[T]he 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….
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.
Read the whole thing -- why wait for the inevitable book? -- it is clearheaded, enormously elaborated, scrupulously fair -- and relentless.
Your kids will treat a story like this as completely to be taken for granted. Either that, or your kids will be converting parking lots into vegetable patches, praying their families can survive another year of greenhouse storms and warlord raids and hence will be too busy cursing your generation's ugly idiotic profligacy to talk to you much about political economy.
As a sidenote, it is interesting to discover that the moderate-pragmatic "saltwater" neo-Keynesians who kept the candle of sense burning in the window through the long dark night of the University of Chicago's "freshwater" neo-classical wish-fulfillment fantasies are apparently shocked and appalled to discover that the Big Idea Men who constituted their opposition for thirty years of market triumphalism seem not so much to have disagreed with their politely modulated qualified-Keynesian arguments so much as never to have read or grasped them, while their own towering ideas amounted in the end to just so many silly articles of faith steamrollered into ascendancy less through the force of argument as by the support of powerful and moneyed interests who found in them lovely self-serving rationalizations for their laziness and greed.
In other words, embedded within Krugman's tale we find the fingerprints of the usual story of the last thirty years, the frankly idiotic epoch of the neoliberal-neoconservative discursive circuit, in which con-artists for incumbency bamboozled everybody into confusing their looting of the hard-won accomplishments of civilization for continued and even accelerating progress, bought their own line of self-serving hype, made fun of every sensible and decent intellectual impulse as muzzy-minded effete elitism, lost themselves in some kind of virtual reality of interdependent delusions and turned everything they touched to shit.
Krugman, for his own part, sensibly predicts and advocates a general re-embracing of Keynes (which is certainly music to my ears), but a Keynes refurbished with empirical insights furnished by so-called behavioral economics and elaborated to accommodate global financial practices.
I agree both with the prediction (I see it in the eyes and hear it on the lips of my brightest students already in the present, after all), and with his proposal.
But I do not think Krugman is quite ambitious enough, since it seems to me what is wanted and what is aborning is a solid return to Keynesian macroeconomics, updated to accommodate not only global financial practices but also, far more crucially, the demands of sustainable planetary developmentalism and proliferating p2p-formations articulated in the context of legitimate governance. This rather grand elaboration of a political economy of rational, sustainable, planetary governance, peer-to-peer, will, I believe, be the work and the salvation of this generation and the next.
I also think it is not entirely unrealistic to expect a family of interlocking futurological tropes flogging technoscientific determinism and acceleration of acceleration to circumvent Keynesian rationalism, taking up p2p as a countervailing force to legitimate governance rather than its product and partner, and advocating corporate-miltarist geoengineering as an escapist fantasy for elites refusing the costs of sustainable developmentalism to provide a hopped-up market fundamentalist counternarrative for powerful incumbent interests who will continue to undermine the work of this rising generation in the service of the usual parochial short-term benefits and the indulgence of the usual stupidity and irrational passions.