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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.