Question

According to Krugman, why did economists get it so wrong?

According to Krugman, why did economists get it so wrong?

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Answer #1

According to Krugman, Economists relied too much on the principles of a market based economy and forgot that firms will not commit themselves to resurrect the economy when problem or crisis takes place. It is the reason that they mistook beauty for truth. Further, economists did not consider the moral hazard, greed and adverse selection that come with the deregulation and a free flowing economy with no signs of depression. Further, economists also did not anticipate the fall of the big companies and other players in the market expecting support from the government and Fed. It made economists to get it wrong in their projections and expectations of the US economy getting stable and out of the any sign of slowdown.

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