The (Krugman?) Thinking that Blows Up Portfolios, Companies and Countries

Larissa MacFarquhar has a fairly boring profile of Paul Krugman, in The New Yorker. It's not her fault, Krugman and his wife seem to be pretty boring people. The gist of the profile is that he writes things and his wife "focuses on making him less dry, less abstract, angrier."

MacFarquhar writes:

Recently, he gave her a draft of an article he’d done for Rolling Stone. He had written, “As Obama tries to deal with the crisis, he will get no help from Republican leaders,” and after this she inserted the sentence “Worse yet, he’ll get obstruction and lies.” Where he had written that the stimulus bill would at best “mitigate the slump, not cure it,” she crossed out that phrase and substituted “somewhat soften the economic hardship that we face for the next few years.”

I used to at least give Krugman points for his writing style, but now I am wondering if I have been too generous in doing so. Clearly, his wife appears to be the one who can turn a phrase. With the clips that MacFarqhar shares, Krugman sounds like a second rate academic with a plodding writing style. It's his wife who seems to put the life and energy into the writing.

Aside from that, we learn that the Krugman's have three residences and that they have two cats instead of kids.

There is one curious sentence that MacFarquhar writes without attributing it to Krugman, or his wife. Is MacFarquhar adding her own view? Unlikely. She is more likely repeating a view of at least one of the Krugmans' without a direct quote. Here it is, it is one of the goofiest damn pieces of reasoning I have ever come across:

...failure to represent reality accurately is rarely a fatal flaw in an economics model—what’s valued is the model’s usefulness as an analytic tool.

How can a model be a useful analytic tool if it doesn't reflect reality? A model can take only certain elements from reality to make a specific point, but those points better reflect reality. The collapse of Long Term Capital Management and the mortgage backed securities market occurred because of models that failed to take into account key elements of reality.

Does Krugman really believe that models don't have to reflect reality and can simultaneously be used as analytical tools?

Later in the article MacFarquhar points to Krugman rejecting this belief:

Last fall, Krugman wrote an article for the Times Magazine, “How Did Economists Get It So Wrong?,” about the profession’s failure to anticipate the financial crisis, and what that revealed about its failings in general. He accused his colleagues of mistaking beauty for truth. They were so enamored of the elegance of their models and the consistency of their logic, he wrote, that they had come to believe that assumptions that were originally adopted merely as tools (perfectly rational individuals, efficient markets) by Milton Friedman’s generation were so sacrosanct that economics wasn’t economics without them

But then again, maybe this is his wife's words. Clearly, someone in this group of three is real confused about models, though we can't know which.

Bottom line: The only thing this profile does is cause us to now think when we read another Krugman bylined piece, "Is this Krugman's sentence or that of his wife?"