There are a lot of books out there that make the case that conventional economists are a bunch of narrow-minded, equation-besotted twits. I didn’t write that kind of book in The Myth of the Rational Market because I’m of the opinion that, for all its flaws, the economists’ approach of building mathematical models that imperfectly explain aspects of the very messy real world is still pretty useful. Eventually, the best economists do acknowledge when reality doesn’t square with their models, and try to come up with better ones.
Which is just what Paul Krugman appears to be trying to do at the moment in reconciling the out-of-the-mainstream (and mostly literary) financial instability theories of the late Hyman Minsky with the more conventional (and mathematical) noise-trader and limits-of-arbitrage theories of financial-market imperfection:
Why? you may ask. Why not go with verbal intuition? Well, I’m enough of a conventional economist to think that there’s no substitute for a model with dotted i’s and crossed t’s; it’s not THE TRUTH, but it really does help clarify your thinking.
Anyway, you’ve got to read pretty much his whole post to understand what Krugman’s getting at, and even then it’s a challenge (and yes, I know my book is mentioned at the very end, but really, that’s not why I’m writing this). But it gives one a wonderful sense of economics progressing.