Overcoming the Impasse in Modern Economics

In the wake of the global financial crisis of 2008, the greatest economic disaster since the Great Depression, the cover story of the July 18th 2009 issue of The Economist, entitled “What went wrong with economics,” opened with an unequivocally incriminating statement: “Of all the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself.” In the months surrounding this indictment, many influential economists, including several Nobel laureates, were drawn to the same embarrassing conclusion. Despite the existence of a handful of Cassandras, economists, as a group, had failed to foresee the crash. This short essay reviews the criticisms addressed to modern economic theory in the immediate aftermath of the crash. Overall, the main issues raised by critics were that (a) economists versed in the dominant models in macroeconomics and finance have been blinded to the possibility that we live in an uncertain and complex world; and (b) that the content of current economics education has sidelined many of the relevant insights to be found in the history of the discipline. This has led the critics to call for changes in the institutional structure of discipline, with a particular emphasis on the promotion of interdisciplinarity, and theoretical and methodological pluralism.