Paul Krugman and the Myth Economists Open to New Ideas
Despite their protests to the contrary, Economists and therefore Economics is not open to new ideas. Here is a classic example:
@paulkrugman God knows there are a lot of problems with economics; but this kind of “they don’t think big enough” attack seems to me like a cheap shot. If you have big ideas we should consider, tell me what they are! 4/
Information Matrix
| Does Seller Know What They Are Selling? | |||
|
Does Buyer Know What They are Buying? |
Yes | No | |
| Yes | Perfect Information | Antique Dealer Problem | |
| No | Lemon Problem | Blind Betting | |
The Information Matrix was created by asking two related questions to determine if the buyer or seller is making a fully informed decision. When both buyer and seller are fully informed, transactions take place in the Perfect Information quadrant. When only the buyer or the seller is fully informed, transactions take place in the Information Asymmetry quadrants (Lemon Problem and Antique Dealer Problem). When neither is fully informed, transactions take place in the Blind Betting quadrant.
The Information Matrix reconciles neoclassical economics featuring the always rational homo economicus and behavioral economics featuring humans who love a good story. The former operate in the Perfect Information quadrant, the latter operate in the Blind Betting quadrant.
The Information Matrix also explains the design of the global financial system, what causes financial crises, where they come from, how to respond to them and how to prevent them. All issues macro economists have been trying to answer for the last decade (see Pathology, Prophylactics and Palliatives).
A non-PhD Economist might be tempted to think this is exactly the big idea Professor Krugman would like to see. But this thought could not be further from the truth.
Why?
Consider for a moment the Information Matrix reveals since the acute phase of the Great Financial Crisis began, Professor Krugman has been pushing policy recommendations that won’t end the crisis. Oops!
Consider for a moment there is no logical Economics journal for a peer reviewed academic article on the Information Matrix to appear in. After all, many of the leading Economic journals carried articles on informationally insensitive debt (the Information Matrix shows why this type of debt doesn’t exist), this time its different (it should have been) or bank runs result from sunspots (they occur because the story the valuation of the bank is called into doubt). Oops!
Consider for a moment how the Information Matrix isn’t cast in the language of Economics, but rather in terms non-economists can understand. This isn’t surprising. Underlying the Information Matrix is a physical model made up of a clear plastic bag and a brown paper bag. The former defines transparency and the latter defines opacity. The former results in a “Yes” when it comes to answering the question does the buyer/seller know what they are buying/selling. The latter results in a “No” when it comes to answering the question does the buyer/seller know what they are buying/selling.
Finally, consider for a moment just how busy the good professor must be flying around the world giving speeches, writing/reviewing academic articles, writing blog posts and tweets, and teaching. Even if he had an inclination to look at a new idea, the good professor has precious little time to actually look at a new idea from anyone else.
When you take all these considerations into account, you can see why Economics is closed to new ideas.
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