Robert Filliou

TRYING TO MAKE SENSE of the ravaged economy in the New York Times Magazine a couple months ago, Paul Krugman—Nobel-winning economist and Times columnist—pointed to the lasting relevance of Adam Smith’s ideas in today’s dominant economic model. Modern economics was born with Smith’s Wealth of Nations (1776), which argued that the free market is an efficient and self-correcting machine and was premised on the assumption that investors pursue their self-interests, making decisions based on cool and rational assessments of risk. Free markets, in other words, work when we use reason and strategy, not when we simply follow our gut. Krugman calls believers in this purist and neoclassical viewpoint “freshwater” economists—since they hail mostly from inland American universities—and he contrasts them with their long-marginalized “saltwater” peers: those who adopt a neo-Keynesian perspective insistent

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