Concluding Remarks: The Crisis in Economics

Abstract

The 2008 crisis was not only a crisis in the economy, but was also a crisis for economics — or at least that should have been the case. As we have noted, the standard models did not do very well. The criticism is not just that the models did not anticipate or predict the crisis (even shortly before it occurred); they did not contemplate the possibility of a crisis, or at least a crisis of this sort. Because markets were supposed to be efficient, there were not supposed to be bubbles. The shocks to the economy were supposed to be exogenous: this one was created by the market itself. Thus, the standard model said the crisis could not or would not happen; and the standard model had no insights into what generated it.