The Financial Crisis and the Systemic Failure of the Economics Profession

Abstract

Economists not only failed to anticipate the financial crisis; they may have contributed to it-with risk and derivatives models that, through spurious precision and untested theoretical assumptions, encouraged policy makers and market participants to see more stability and risk sharing than was actually present. Moreover, once the crisis occurred, it was met with incomprehension by most economists because of models that, on the one hand, downplay the possibility that economic actors may exhibit highly interactive behavior; and, on the other, assume that any homogeneity will involve economic actors sharing the economist's own putatively correct model of the economy, so that error can stem only from an

A tese de performatividade e o ambiente das ideias: o papel dos modelos formais em economia

“…Por um lado, a economia-como-disciplina (economics) na visão dominante (mainstream) se caracteriza (entre outras coisas) pela insistência no uso de modelagem formal como o veículo privilegiado para o conhecimento da economia--como-objeto (economy). Por outro lado, diversos economistas não mainstream (Colander et al, 2009;Hodgson, 2009;Lawson, 2009;Omerod, 2010;Vercelli, 2011) têm discutido a influência dos modelos formais da economics no funcionamento da economy, 1 em suas interpretações da crise financeira de 2008. Torna-se relevante, dessa forma, entender a relação entre a possível performatividade da economia, a origem das ideias econômicas que se tornam dominantes e sua corporificação em artefatos (modelos e técnicas) acadêmicos que influenciam a economia.…”

Theory of Economy as the Original Cause of the World Crisis

“…The historical approach to the relations between the economy and the development of events, on the other hand, is based on the conviction that the causes of the contemporary crisis are much more deep-rooted and they are not only limited to technical ones (Krugman, 2007;Colander et al, 2009;Żyżyński, 2009;Kołodko, 2010). Representatives of this approach argue that the actual cause of the crisis should be looked for in structural changes, which occurred in the global economy over the past few decades and have their bases in the mainstream economics.…”

Why did mainstream economics miss the crisis? The role of epistemological and methodological blinkers

“…Krugman, 2009, Colander et al, 2009). This was despite prediction being claimed to be the main objective of the discipline by Milton Friedman, the Nobel Laureate and doyen of neo-classical economics in 1953.…”