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« Greg Mankiw on the Structure of Graduate Education in Economics | Main | Murphy Responds to Krugman on the Austrian Theory of the Business Cycle »


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Prof. Horwitz,

Very nice work.

Your articles reminded me of advice regarding good research topics I received once and promptly forgot (until now): challenge conventional wisdom.

People still believe in this story that FDR saved the US from the depression? To the degree of accepting a paper about it in the AER?

All other countries at the time had recovered better than the US from the depression, while the US stayed with unemployment rates of over 15% for 10 years. But some myths never die.

Gauti B. Eggertsson claims that US gdp would dip over 30% without Roosevelt's intervention, that's a quite heroic conclusion, to say the least: during the 30's, of all countries in the world with already had decent macro stats, the US had the worst macroeconomic performance. To claim that the US would perform even worse than that without Roosevelt's policy changes is unpersuasive.

One of the reasons that myths survive is explained in another piece in Econ J Watch on the teaching of economics without teaching the economic way of thinking.

Another problem in modern economics is that economists forgot the economic meaning of the terms they use: general equilibrium now only means a model where all markets are interconnected and the result of this model (the equilibrium of the model).

Once upon a time, general equilibrium meant that the action plans of every individual in the market were compatible. Today one can use "general equilibrium" models to explain unemployment...

People even use general equilibrium models to explain the disequilibrium phenomena par excellence: recessions. A recession is a process of systematic frustration of action plans, of revelation of incompatibility of plans. Modern DSGE models assume that individuals are omniscient lighting calculators in some areas, while they are irrational in other areas.

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