Creating an Economics for the 21st Century

guest post from Rob Johnson

In the wake of the 2008 financial crisis, many of our policy makers and top economists are still stumbling in the dark.

One needn’t look far for proof. The symptoms of their failure are everywhere. Financial markets remain too volatile and crises too common. Inequality is raging and increasing around the globe. And environmental damage continues unabated, with rising climate volatility belying claims that we can experience sustained and broad based prosperity without major changes in the global economy.

A key part of this problem – and one that hasn’t been adequately explored – is the economics profession. 

Who is right? Krugman or Keen or / and 9 Central Bank economists?

from Edward Fullbrook

The monetary theory debate starring Krugman and Keen currently raging on the Web desperately needs real-world grounding in the context of the guest post by Jesse Frederik that appeared on this blog on 26 January.  The debate is centered on how banks work.

Keen holds that:

neoclassical economists . . . get it wrong: by ignoring banks, and treating loans as transfers from “savers” to “spenders” with no bank in between.

This is precisely how Krugman models debt in his recent paper: 

Economists: A Profession at Sea

from Edward Fullbrook

This week’s Time magazine, of all places, has a splendid hard-hitting longish article by Robert Johnson (Institute for New Economic Thinking).  It includes an acknowledgement that a prestigious segment of the profession has been financially corrupted.  Here is some of the article followed by a link to the remainder.

How to keep economists from missing the next financial crisis.

By Robert Johnson

After the financial crisis of 2008, the Queen of England asked economists, “Why did no one see the credit crunch coming?” Three years later, a group of Harvard under­graduate students walked out of introductory economics and wrote, “Today, we are walking out of your class, ­Economics 101, in order to express our discontent with the bias inherent in this introductory economics course. We are deeply concerned about the way that this bias affects students, the University, and our greater society.”

What has happened? Rebellion from both above and below suggests that economists, who were recently at the core of power and social leadership in our society, are no longer trusted. Not long ago, the principal theories of economics appeared to be the secular religion of society. Today, economics is a discipline in disrepute.