Chapter

Global Economic Crisis and the Crisis in Economics

George F. DeMartino

in The Economist’s Oath

Published in print January 2011 | ISBN: 9780199730568
Published online September 2011 | e-ISBN: 9780199896776 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199730568.003.0010
Global Economic Crisis and the Crisis in Economics

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This chapter explores the culpability of the economics profession in the current global economic crisis. Like the previous chapter, it demonstrates that leading economists pursued a maxi-max decision rule: enamored with the elegance of the efficient markets hypothesis, they advocated a utopian scheme of financial liberalization/de-regulation despite its attendant risks to the economy (which Keynes had identified over seventy years ago). Moreover, the profession failed to promote and sustain intellectual pluralism, and instead dismissed the warnings of those economists who correctly identified the looming crisis. Indeed, the profession was overtaken by closed-mindedness, overconfidence and group-think which obstructed the free and fair exchange of conflicting ideas that are the hallmark of a vibrant intellectual tradition. In all these ways, the intellectual bubble in economics and the financial bubble in asset markets were mutually reinforcing, and helped prepare the ground for the ultimate collapse.

Keywords: utopia; maxi-max; efficient markets hypothesis; economic crisis; financial de-regulation; economic pluralism; group-think; overconfidence; intellectual bubble

Chapter.  6764 words. 

Subjects: Public Economics

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