A really nice article on the systemic failure of economic theory, and its implications and consequences.
Kiel Working Paper 1489 | February 2009
David Colander, Hans Föllmer, Armin Haas, Michael Goldberg, Katarina Juselius,
Alan Kirman, Thomas Lux, and Brigitte Sloth
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.
Keywords: financial crisis, academic moral hazard, ethic responsibility of researchers
JEL classification: A11, B40, G01