics of the discredited IS/LM variety is the future of macro--I think he is quite wrong. The third place where he gets it wrong is where he seems to claim that mathematics is to blame for the crisis. It isn't the mathematics; it's the use of the mathematics. See the Dahlem's group's response to Tony Lawson which can be found at: http://www.paecon.net/PAEReview/issue50/DahlemGroup50.pdf