On the economic crisis and the crisis of economics
AbstractThe outburst of the 2008 global economic crisis sparked a myriad of criticism on mainstream neoclassical economic theory, held responsible for not even have considered the possibility of the kind of collapse that the subprime mortgage meltdown unleashed. In this paper, it is argued that what happened was a case of malpractice by hundreds of economists in banks and rating agencies who created and certified as almost risk-free securities assets that were actually highly risky as the events after 2007 overwhelmingly showed. Such a massive case of malpractice denounces deep failures in the regulatory system. The deregulation movement that took place during the 1980s and 1990s was inspired by an almost religious belief in the power of market forces to solve any economic problem. Neoclassical economics can be blamed for creating the ideological climate which stimulated the deregulation movement in the U.S.A during those decades. After discussing some aspects of economics methodology, arguing the need to approach the economy as an interactive complex system, and discussing the use of mathematics in economics, it is argued that the main object of economists' efforts should be economic illness rather than economic health. Finally, a list of 15 guidelines is sketched out for improving the methodological approach as well the contents of economic analysis. --
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2010-18.
Date of creation: 2010
Date of revision:
Economic crisis; malpractice; bounded rationality; complexity; economic anomalies; microfoundations; regulation;
Find related papers by JEL classification:
- B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
- A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
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