Monday, January 5, 2009

Economists vs. House

The similarity between economists and doctors these days is that both professions give out prescriptions to cure something wrong, one for an ailing economy and one for a patient. There is actually a big gap between the two seemingly close practices.

Krugman, in his New York Times column, recently concluded that Friedman is not quite right on the healing power of monetary policy even Ben Bernanke has twisted his arms in all possible ways that he can imagine and Keynes was right the first time that monetary is not very effective during a financial crisis and large scale fiscal policy is needed. This shows the difference between economists and doctors. Some economic theories are only hypothesis and can be only tested once there is an opportunity. However, doctors, like Greg House, can some times experiment on their patient. As long as we don't have frequently repeated similar recessions, we may never know the true effect of the policy alternatives as long as they have not been adopted. Even for those policies were actually effective in boosting the economy, we may not fully understand the exact mechanisms of how these implemented policies work since in most cases, each recession may be quite different from one another.

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