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The Financial Crisis and the Systemic Failure of Academic Economics

Author

Listed:
  • David Colander

  • Hans Föllmer
  • Armin Haas
  • Michael Goldberg
  • Katarina Juselius
  • Alan Kirman
  • Thomas Lux
  • Brigitte Sloth

Abstract

The economics profession appears to have been unaware of the long build-up to the current worldwide financial crisis and to have significantly underestimated its dimensions once it started to unfold. In our view, this lack of understanding is due to a misallocation of research efforts in economics. We trace the deeper roots of this failure to the profession’s focus on models that, by design, disregard key elements driving outcomes in real-world markets. The economics profession has failed in communicating the limitations, weaknesses, and even dangers of its preferred models to the public. This state of affairs makes clear the need for a major reorientation of focus in the research economists undertake, as well as for the establishment of an ethical code that would ask economists to understand and communicate the limitations and potential misuses of their models.

Suggested Citation

  • David Colander & Hans Föllmer & Armin Haas & Michael Goldberg & Katarina Juselius & Alan Kirman & Thomas Lux & Brigitte Sloth, 2009. "The Financial Crisis and the Systemic Failure of Academic Economics," Middlebury College Working Paper Series 0901, Middlebury College, Department of Economics.
    • Handle: RePEc:mdl:mdlpap:0901
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    File URL: http://www.middlebury.edu/services/econ/repec/mdl/ancoec/0901.pdf
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    JEL classification:

    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
    • B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General
    • G01 - Financial Economics - - General - - - Financial Crises

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