Paul Krugman 12/23/08 vs Paul Krugman 12/24/08

Paul Krugman, NYTimes, 12/23/08:

...why so few economists saw the crisis coming. I think it’s a two part question.

I think it’s understandable, though not entirely forgivable, that economists didn’t see the risks of a broad financial breakdown...

The big mystery is the failure to see the housing bubble. The data screamed “bubble”, even in real time. And there was no excuse for believing that such things don’t happen in efficient markets, not with the dead body of the dot-com bubble still warm.

So why did so few people point out the obvious? ...the failure to see the most obvious bubble of my lifetime remains a puzzle.

Paul Krugman, NYTimes, 12/24/08

Keynes’s genius – a very English one – was to insist we should approach an economic system not as a morality play but as a technical challenge.

That’s the point of my favorite Keynes quote, where he declared of the Great Depression, “we have magneto trouble.”

Which Krugman is right? Do we have a bunch of shaman who have no idea what they are doing? Or a bunch of skilled engineers who are working on a well understood, technical system? Paul -- present evidence aside -- are economists shaman or engineers? Is macroeconomics and academic finance phrenology, or a science? Do we have magneto trouble, or are we trying to drive a horse?