One problem is that most people think we are always in the short run. No matter how many times you teach students that tight money raises rates in the short run (liquidity effect) and lowers them in the long run (income and Fisher effects), when the long run actually comes around they will still see the fall in interest rates as ECB policy “easing”. And this is because most people think the term “short run” is roughly synonymous with “right now.” It’s not. Actually “right now” we see the long run effects of policies done much earlier. We are not in an eternal short run. That’s the real problem with Keynes’s famous “in the long run we are all dead.”
In practice, the economic “long run” can happen exceedingly quickly. Keynes was probably closer to right with “Markets can remain irrational longer than you can remain solvent,” but if you plan on the basis of “in the long run we are all dead,” you might find out just how short that long run can be.
Macroeconomics? Sure, its highly politicized so in many cases I’ll agree with that. But microeconomics is in many ways the study of how to rationally deal with scarcity. IMO, traditional micro assuming homo-economicus is actually more interesting (and useful, outside of politics) than the behavioral stuff for this reason.
Scott Sumner
In practice, the economic “long run” can happen exceedingly quickly. Keynes was probably closer to right with “Markets can remain irrational longer than you can remain solvent,” but if you plan on the basis of “in the long run we are all dead,” you might find out just how short that long run can be.
If we need to look to economics for rationality quotes, we are getting towards the bottom of the barrel, Robin Hanson notwithstanding.
Macroeconomics? Sure, its highly politicized so in many cases I’ll agree with that. But microeconomics is in many ways the study of how to rationally deal with scarcity. IMO, traditional micro assuming homo-economicus is actually more interesting (and useful, outside of politics) than the behavioral stuff for this reason.