An excellent article in Canada's National Post today by Terrence Corcoran regarding the current dispute between economists such as Krugman & Posner, favoring Keynesian economics, and most everyone else, favoring rational expectations.
The jist of the dispute is that Krugman and Posner believe we need a return to classical Keynesian economics with significant government involvement to ensure that market and economic participants who would not otherwise act "rationally" do so. The rational expectations side argues that participants will act rationally on their own with the information they have at that moment. Given that the information is not perfect, decisions will not always be perfect. Importantly, participants cannot be fooled for acting "rationally" as determined by the government.
To me the argument is for more government involvement because "the government knows best what is good for participants" vs less government involvement because market participants "know best" what is good for them. I'm on the side of participants.
