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| Name and Link | Type of Resource | Description |
| Anatole Kaletsky, Economists are the forgotten guilty men The Times, February 5, 2009. Available Here |
Newspaper article | "Academics - and their mad theories - are to blame for the financial crisis. They too deserve to be hauled into the dock" |
| Dirk Bezemer, Why some economists could see the crisis coming Financial Times, Sept 7th 2009 Available Here |
Newspaper article | "...many had seen it coming for years. They were ignored by an establishment that, as the former Federal Reserve chairman Alan Greenspan professed in his October 2008 testimony to Congress, watched with “shocked disbelief” as its “whole intellectual edifice collapsed in the summer [of 2007]”. Official models missed the crisis not because the conditions were so unusual, as we are often told. They missed it by design. It is impossible to warn against a debt deflation recession in a model world where debt does not exist. This is the world our policymakers have been living in. They urgently need to change habitat. ....." |
| Foresight and Fait Accompli: Two Timelines for the Global Financial Collapse. Real World Economics Review Available Here |
Anticipations and warnings of the Global Financial Crisis | |
| FSA head promises regulation revolution Financial Times (Jennifer Hughes) February 26 2009 Available Here |
Newspaper article | Lord Turner "told a hearing of the Treasury select committee that tougher measures would include requiring banks to hold up to three times as much capital against their trading assets. Lord Turner said the crisis had to be viewed in the light of a "fundamental intellectual failure" around the world of regulators, politicians and economists. " |
| Robert Jones Folly of excluding the hard-won wisdom of the past Financial Times, Letters, March 5 2009 Available here |
Letters in Financial Times (Newspaper) | EXTRACT "Lord Turner's claim that there has been a "fundamental intellectual failure" ......is only partially justified. In economics there has been intellectual failure, but by zealous and influential members of the neoclassical school of economics. Those economists have unfortunately dominated "the mainstream" and have dictated the terms of the conventional wisdom, to the exclusion of what therefore became labelled "heterodox"........." |
| The Financial Crisis and the Systemic Failure of Academic Economics by David Colander, Hans Föllmer, Armin Haas, Michael Goldberg, Katarina Juselius, Alan Kirman, Thomas Lux, Brigitte Sloth Outcome of one week of discussions within the working group on‘Modeling of Financial Markets’ at the 98th Dahlem Workshop, 2008. Available Here and Here |
Article | "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 insistence on constructing models that, by design, disregard the 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. " |
| Steve Keen Not Keen on Bailouts. Bailing out the Titanic with a Thimble Available Here |
Article | EXTRACT FROM CONCLUSION"...there are compelling reasons why this crisis should lead to a drastic revision in economic thought as well. It is no exaggeration to say that the naïve faith in deregulated financial markets engendered by neoclassical economics played a large role in the institutional changes and regulatory action (and inaction) that gave rise to this crisis. It is also patently obvious that neoclassically-trained economists were caught completely unawares by the crisis, despite—or rather, because of—the sophisticated mathematical forecasting models that their predecessors in the 1920s lacked, but which in turn lacked any appreciation of the actual financial dynamics of a credit-driven economy. My favourite instance of this is the Panglossian confidence expressed in the global economy’s future by the 2007 OECD Economic Outlook, which was published a mere two months before the crisis began in earnest:......" |
| James K. Galbraith Comments on the Financial Crisis Transcript from University of Chicago Money and Markets Workshop,April 10, 2009 Available here |
Transcript of speech | Relevant extract "We’ve heard here that nobody saw a problem. Quite the contrary, in 2004 the FBI saw the problem very clearly and warned of “an epidemic of mortgage fraud.” No action was taken. The Justice Department and the FBI were not given the resources that would have been required to set up the strike forces that could have dealt with this problem as it emerged. The fact that we are only now engaging the question of what caused the crisis in a serious way is a very bad sign. It is a sign of what I am not the first to call the systemic failure of the economics profession. We have a profession that in its large majority sees nothing but general equilibrium and technological waves, occasionally disrupted by sticky wages and bad policy mistakes—the latter somehow never spotted in advance....." |
| James K. Galbraith The Economic Crisis and Obama’s Response Transcript from Clark University, International Study Stream Available here |
