Pretty sad stuff. Krugman has been losing the debates against heterodox
economists for years. Here's an overview (I particularly recommend checking
out the post I wrote on his debate with Galbraith in the mid-1990s):

On Sat, Apr 26, 2014 at 4:23 AM, Dell Champlin <[log in to unmask]>wrote:

> Thanks, Stephanie for the link to Galbraith's essay.
> Krugman does make a good point, when he notes that expansionary austerity
> and other weird notions are not even consistent with mainstream macro.  He
> just calls them bad ideas and the economists who promote them bad
> economists.  What he misses completely is that denial, lying to oneself,
> and the frequent renaming of bad and/or stupid behavior with high fallutin'
> terms like entrepreneurial, job creating, fiscally responsible, etc. is
> also part of mainstream Economics.  In short, Krugman, brilliant as he is,
> misses the power of ideology to produce the very outcomes he condemns.
> Dell
> Sent from my iPad
> On Apr 25, 2014, at 2:37 PM, "Kelton, Stephanie A." <[log in to unmask]>
> wrote:
> Hi Geoff,
>  I think Jamie G. commented beautifully back in 2009!  It's as if he saw
> Krugman's post coming.
> Stephanie Kelton
> Chair, Department of Economics
> University of Missouri - Kansas City
> 211 Haag Hall
> 5100 Rockhill Rd.
> Kansas City, MO 64110
> (816) 235-2837 (o)
> (816) 235-2835 (f)
> Blog:
> Website:
> Twitter @StephanieKelton
> On Apr 25, 2014, at 4:12 PM, "Geoff Schneider" <[log in to unmask]>
> wrote:
>    Dear Afeefolks,
>  Any comments on Krugman's piece today?
>  -Geoff Schneider
>  ________________________________
>  Frustrations of the Heterodox
>  APRIL 25, 2014, 10:09 AM
> It’s kind of a sideshow in the larger scheme of things, but something
> worth noting is taking place on the fringes (literally) of economic
> discussion: an upwelling of frustration on the part of heterodox
> economists. You see it in Thomas Palley’s complaint about gattopardo
> economics, which I discussed yesterday; you see it in the demands for a
> radical change in the economics curriculum, which Simon Wren-Lewis wrote
> about yesterday.
> I understand the frustration, but the heterodox need to realize that they
> have, to an important extent, been working with the wrong story line.
> Here’s the story they tell themselves: the failure of economists to
> predict the global economic crisis (and the poor policy response thereto),
> plus the surge in inequality, show the failure of conventional economic
> analysis. So it’s time to dethrone the whole thing — basically, the whole
> edifice dating back to Samuelson’s 1948 textbook — and give other schools
> of thought equal time.
> Unfortunately for the heterodox (and arguably for the world), this gets
> the story of what actually happened almost completely wrong.
>  ​​
> It is true that economists failed to predict the 2008 crisis (and so did
> almost everyone).
> ​​
> But this wasn’t because economics lacked the tools to understand such
> things — we’ve long had a pretty good understanding of the logic of banking
> crises. What happened instead was a failure of real-world observation —
> failure to notice the rising importance of shadow banking. Economists
> looked at conventional banks, saw that they were protected by deposit
> insurance, and failed to realize that more than half the de facto banking
> system didn’t look like that anymore. This was a case of myopia — but it
> wasn’t a deep conceptual failure. And as soon as people didrecognize the
> importance of shadow banking, the whole thing instantly fell into place: we
> were looking at a classic financial crisis.
> What about the lousy policy response — austerity and all that? The key
> point here was that policymakers weren’t basing their decisions on
> conventional economics. On the contrary, they decided to blow off textbook
> macroeconomics and embrace exotic doctrines like expansionary austerity and
> a mysterious growth cliff at 90 percent debt relative to GDP. The
> disastrous policy responses that have perpetuated the slump are the result
> of mainstream economics having too little influence, not too much.
> Now, to be fair, there is a civil war within academic macroeconomics, and
> what I’m calling “mainstream” is the saltwater side of that civil war. But
> the critics want much more than to boost saltwater macro at the expense of
> the new classical guys — they want to drive people like me out of the
> temple, too. And the thing is that they want to do this even though, as
> Wren-Lewis says, Keynesian macro has actually performed very well since
> 2008.
> What about the new respect given to heterodox thinkers like Minsky, and
> heterodox ideas like secular stagnation? I agree that mainstream economists
> didn’t pay enough attention to such people — way back, one of my principles
> for working in economics was “listen to the Gentiles.” But it’s hard to
> claim that such work is deeply incompatible with mainstream economics when
> Janet Yellen embraces Minsky and Larry Summers becomes a secular
> stagnationist.
> And what about inequality? Some people are annoyed at Thomas Piketty by
> presenting his data and ideas in a form that is fairly comfortable for
> conventional economists, at least those of eclectic disposition. But
> doesn’t that show that conventional economics is indeed capable of
> accommodating big concerns about inequality? You fairly often find
> heterodox economists insisting that to accept the idea that capital and
> labor are paid their marginal products, even as a working hypothesis to be
> modified when you address things like executive pay, is to accept that high
> inequality is morally justified. But that’s obviously not the case: there
> are plenty of economists who are willing to use marginal-product models (as
> gadgets, not as fundamental truth) who don’t at all accept the sanctity of
> the market distribution of income. So this complaint is, in its own way, as
> much of a distortion as the right-wing claim that anyone who so much as
> mentions inequality is a Marxist.
> How should the crisis and the reemergence of very high income inequality
> affect how we do and teach economics? For sure, it says that we need to do
> a lot more history, including deep history. Events have also reflected very
> badly on the style of economics that prizes “microfoundations” based on
> ultra-rational behavior over evidence, and rules any kind of ad hockery out
> of bounds. But the heterodox want more than that; they want to interpret
> recent events as a refutation of the kind of economics Wren-Lewis, or Janet
> Yellen, or Larry Summers (as economist, not public official), or yours
> truly does. And that interpretation just doesn’t work. By all means,
> advance heterodox ideas if you believe they’re right. But don’t claim
> vindication from events that didn’t actually follow the script you wish
> they did.
>  Geoff Schneider
> Professor of Economics
> Director, Bucknell University Teaching & Learning Center
> [log in to unmask]

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