It's also not productive to completely waste your time

So this article in the WSJ about the failing of economics and the search for a new model to replace the current drunk-looking-for-keys-under-streetlamp-because-that's-where-the-light-is breed of DSGE models (dynamic stochastic general equilibrium for those of you not familiar with Dr. Pangloss's theories) is actually not bad.  

One of the things that puzzles me about these debates though is why everyone seems to place the emphasis on exotic theories of behavioral economics.  Here, someone goes so far as to suggest that we need a nearly Freudian theory of people's ability to fantasize about the value of pets.com.  Not that I don't think you should incorporate models of human behavioral agency into the economy -- it's ridiculous to continue to pretend that people always behave like calculators, and to throw out all data to the contrary as 'exceptional'.  But I really just don't see this as the core of the problem with modeling the economy.  Which is why I find it odd to have the whole article devoted to this stuff.

Not to be an ass (I mean, I'm not an economist, and like Barbie said, economics is hard) but I think the problem is relatively obvious.  

Economists don't understand MONEY.  They still pretend it doesn't exist.  Which forces them to pretend that the financial system doesn't exist.  Which, fairly naturally, leads them to leave out altogether the impact of financial (as opposed to simply real economic) incentives on an agent's behavior.  Which, ahem, doesn't work well.  So do we need a grand new theory of economics?  Or, apropos of Krugman and Eggertsson's new paper, should we just start by assuming the existence of money instead of a can opener?  Turns out that just pretending nominal money is real, something you may note humans have a strong tendency to do, explains quite a lot.

Which is why I had to chuckle at the last line here:

Some of academia's most authoritative figures say the new ideas are out of the mainstream for a good reason: They're still very far from producing a model that demonstrably improves on the status quo.

"I guess I'll wait until I see these models and what they can and cannot do," says Robert Lucas, an economist at the University of Chicago who won the Nobel Prize for his work on "rational expectations," the concept at the very heart of modern orthodoxy.New York University's Mark Gertler, who with now-Federal Reserve Chairman Ben Bernanke did ground-breaking work in the 1980s on how financial troubles can trip up the economy, says economists already have many of the tools they need to fix the current models.

"It strikes me as not productive to say that all we have done is a complete waste," he says. "The profession is extremely competitive. If you have a better idea, it's going to win out."

I'm sure academic economics is as competitive as finance.  After all, the stakes are so low.  Given that finance managed to invent a whole host of better ideas that won out -- like, you know, CDO-squareds -- I'm sure that economists can manage something even more fantastically divorced from reality.