You write “Although I do not like Krugman’s models ... I have a lot of respect for Krugman as a person and what he is doing.”
That is far-far-far beside the point. This thread is about economic theory/methodology and there is only one criterion for theory and that is true/false.
Most people do not understand what science is. Economists are no exception. Here is how Feynman explains it: “... We compare the implications of theory to Nature/experience/ experiment/observation. If it disagrees with experiment — it’s wrong. In that simple statement is the key to science. It does not make a difference how beautiful your guess is, it does not make a difference how smart you are who made the guess, or what his name is, if it disagrees with experiment — it’s wrong. That's all there is to it.”#1
So it does not make a difference whether the name is Krugman, Sargent, Prescott, or Lucas if there is no counterpart of the theory in reality — it's wrong. Not the highest personal qualities of an author can make a false theory true.
Imagine, a nice guy comes to you and says he has constructed a perpetual motion machine. The fact that you like him cannot change the fact that he is a scientific retard.
And here is Krugman’s perpetual motion machine: “So, what is neoclassical economics? … I think we mean in practice economics based on maximization-with-equilibrium.”
That is a clear enough statement of self-disqualification. As I said in the preceding post: “Both, constrained optimization and equilibrium are NONENTITIES like Superman and the Easter Bunny. And this is the reason why standard economics is proto-scientific garbage.”
The differences between Krugman’s and Sargent’s approaches consist of superficialities like flexible/sticky prices.
The first step of the student of economics is to realize that all theories/models are false that are built upon the following concepts: utility, expected utility, rationality/bounded rationality/animal spirits, equilibrium, constrained optimization, well-behaved production functions/fixation on decreasing returns, supply/demand functions, simultaneous adaptation, rational expectation, total income=value of output/I=S, real-number quantities/prices, and ergodicity. All these items are economic NONENTITIES.
The real wonder of economics is that each new generation of students has had a fair chance to realize that supply-demand-equilibrium (S-D-E) is proto-scientific garbage, yet for unknown reasons, each generation up to the present has liked what is forever scientifically unacceptable.
The second step is to replace all NONENTITIES with concepts that do have a counterpart in reality (2014).
There are huge rewards: economics will get out of the proto-scientific cul-de-sac when not only Krugman retires but all the other sorta-kinda-maximization-with-equilibrium guys.
It is incompetent economists who ultimately bear the responsibility for the social devastation of unemployment since the Great Depression. Most of them have been agreeable colleagues, friendly teachers, and likable coevals. That has never been the core problem of economics. Indeed, the core problem has always been that economics is scientifically worthless.
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
#1 YouTube Feynman on Scientific Method
Preceding Habermas, Albert, Robinson, Syll are right — now scrap the crap
Tom Hickey comments: “Schumpeter did not like Knapp’s Chartalist theory.” Can we stop this silly like/dislike nonsense and become serious. Economics is about true/false and NOTHING else. For details see:
► There is no like/dislike button in science
► Love and hate in economics: the PsySoc shell game
► Economics a science? Surely you are joking, Mr. Cochrane