Wednesday, February 23, 2011

Krugman on Economic Fallacies

link here to article

One of the common misconceptions about the Great Depression is that it was caused by the Smoot-Hawley bill that led to the spread of protectionism and a fall in international trade. Krugman states that this misconception, which is not supported by theory or evidence, is part of a broader fallacy. It is part of the fallacy of efficiency which claims that what is good for efficiency is good for the business cycle. His point is that greater productivity is not the solution for an economy in which demand is below what is required to support full-employment. Several well-known economists have been trying to sell this gospel.

Krugman is also not positive about the relevance of technically skilled economists in the public debates on the economy. There has been a revival of the goldbugs who want to return to a gold standard. And some are raising the fear of hyperinflation in an economy with high unemployment. Some even argue that tax cuts do not contribute to budget deficits. These ideas appeal to a public that rejects climate science and evolutionary theory and which rejects evidence that is inconsistent with its belief system.

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