Paul Krugman - How Did Economists Get It So Wrong?

“When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.” - John Maynard Keynes

Via Peter Norvig, here is a beautifully written piece from the 6 September 2009 New York Times by Nobel Laureate Paul Krugman. There are shades of the Ragged Trousered Philanthropist's description of capitalism in this excerpt:

"I like to explain the essence of Keynesian economics with a true story that also serves as a parable, a small-scale version of the messes that can afflict entire economies. Consider the travails of the Capitol Hill Baby-Sitting Co-op.

This co-op, whose problems were recounted in a 1977 article in The Journal of Money, Credit and Banking, was an association of about 150 young couples who agreed to help one another by baby-sitting for one another’s children when parents wanted a night out. To ensure that every couple did its fair share of baby-sitting, the co-op introduced a form of scrip: coupons made out of heavy pieces of paper, each entitling the bearer to one half-hour of sitting time. Initially, members received 20 coupons on joining and were required to return the same amount on departing the group.

Unfortunately, it turned out that the co-op’s members, on average, wanted to hold a reserve of more than 20 coupons, perhaps, in case they should want to go out several times in a row. As a result, relatively few people wanted to spend their scrip and go out, while many wanted to baby-sit so they could add to their hoard. But since baby-sitting opportunities arise only when someone goes out for the night, this meant that baby-sitting jobs were hard to find, which made members of the co-op even more reluctant to go out, making baby-sitting jobs even scarcer. . . .

In short, the co-op fell into a recession."

Comments

[Dick Moore]

A great piece and reminiscent of so many other academic arguments also addressed in this mailing.

viz.
semantic codification of knowledge v statistical

learning objects with much meta data v learning packages

top down v bottom up

Thanks for the link, I will be on the watch for ostriches heads in sand from now on :(