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Thursday, May 1, 2014

Paul Krugman, "Why Economics Failed": Simple, Because Economics Is Not an Exact Science

I am blessed to work with companies in the fields of biotechnology and medical devices. One of the basic challenges in both these areas is, through the application of the exact sciences of mathematics, physics and chemistry, taking the guesswork out of biology.

Economics? Also not an exact science, and that's why we still have economic downturns. Moreover, economics never will be an exact science.

In his latest New York Times op-ed entitled "Why Economics Failed" (http://www.nytimes.com/2014/05/02/opinion/krugman-why-economics-failed.html?hp&rref=opinion&_r=0), Paul Krugman asks why economic knowledge was not used to prevent the "Great Recession." Krugman responds to his own question by observing:

"One answer is that most people find the logic of policy in a depressed economy counterintuitive. Instead, what resonates with the public are misleading analogies with the finances of an individual family, which is why Mr. Obama began echoing Mr. Boehner."

True, individual families cannot print their own money or borrow it without limitations. On the other hand, if a government prints or borrows money without limitation, inevitably the value of its currency is eroded. US national debt? Now some $17.5 trillion, which will never be returned, and yes, ultimately one of the loaners - be it China or someone else - will ultimately get wise with horrific consequences across the globe.

Krugman's conclusion:

"Whatever the reasons basic economics got tossed aside, the result has been tragic. Most of the waste and suffering that have afflicted Western economies these past five years was unnecessary. We have, all along, had the knowledge and the tools to restore full employment. But policy makers just keep finding reasons not to do the right thing."

Full employment? My guess is that it's a thing of the past. For better or worse, we've entered an age when a handful of geniuses armed with powerful computers can do the work of an army of mediocre personnel, and nowhere is this more obvious than in . . . biotechnology and medical devices.

How will society cope with perpetually higher rates of unemployment? No one knows for sure, but you might want to have another look at Huxley's "Brave New World."

My guess is that it's not going to be pretty.

1 comment:

  1. Dr. Krugman thinks that economics is a hard science -- like chemistry or math -- and that HE is the most famous and brilliant of his field (who wouldn't, with a Nobel Prize?)....but in fact, economics is on a par with social sciences. It's all conjecture and rarely real world empirical proof. It is very easy to look at what people have to do IN REALITY and then scoff because they don't apply ivory tower philosophy to it.

    There are a number of ways that people coped with lack of employment in the past, but even talking about those things is "politically incorrect". Also: nearly everyone, Krugman included, has forgotten the horrific runaway inflation of the 70s, which resulted from the spending sprees of the 60s, which led directly to Reaganonomics.

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