Transcript of talk | Relevant extract "It’s an irony of professional history that what rose when Keynesian economics declined was a school known as Neoclassical Economics that, if anything, became even more complacent over the following twenty-five or thirty years. It became, in effect, complacency squared. The Neoclassical tradition grew out of a body of thought that we call General Equilibrium Theory of which the central idea is that the economy is a self-stabilizing system with the tendency to revert to a set of normal values, to a set of normal conditions over time. If unemployment exists and persists in that system it is likely due to a deliberate obstruction of the ordinary process of adjustment such as the insistence of trade unions and government on wage rates that are too high for employers to be offering the quantity of employment that they might otherwise like to offer. Depressions in this vision of things are caused only by avoidable errors committed principally by central bankers. ..... This was the vision of the economics profession until a year ago. It led to a set of scholarly preoccupations that left our profession completely unprepared for the economic developments of the last eighteen to twenty months......" |
| Robert Skidelsky "How to rebuild a shamed subject", FT August 5 2009 Available Here Also relevant: "We Forgot Everything Keynes Taught Us", Washington Post, October 19, 2008 Available Here |
Newspaper Article | "" |
| J. Bradford DeLong, Department of Economics, U.C. Berkeley
Time to Bang My Head Against the Wall Some More (Pre-Elementary Monetary Economics Department), January 26, 2009 Available Here |
Blog commentary | "Oh boy. John Cochrane does not know something that David Hume did--that the velocity of monetary circulation is an economic variable rather than a technological constant. " |
| Paul Krugman
A Dark Age of macroeconomics (wonkish) New York Times January 27, 2009 Available Here |
Newspaper article | "Brad DeLong is upset about the stuff coming out of Chicago these days — and understandably so. First Eugene Fama, now John Cochrane, have made the claim that debt-financed government spending necessarily crowds out an equal amount of private spending, even if the economy is depressed — and they claim this not as an empirical result, not as the prediction of some model, but as the ineluctable implication of an accounting identity. There has been a tendency, on the part of other economists, to try to provide cover — to claim that Fama and Cochrane said something more sophisticated than they did. But if you read the original essays, there’s no ambiguity — it’s pure Say’s Law, pure “Treasury view”, in each case. " |
| Paul Krugman Liquidity preference, loanable funds, and Niall Ferguson (wonkish) New York Times May 2, 2009 Available Here |
Newspaper article | Extract "...further confirmation that we’re living in a Dark Age of macroeconomics, in which hard-won knowledge has simply been forgotten.
What’s the evidence? Niall Ferguson “explaining” that fiscal expansion will actually be contractionary, because it will drive up interest rates. At least that’s what I think he said; there were so many flourishes that it’s hard to tell. But in any case, this is really sad: John Hicks knew far more about this in 1937 than people who think they’re sophisticates know now. In any case, I thought it might be useful to re-explain why our current predicament can be thought of as a global excess of desired savings — which means that fiscal deficits won’t drive up interest rates unless they also expand the economy." |
| Steve Keen, Mad, bad, and dangerous to know real-world economics review, issue no. 49 2009 Available Here |
Journal Article | "The most important thing that global financial crisis has done for economic theory is to show that neoclassical economics is not merely wrong, but dangerous..........." |
| Buiter, Willem (2009), ‘The unfortunate uselessness of most 'state of the art' academic monetary economics’, VoxEU.org, 6 March 2009
Available Here |
Online Journal Article | Extract: "Standard macroeconomic theory did not help foresee the crisis, nor has it helped understand it or craft solutions. This columns argues that both the New Classical and New Keynesian complete markets macroeconomic theories not only did not allow the key questions about insolvency and illiquidity to be answered. They did not allow such questions to be asked. A new paradigm is needed. " |
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Tony Lawson, “The Current Economic Crisis: its Nature and the Course of Academic economics”, Cambridge Journal of Economics, July 2009 pp. 759-788 Available Here and “Contemporary Economics and the Crisis”, real-world economics review, issue no. 50, 8 September 2009, pp. 122-131, Available Here |
Journal Articles | "The fundamental failing of modern economics, or at least of its dominant mainstream project, is not that it was unable successfully to predict the recent crisis but that it is ill-equipped to illuminate much that happens in the economy at any time. The latter is an assessment that I have advanced and defended on numerous occasions (e.g., Lawson, 1997, 2003). Contemporary mainstream economics relies almost exclusively on certain methods of mathematical deductivist modelling; indeed it insists that formalistic modelling is the proper way to do economics. My contention, defended elsewhere at length, is simply that these methods are in fact largely irrelevant to addressing social reality, and it is the insistence that such methods be everywhere utilised that accounts for the continuing sorry intellectual state of much of the modern discipline....." |
| Luigi Spaventa, “Economists and Economics: What does the crisis tell us", real-world economics review, issue no. 50, 8 September 2009, pp. 132-142, Available Here |
