Saturday, August 8, 2009

Many economists saw the crisis coming

My comment to the article "What is the point of economists?", published on the Financial Times.

The premise of the article is false. Many economists saw the crisis coming, expressed their concerns, proposed regulatory and policy responses, and bemoaned the dominant paradigm in macroeconomics (market fundamentalism, i.e. those who believe the markets are always efficient and rational).

Among the many economists who foretold the crisis are Paul Krugman, Joseph Stiglitz, Robert Shiller, Nouriel Roubini, Brad Setser, Wynne Godley and Alex Izurieta. Numerous quotes are evidence of this (see, for example,

Paul Krugman, in 2005, said "if the process doesn't go smoothly - if, in particular, the housing bubble bursts before the trade deficit shrinks - we're going to have an economic slowdown, and possibly a recession". Godley and Izurieta wrote (in the Financial Times, no less), that "if the balance of payments deficit continues to rise and if private saving does not deteriorate further, either fiscal policy will have to be progressively relaxed so the budget balance deteriorates even more, or the economy will face chronic stagnation, with dire consequences for the rest of the world" (December 2004,

So, it seems, the only economists that didn't see this coming were Greenspan, Lucas, the Chicago School economists, and the Bush administration economic team

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