Discusssion Questions on Krugman's "How Did Economists Get It so Wrong?"
1. In Krugman's view, what is the single most important cause of the failure of economists to recognize the housing bubble and the fragility of the financial sector? Do you think he is right? What other causes might there be?
2. What is Summers' parable of ketchup economists? What criticism does the parable suggest? Is the criticism fair? What should economists do (or have done) to avoid this criticism?
3. What happens in the Capitol Hill Baby-Sitting Co-op? How is it related to Mill's criticism of Say's Law? Could the "market" have cured itself? How could a central bank have cured the problem?
4. As Krugman points out, by September of 2009, when he published this essay, "U.S. households have seen $13 trillion in wealth evaporate." How is that possible? How can wealth evaporate?
5. Krugman would describe himself as a New Keynesian of sorts, yet he maintains that New Keynesians don't have a good theory of crises like the one that led to the lesser depression. What is missing?
6. Krugman quotes Casey Mulligan* "'Employees face financial incentives that encourage them not to work . . .decreased employment is explained more by reductions in the supply of labor (the willingness of people ot work) and less by the demand for labor(the number of workers that employers need to hire.'Mulligan has suggested, in particular, that workers are choosing to remain unemployed because that improves their odds of receiving mortgage relief." How should one understand views like these that appear to be radically in conflict with evident experience?
*Mulligan is a professor of economics at the University of Chicago. He has had appointments at the National Bureau of Economic Research and the Population Research Center and has had support from the the National Science Foundation and the Alfred P. Sloan Foundation. These organizations have little or no ideological axes to grind. But he has also had an appointment at a right-wing center, the George J. Stigler Center for the Study of the Economy and the Statee, and has received awards and fellowships from the Smith-Richardson Foundation and the John M. Olin Foundation which support more or less exclusively research that supports a right-wing libertarian agenda.