Journal Article | |
| Anatole Kaletsky, “Goodbye, homo economicus”, real-world economics review, issue no. 50, 8 September 2009, pp. 151-156, Available Here |
Journal Article | Extract "Was Adam Smith an economist? Was Keynes, Ricardo or Schumpeter? By the standards of today’s academic economists, the answer is no. Smith, Ricardo and Keynes produced no mathematical models. Their work lacked the “analytical rigour” and precise deductive logic demanded by modern economics. ...... If any of these giants of economics applied for a university job today, they would be rejected. As for their written work, it would not have a chance of acceptance in the Economic Journal or American Economic Review. The editors, if they felt charitable, might advise Smith and Keynes to try a journal of history or sociology. If you think I exaggerate, ask yourself what role academic economists have played in the present crisis....not only have economists, as a profession, failed to guide the world out of the crisis, they were also primarily responsible for leading us into it....." |
| James K. Galbraith Who Are These Economists, Anyway? THOUGHT & ACTION, FALL 2009 Available Here |
Online Journal Article | Extract form Conclusion: "As I have documented—and only in part— there is a considerable, rich, promising body of economics, theory and evidence, entirely suited to the study of the real economy and its enormous problems. This work is significant in ways in which the entire corpus of mainstream economics—including recent fashions like the new “behavioral economics”— simply is not. But where is it inside the economics profession? Essentially, nowhere. It is therefore pointless to continue with conversations centered on the conventional economics. The urgent need is instead to expand the academic space and the public visibility of ongoing work that is of actual value when faced with the many deep problems of economic life in our time. It is to make possible careers in those areas, and for people with those perspectives, that have been proven worthy by events. This is—obviously—not a matter to be entrusted to the economics departments themselves. It is an imperative, instead, for university administrators, for funding agencies, for foundations, and for students and perhaps their parents." |
| Michael Hudson, The Lost Science of Classical Political Economy New Economic Perspectives, Sept 20 2009, Available Here and Here |
Journal Article | Extract: There is a seeming riddle in the recent evolution of economic thought. It has become more otherworldly and abstract, more detached from the reality of how economies are running deeper into debt to a financial oligarchy. The global economy itself is polarizing between creditor and debtor nations, financial core and periphery (even as the United States manages to play both sides of this street). Yet academic orthodoxy treats this as anomalous, side-stepping the two key features of today's economic crisis: the "magic of compound interest" multiplying debts owed by the bottom 90 percent of the population to savers among the top 10 percent, while industrial capitalism is turned into a "tollbooth economy" by privatizing rent-extracting privileges on what used to be the public domain. ........ |
| Yves Smith ECONned: How Unenlightened Self Interest Damaged Democracy and Corrupted Capitalism Palgrave Macmillan April 2010 Available from this bookshop You can watch an interview with Yves Smith at this page |
Book | Reviews: “Yves Smith has written a wonderful book which combines first hand knowledge of financial markets with a devastating attack on the scientific pretensions of economics. It is required reading by all those who want to dig below the surface of the worst economic collapse since the war to the intellectual and regulatory rottenness underlying it.” Lord Skidelsky, author of ‘Keynes-The Return of the Master’ “This book is a fascinating and insightful reminder that economics is like any other powerful tool. It can be used to help understand the world and solve important problems—or to rationalize ridiculous behavior and overwhelm common sense. Smith provides a brilliantly researched tour of good ideas gone bad.” Charles Wheelan, author of Naked Economics: Undressing the Dismal Science “Lost your job, lost your life savings, the country’s going down the proverbial – want to know who did it? Yves Smith tells the tale of how bad economics created the foundations for the ‘Madoff economy’. After you read the book, just collect your pitchforks and get ready to march on the University of Chicago or Wall Street or both! A refreshingly sane and honest analysis.” Satyajit Das, author of Traders, Guns & Money: Knowns & Unknowns in the Wonderful World of Derivatives. |
| Philip Mirowski The Great Mortification: Economists’ Responses to the Crisis of 2007–(and counting) The Hedgehog Review, Summer 2010 Available Here |
Article | 'Taster' Extracts: "Economists have not comported themselves with much dignity of late.
Normally so quick off the mark to ferret out and expose irrationality in others, currently they have been distinctly loathe to recognize a
pandemic within their own ranks. I refer here to the outpourings spewn forth by the economists themselves, provoked by the numerous
embarrassments that have been visited upon them consequent to the onset of the world economic crisis........
