Big economic ideas: Breakthroughs and brickbats

Posted: July 22, 2016 in economy
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IT IS easy enough to criticise economists: too superior, too blinkered, too often wrong. Paul Samuelson, one of the discipline’s great figures, once lampooned stockmarkets for predicting nine out of the last five recessions. Economists, in contrast, barely ever see downturns coming. They failed to predict the 2007-08 financial crisis.
Yet this is not the best test of success. Much as doctors understand diseases but cannot predict when you will fall ill, economists’ fundamental mission is not to forecast recessions but to explain how the world works. Over the next six weeks we will be running a series of briefs on important economic theories that did just that—from the Nash equilibrium, a cornerstone of game theory, to the Mundell-Fleming trilemma, which lays bare the trade-offs countries face in their management of capital flows, exchange rates and monetary policy; from the financial-instability hypothesis of Hyman Minsky to …

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