Review: What went wrong with economics?
This article is focused on the economic crisis being faced by the world today. It looks at the general failure of economists to foresee the ongoing financial crisis, or to have a convincing answer as to what to do about it. Clearly visible are three main critiques: that macro and financial economists helped cause the crisis, that they failed to spot it and that they have no idea how to fix it. The article concludes by saying that economists need to take off their blinkers and study the other factors that affect markets. Macro economists must understand finance, and finance professors need to think harder about the context within which markets work. This article also points out that the view of economics for many of the general public has changed and that the reputation of economics has been batted by recent events.
The author points out that like the housing bubble, the economics bubble has also burst and has severely tarnished the reputation of Economics, particularly Macroeconomics. I think people have a lot of expectations from this subject. People expect it to be that magical something that can fix-it-all when it comes to markets. Despite the use of so called scientific stuff like calculus, Economics is essentially a social science which can only study rational human behavior.
Instead of blaming Economics we need to understand that it can only study rational behavior and not whimsical transactions that people indulge in all day long. It asks us to be rational, to judge things on the basis of information. But exactly the opposite has happened with the current crisis. Despite living in the information era, hardly any investor cares to collect information. Even when it comes to basic savings and investments, people rarely go through the balance sheet and portfolio of the bank, which leads to problems later on. All these issues have collectively led the world into this economic crisis.