I am writing a major article on myths about the causes of the financial crisis, so I read with special interest N. Gregory Mankiw’s column “Learning the Right Lessons From the Financial Crisis.” (HT: DCJ.) The context of Mankiw’s article, as he appropriately discloses, is to do a favor for a friend by plugging the friend’s new book in Mankiw’s column in the New York Times. I have no criticism of that purpose and applaud him for alerting readers to it. The problem is substance, both the book’s and his column.
Mankiw is the leading author of economic textbooks in the world, so his views and his ideology are enormously influential. The first sentence of his book review asks the right question: “What caused the financial crisis of 2008?” The remarkable thing is that he never attempts to answer the question and does not explain how the book he is reviewing attempts to do so.
One of our many distinguished readers of New Economic Perspectives is the economist Michael Meeropol. Mike contacted me after reading my columns about Mankiw pushing the Trans-Pacific Partnership (TPP) to alert me to another way in which Mankiw, who purports to be relying on Adam Smith, actually willfully misinterprets Smith through what Mike refers to as “pedagogical malpractice.” I thank him for bringing it to my attention.
Mike laid this out in an article in 2004. Reading Mike’s entire superb article is, of course, the best solution. For those with less time I have quoted extensively from the most relevant portion of his article, which includes a lengthy footnote. Mike’s major point can be summarized briefly: Smith believed fervently in emphasizing domestic manufacturing and agricultural production, domestic trade, and domestic investment as the essential means of building a Nation’s wealth. Mike’s article builds on the work of Joseph Persky. I’ve deleted two footnotes from his text.
I met N. Gregory Mankiw for the first and only time in 1993 when he was a discussant for George Akerlof and Paul Romer’s paper on “Looting: The Economic Underworld of Bankruptcy for Profit.” The meeting was at Brookings, so it was attended by a wide range of economists. Brooking was by that time working closely with AEI on an anti-regulatory agenda, particularly in finance. Those of us old enough to recall when Brookings was referred to under Republican administrations as “the Democratic Party in exile” are very old. I attended as Akerlof and Romer’s specially invited guest because of my contributions to their article. The meeting taught me a great deal about Mankiw and the state of the economics academy.
Two days ago, a group of students at Harvard University submitted the following letterto their econ prof — Greg Mankiw – just before they got up and walked out of his introductory econ class. In the letter, Professor Mankiw’s students say, “If Harvard fails to equip its students with a broad and critical understanding of economics, their actions are likely to harm the global financial system. The last five years of economic turmoil have been proof enough of this.”
These students are clearly aware of the harm that economist scan do when they’re employing faulty models that rest on faith-based (theoclassical) assumptions to dispense policy advice in the real world. See, for example: