The glory of modern economics

The first thing we might ask is, do we really believe that a financial crisis permanently depresses the trend line of economic growth? Yes, I know that the IMF has statistical analyses that seem to say that; but it’s not clear what the mechanism is, it’s not what standard growth models would say, so we might at least wonder how sure a thing it is.

Yes, yes, says Professor Krugman, this reality thing is all very well, but does it work in theory?

1 thought on “The glory of modern economics”

  1. I don’t understand – meaning what, that reality is that the financial crisis has permanently depressed the trend line of economic growth, and Krugman is complaining that doesn’t work in theory? But how could we possibly know that ‘reality’ – it’s a statement about the future, relative to an unobservable counterfactual.

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