~WRL2342 - problems economists created theoretical models...

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Nick Woolf Honors Micro Economics September 23, 2009 Mrs. Harvey Where Economists Went Wrong The current state of the United States’ economy has led to a good deal of finger pointing among government officials. In times of crisis, it is human nature to identify source of the problem before fixing it, and thus more time has been spent blindly accusing than drafting ways to repair the mess. New York Times writer Paul Krugman, however, has found – in his mind – the perpetrator: economists. With the sole purpose of studying, evaluating, and monitoring the nation’s economy, how could the majority of economists have not seen this market failure coming? According to Krugman, In his article titled: “How Did Economists Get It So Wrong,” Krugman criticizes economists for blinding themselves with the notion that free market economies are, essentially, perfect, and that although minor problems may occur, the Federal government prevents any large-scale catastrophes from transpiring. Instead of preparing for possible
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Unformatted text preview: problems, economists created theoretical models that failed to account for real-world fundamentals, such as the fact that people act irrationally and unpredictably. QUOTE ON PAGE 14 FIRST PARAGRAPH Closing : As Paul Krugman put it, “The state of macro, in short, is not good.” Given the current financial crisis our nation is in, it has become clear that the economy is in terrible shape. Economists, for the most part, neglected to consider the possibility of a disastrous market failure, and thus were unprepared to cope with the problems that have recently ensued. Although how we got to this point and who exactly should be blamed for the collapse still remains up in the air, one thing is certain: we need guidance. President Obama’s stimulus package, the “American Recovery and Reinvestment Plan,” is supposed to create jobs and stimulate economic growth, but is it really working? Will our economy actually...
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