Nothing went wrong with economics. The austrian school of economics predicted the great depression, the economic failure of communism, the '01 nasdaq crash, and the recent housing bubble. If you keep looking to the keynsians after the stagflation of the 70's completely refuted the core tenant of their entire economic view, well, you've got no one to blame but yourself.
I'm not sure anything is broken, we just had plain old regulatory capture.<p>Greenspan himself admitted he thought that people would protect their own self interest. But those people get bonuses if their risks pay off and have no real downside if they lose. They are gambling with other people's money, not their own money.<p>And it's not as if self interest and lack of government bailouts prevent the Dutch tulip bubble, or any other speculative bubble.
Same happened before with chemestry / alchemy and astronomy / astrology - there were alchemists that were trying to please their king with promises of gold out of nothing or horoscopes, and there were scientists, that used it as a source of funding for their real research. Chemistry and Astronomy won, unfortunately our economic alchemy refuses to die.
This article is remarkably well balanced and correctly points out that both those who previously blindly followed economicists and those who blindly ignore them now are wrong. The truth of course is in between.<p>Economics is both a comparitively young science (at least in terms of when it was formalized) and one that deals with (or is influenced by) a very unpedictable factor, human actions. It gets many things right, and some things wrong. With time, it will be refined though by its nature it is likely to never reach the rigour and predictive power of some of the hard sciences such as physics.<p>This current upset is rightly forcing a reevaluation of many beliefs, but when the dust finally settles in the future, economics will emerge stronger and more accurate than before.
But does that mean that Keynsianism is going to die? Not a chance. Keynsians control the entire monetary system. It does not matter how often their theories are debunked by history itself. They are the ones in power, and so they will continue to do what they do best: Rob from the poor and give to the rich through the hidden tax of inflation born of deficit spending and the centralized control of interest rates.
I got hold of the article rather accidentally and was attracted by it. Somehow, it was then put aside due to some preoccupation but it keeps returning and flashing to me like owl’s-carrying-letters sent in to Harry Potter, demanding my involvement to perhaps save the world. Yes, the world is in big trouble and economists can’t help due to perhaps lack of genes and consequentially severe loss of sights.<p>“What went wrong with economics” is: Economics lacks at least one fundamental foundation. Installing this fundamental will elevate Economics to another platform.<p>What is this fundamental? It is something that sciences cling on tightly, but economics does not. So, economics has departed from this fundamental, perhaps unconsciously.<p>What is it then? It is the Fundamental Axiom or Law of Causality, simply means: Cause gives rise to Effect, In = Out, Debit = Credit, a Source for every Outcome, etc which are common senses or self-evident truths.<p>Tell us in what way the Economics runs away from this fundamental? If you ask: You win, I win, everyone wins, who then is the loser or provider of wealth? Most of economists will tell you that there is no loser. The Economics textbooks also say so. But it cannot be no loser, as it violates the fundamental Law of Causality. So, we must insist for the presence of loser, as dictated by the Fundamental Law of Causality.<p>On this insistence, one great researcher by the name of HNM had successfully uncovered the identity of the loser and the mask of wealth after an effort of several decades. Needless to say, he has restored the Fundamental Law of Causality back to the economics and make it a strong and real science. Using his new theory, all events in the past or present could be explained with ease, and that it could predict and even provide future policies and directions for our world.<p>If you are really interested to find out more, please write to me via my email: chinfuilan@yahoo.com
<a href="http://en.wikipedia.org/wiki/Information_asymmetry" rel="nofollow">http://en.wikipedia.org/wiki/Information_asymmetry</a> has played its role in economic depression.
I am a little baffled by the article's thesis. There is very little evidence to support a "failure" of economics in the case of this current crisis. Several economists (mainly Dean Baker) were able to see the housing bubble and to accurately predict that its burst would lead to a recession.<p>I suspect the real failure being discussed in the article is the belief many at the Fed (especially Greenspan) had in self-regulating markets. Good arguments have been made that the lack of regulation was a major factor in creating the bubble-prone economy the US has had for 15 years (or more). So yes, in that respect, the "economic models" have failed.<p>In reality, most of this was completely predictable and avoidable. I would again point people to Dean Baker as a great resource in understanding the crisis:
<a href="http://www.youtube.com/watch?v=CrSrL0lBorE" rel="nofollow">http://www.youtube.com/watch?v=CrSrL0lBorE</a>