" and "......most conventional outlets for economic ideas have become willfully uninterested in the tangled conflicts of interest of the modern economics profession. Does anyone care that Martin Feldstein was on the board of AIG in the runup to its disastrous failure? Or that Paul Krugman once consulted for Enron (and got radicalized after the New York Times made him foreswear such perks)? Is anyone curious about the tangled history of the funding and organization of the Chicago School of economics? Does anyone care that Larry Summers worked for numerous hedge funds and investment firms before they had to be rescued by an administration that included…Larry Summers? As late as February 17, 2010, the PBS Newshour gave a platform to Chicago economist, Cato Institute member, and financial consultant John Cochrane to simply assert that government spending has no net effect on the economy. Insiders to the profession know this as “Ricardian Equivalence,” but that is tantamount to insisting, “You can’t fool Mother Market.” But fooling the Market was how the crisis developed in the first place......" |
| Geoffrey M. Hodgson After 1929 economics changed: Will economists wake up in 2009? real-world economics review, issue no. 48, 6 December 2008, pp. 273-278 Available Here |
Journal Article | From conclusion: "To understand the current economic crisis we have to look at both economic history and the history of economic thought. To understand how economics has taken a wrong turning we have to appreciate work in the philosophy of economics and the relationship between economics and ideology. These unfashionable discourses have to be brought back into the centre of the economic curricula and rehabilitated as vital areas of enquiry.
Unless mainstream economics takes heed of these warnings and proves its relevance for the understanding of the most severe crisis of the capitalist system since the 1930s, then it will be doomed to irrelevance........" " |
| Geoffrey M. Hodgson The great crash of 2008 and the reform of economics Camb. J. Econ..2009; 33: 1205-1221 Available Here |
Journal Article | Abstract: "The 2008 economic crash led to remarkable shifts of opinion among world leaders. Does this crisis create favourable conditions for the reform and revitalisation of economics itself—from a subject dominated by mathematical techniques to a discipline more oriented to understanding real-world institutions and actors? And why were warnings of financial collapse not heeded? Recent shortcomings are partly related to the global triumph of market individualist ideology and partly to the exaggerated roles of modelling and quantification. These failures of economics are partly peculiar to the discipline and also a result of other wider institutional and cultural forces.
" Selected extract: "....We have also identified the problem of vested interests. Financial economists are less likely to speak out in favour of regulation when they have lucrative consultancy contracts with firms involved with derivatives, hedge funds and questionable financial innovations....." |
| Prof. Shela Dow, Nature and scope of economics is subject for wider debate Financial Times, Letters, Aug 18th 2010 Available here |
Letters in Financial Times (Newspaper) | EXTRACT "Economics would therefore be stronger if it supported a range of approaches from which to draw. But this is not the mainstream view of the discipline. There are disagreements within this view, but these are limited by the presumption both of independence from value judgments and of scope (in principle) for demonstrably best answers, implying that discussion about approach to economics is of little importance. This view has been strengthened in the UK by being institutionalised in the assessment of academic research, which has directly influenced government funding, and thus hiring incentives." ...."It follows that students cannot in general expect to be exposed to the type of wider debate being aired in the pages of the Financial Times on the nature and scope of economics, and thus the range of possible policy analyses." |
| Joseph Stiglitz, Needed: a new economic paradigm Financial Times, Aug 19th 2010 Available Here |
Newspaper article | EXTRACT: "The blame game continues over who is responsible for the worst recession since the Great Depression – the financiers who did such a bad job of managing risk or the regulators who failed to stop them. But the economics profession bears more than a little culpability. It provided the models that gave comfort to regulators that markets could be self-regulated; that they were efficient and self-correcting. The efficient markets hypothesis – the notion that market prices fully revealed all the relevant information – ruled the day. Today, not only is our economy in a shambles but so too is the economic paradigm that predominated in the years before the crisis – or at least it should be. " |
| Adam Kessler Cognitive dissonance, the Global Financial Crisis and the discipline of economics. real-world economics review, issue no. 54 September 2010, , Available Here |
Journal Article | Extract: "The global economic and financial crisis of 2007-2009 (?) provides a rare
natural experiment for the study of the social psychology of the economics profession. The “sub-prime” crisis of 2007, the banking crisis
and credit crunch of 2007-2008 and the deep global recession which started in the United States in December 2007 constitute a powerful shock
to the worldview of an influential minority of economists consisting of new classical economists, real business cycle (RBC) theorists, some
new Keynesians, so-called “Austrians,” the monetarist remnant, many (most?) financial economists and assorted other believers in laissez-faire.
I call them the BLF for short............It is important from society’s (and the profession’s) point of view to try to understand the BLF’s responses
to the crisis (and to predict future responses) since they have wide influence on (and often dominate) public policy discussions,
especially those involving macro policy and financial regulation. They seem to be in a position to shape the “conventional wisdom”
disseminated by elements of the media, institutions such as the O.E.C.D. and G-20, a number of developed-country governments and some
circles within the central banking universe...... .....My aim in this paper is to apply the concept cognitive dissonance (CD) to illuminate the BLF’s responses to the crisis." |