The Current Financial And Economic Crisis Empirical And Methodological Issues

In this paper we describe the main causes of the recent financial crisis as a result of many theoretical methodological and practical shortcomings mostly according to heterodox but also including some important orthodox economists At theoretical level there are problems concerning teaching and using economic models with overly unrealistic assumptions In the methodological front we find the unsuspected shadow of Milton Friedman s unrealisticism of assumptions thesis lurking behind the construction of this kind of models and the widespread neglect of methodological issues Of course the most evident shortcomings are at the practical level i huge interests of the participants in the financial markets banks central bankers regulators rating agencies mortgage brokers politicians governments executives economists etc mainly in the US Canada and Europe but also in Japan and the rest of the world ii in an almost completely free financial and economic market that is one almost without any regulation or supervision iii decision taking upon some not well regarded qualities like irresponsibility ignorance and inertia and iv difficulties to understand the current crisis as well as some biases directing economic rescues by governments Following many others we propose that we take this episode as an opportunity to reflect on and hopefully redirect economic theory and practice