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« Let's Put Our Thinking Caps On, and Really Try to Figure Out the Best Way to Respond to This Argument | Main | The Revolving Door Between DC and Wall Street »

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That courses in economic history and the history of economic thinking should be mandatory for anyone wanting a degree (undergrad or grad) in economics.

Martin Wolf, "provocatively," challenges Summers on the realism and relevance of much of mainstream economics.

Summers chooses to dance around the questions, while making clear that he considers much of modern macroeconomic theory and models to have virtually zero to contribute for understanding the causes behind the current boom and the recession cycle.

But he admits that the influences on his intellectual development were post-World War II variations on the Keynesian theme. And seems still to be devoted to the idea of some fundamental truths and relevancy to the general "demand-management" Keynesian framework.

Like other economists for several generations, now, Summers hopefully looks to a future in which there will be the esoteric mathematical economic model builders and the "applied" economists who will one day know how to take the abstract and seemingly "other universe" models of the pure theorists and make them practical and operationally meaningful to guide economic policy in the real world.

It is doubtful that even one out of a hundred economists would even know who Walter Bagehot was, to whom Summers refers as an earlier economist who remains highly insightful on understanding economic crises.

(Besides being editor of "The Economist," author of "Lombard Street," and a serious economic theorist, he also, was the man who probably gave the best advice if you are ever caught in the middle of a revolution. He wrote home to his father one time from Paris during a revolution in France that running on the street during a revolution can be very dangerous. But, if you walk slowly and act like an Englishmen you should not have much difficulty!)

His halfway admissions to Martin Wolf's questions reveals how "defunct" modern economics is.

Richard Ebeling

This reminds of a story Pete has told about Professor X being informed that Adam Smith knew what Professor X's model showed. Then X responded that Smith didn't know it because it couldn't say it formally. (This is the approximate story.)

What does it mean to know? How do we know? To what extent do those economists who think "we" have forgotten a lot really believe that formalism has distracted the profession? Are they willing to change graduate education and hiring decisions to reflect this?

Time will tell. But the new generation of economists at the top schools are, by and large, so ignorant of anything but mathematics and such that they cannot change what they do without much re-tooling. More than that: They do not have the natural inclinations or talents to absorb and process a broader approach to economics.

In my own view, the current budgetary crisis of the American government might help. If the sources of money controlled and distributed by the professional establishment is greatly reduced, the character of economic research may change. It may become more "relevant" and less self-indulgent. Perhaps.

While Minsky and Kindleberger were influenced by Keynes, Bagehot was way pre-Keynes, as Richard Ebeling notes. What they all share is a concern with understanding crises and also speculative bubbles. At a minimum at least some economics courses should discuss such matters and recognize that bubbles and crashes can and do happen and how and why. Very few current textbooks in almost any field of economics bother with this important topic.

There were a few times when Summers said something to the effect that a modern government would surely act when a crisis occurs in major financial institutions. While this answer seems true, from a standpoint of predicting what states will do, it seems evasive from the economics standpoint. The economics will frequently say that states should do nothing.

So Summers faces away from economics in order to remain a player in the political field. Of course that's what almost everybody does in government above a certain level.

To see a world in a grain of sand,
And a heaven in a wild fllower,
Hold infinity in the palm of your hand,
And eternity in an hour.

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