Good Reads

by digby

There are a handfull of articles worth really delving into as your enjoy your three day week-end. The first is Paul Krugman’s discussion in today’s New York Times Magazine about the failure of the economics profession to foresee the current crisis:

[I]n the wake of the crisis, the fault lines in the economics profession have yawned wider than ever. Lucas says the Obama administration’s stimulus plans are “schlock economics,” and his Chicago colleague John Cochrane says they’re based on discredited “fairy tales.” In response, Brad DeLong of the University of California, Berkeley, writes of the “intellectual collapse” of the Chicago School, and I myself have written that comments from Chicago economists are the product of a Dark Age of macroeconomics in which hard-won knowledge has been forgotten.What happened to the economics profession? And where does it go from here?As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth. Until the Great Depression, most economists clung to a vision of capitalism as a perfect or nearly perfect system. That vision wasn’t sustainable in the face of mass unemployment, but as memories of the Depression faded, economists fell back in love with the old, idealized vision of an economy in which rational individuals interact in perfect markets, this time gussied up with fancy equations. The renewed romance with the idealized market was, to be sure, partly a response to shifting political winds, partly a response to financial incentives. But while sabbaticals at the Hoover Institution and job opportunities on Wall Street are nothing to sneeze at, the central cause of the profession’s failure was the desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess.Unfortunately, this romanticized and sanitized vision of the economy led most economists to ignore all the things that can go wrong. They turned a blind eye to the limitations of human rationality that often lead to bubbles and busts; to the problems of institutions that run amok; to the imperfections of markets — especially financial markets — that can cause the economy’s operating system to undergo sudden, unpredictable crashes; and to the dangers created when regulators don’t believe in regulation.

I find it hard to picture economists as romantics, but he makes a compelling case. Maybe everybody is … In any case, it’s a fascinating look at what went wrong that contains some universal lessons for everyone. Perhaps it all boils down to the simple truth that if it seems to good to be true, it probably is.

The next article unfortunately is not online, but is worth reading if you happen to have a copy of this month’s Vanity Fair or have access to one. (No it’s not the story about Levi and Sarah, although that one’s pretty fun too.) It’s called “Good Billions After Bad:”
In the last months of the Bush administration, the Treasury Department frantically pumped more than a quarter of a trillion dollars into the financial system—without bothering to track how it was spent. But Donald L. Barlett and James B. Steele dug into the records, following bailout money to banks that prey on consumers, banks that cater to the rich, and banks that never wanted it in the first place.
But health care is just too expensive …

Finally, give yourself a treat and read this fascinating interview with an astronaut, by Dkos blogger and science writer Darksyde. It’s just plain fun.

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