In the midst of the greatest financial crisis since the Great Depression, have you ever wondered why economists didn’t see it coming, and why they don’t seem to know what to do, now that it’s here?
As one columnist put it, if “economics gurus … are really so smart, why didn’t they predict the GFC [Global Financial Crisis]? In fact, why didn’t they stop it?””
I’m one “economic guru” who did predict the Global Financial Crisis. I went public with warnings that it was imminent in December 2005, established the DebtWatch Report in November 2006, and started this blog in March 2007.
I saw the GFC coming, not because I’m that much smarter than other economists, but because I long ago realised that the standard model of the economy–known as Neoclassical Economics–is utterly unrealistic. Instead of working within this dominant but barren paradigm, I helped developed an alternative approach based on the work of Hyman Minsky. Knowledge of this far more realistic approach to economics is why I saw the crisis coming, while neoclassical economists were rabbiting on about “The Great Moderation”–the belief that their management of the economy had reduced or possibly even eliminated the business cycle.
I wrote Debunking Economics in 2001 to explain to the general public why accepted economic theory is such a poor guide to the way the economy actually works. Over the last fifty years, numerous flaws in the theory have been pointed out by economists, but this unrealistic theory has rolled on–and become even more unrealistic over time–until this crisis hit.
Now, just when the world wants someone, anyone, to show the way out of this crisis, the people who can least be relied upon to find it are the ones that are actually in charge–professional economists. To give you an idea of how little they know, check out this recent OpEd in the New York Times, “That Freshman Course Won’t Be Quite the Same”. Written Gregory Mankiw, author of a widely used introductory economic textbook, and one of Bush’s economic advisers, it shows that he really doesn’t have a clue about how this crisis came about.
Written for the non-mathematical reader, Debunking Economics explains why economists are so completely at a loss about the GFC–because their model of the economy is based on everything from elaborate delusions and fantasies, to subtle mathematical errors and outright clangers. First published in 2001, it sold over 15,000 copies around the world and in still available from the publishers ZedBooks in the UK (MacMillan are the local distributors in Australia). Since it is a backlist publication, you are unlikely to find it in bookshops now, though you can get your bookshop to order it for you from ZedBooks or MacMillan–or you can purchase it via Amazon.
For US$10, you can now purchase an eBook version of Debunking Economics in the popular, free Mobipocket format that runs on PCs, eBook readers and smartphones. Click here to purchase the eBook.
I am currently working on a book on approach to economics and the financial crisis, with the working (and probably final) title of Finance and Economic Breakdown. It will be published by Edward Elgar Publishers, I hope in 2011.