The Crisis in Economics (and the Economic Crisis)

Far be it for me to suggest that the economics profession is or should be in crisis — introspection has never been the economist’s strong suit — so I won’t.

But these far more qualified commentators do in a piece whose title says it all:  The Financial Crisis and the Systemic Failure of Academic Economics.

Read’em and weep as they say.  To which I would only add, hopefully (I’ve been burned before) : RIP Neo-Classical and Neo-Keynesian economists.  We knew you all too well.

With Love and in hopeful solidarity,



  • Not a chance too much fixed intellectual capital. The two have already hung-on via public and private subsidies well beyond what their ROI ever delivered. Although one could argue that at an ideological level they have paid off like a surface level gold mine.

  • “The year 2009 will witness a tsunami of economic appeals to fix, as disgraced Federal Reserve Chairman Alan Greenspan put it, the ‘flaw’ in their thinking. Most will get it wrong.”

    “The new ecological accounting is variously called ‘dynamic equilibrium’, ‘steady-state’ or ‘biophysical’ economics.”

    For more go to

  • Just to mention the link between the Dahlem report referenced here and my upcoming posting to PEF about why working time matters. Both that report and my piece refer to the unreality of assumptions underlying the preferred models of the economics profession. My piece singles out a particular assumption at the core of whole the model-building tradition, a counter-theoretical assumption made by J.R. Hicks, that the given hours of work are optimal, and justified by him on the one hand by the model’s “simplicity” but on the other hand by a very particular ideological view that Hicks held at the time regarding the balance of forces between unions and firms. As with the models that Colander et. al. criticize in the Dahlem Report, Hicks’s simplifying assumption also incorporated a variation on the rational expectations theme.

  • One sentence from the abstract of the “Failure of Academic Economics” struck a chord with me: “We trace the deeper roots of this failure to the profession’s insistence on constructing models that, by design, disregard the key elements driving outcomes in real-world markets.”

    In plain English what this means (at least to me) is this. Anyone can keep themselves employed in academia by writing papers, the abstracts of which normally say something like this. “We erect a model based on the assumption that my auntie’s arms are longer than her legs (or some equally irrelevant assumption).” And as long as the maths looks suitably convoluted, and the text is near meaningless or capable of a large number of interpretations, there’s a good chance I’ll be kept employed at the taxpayers’ expense.

    But making free taxpayers’ money available always has its downside. I’ve heard from blue collar workers on an industrial estate near here that there is skulduggery going on in relation to the UK government’s insurance of risky bank loans. UK banks are allegedly engaged in the banking equivalent of arson: encouraging indebted businesses to go bankrupt. The owners of such businesses then mysteriously find the finance to start up under another name a month later. The taxpayer foots the bill, of course. As yet, this is just rumour.

Leave a Reply

Your email address will not be published. Required fields are marked *