Wednesday, October 15, 2008

Krugman and liberal vs. libertarian econ profs

Paul Krugman did some fantastic, path-breaking work in the area of international trade-- leading to the recent awarding of the Nobel Prize in Economics. Congrats to him!

Two observations...

1.) There is an old story that Krugman was alarmed to learn that his theories (on paper) were being used to legitimize trade restrictions (in practice). Although economists are sometimes fuzzy on the difference between theory and practice, we're generally much better at it than others who are more casual in their approach to government. Given Krugman's frequent embrace of govt as a means to various ends, the story is humorous and a bit paradoxical.

2.) That leads to this generalization...

Micro-economists tend to be (more) Libertarian-- presumably because they see, study and teach about the problems with all sorts of govt intervention.

Macro-economists tend to emphasize "institutions" (the broad environment established by the govt-- e.g., money, property rights, lack of corruption, etc.) as important for economic growth. But many of them see a relatively large role for govt to (attempt to) regulate the macro-economy. Since they are less interested and knowledgeable about micro-economic policies, their penchant for govt intervention at the macro level can easily get extended into micro. Thus, somewhat ironically, macro-economists end up being not very good at micro-economic policy analysis-- thus, the liberal economics and politics of Paul Krugman and many others.


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