Chapter 28: The Great Crash of 2008 and the Reform of Economics
* Geoffrey M. Hodgson** Preface The 2008 economic crash led to remarkable shifts of opinion among world leaders. Does this crisis create favourable conditions for the reform and revitalisation of economics itself – from a subject dominated by mathematical techniques to a discipline more oriented to understanding real-world institutions and actors? And why were warnings of nancial collapse not heeded? Recent shortcomings are partly related to the global triumph of market individualist ideology and partly to the exaggerated roles of modelling and quantication. These failures of economics are partly peculiar to the discipline and also a result of other wider institutional and cultural forces. 1 Introduction The world nancial crash of 2008 signalled the most serious global economic crisis since the Great Depression of the 1930s. Just as John Maynard Keynes is remembered for his critique of the economic theories and policies of his day, critics of mainstream economics may wonder if the latest crisis will help to revive the discipline by exposing the limitations of current economic theory and policy. This article assesses the prospects of such a renewal. It is argued that the possibility of redirecting economics into more constructive and relevant channels is less hopeful than it may appear at rst sight, because of major institutional and cultural barriers to the reform of the profession. Among these are obsolete disciplinary boundaries, deep specialisation at the cost of synthetic vision and a cult of metrication and formalisation. While economics as a discipline evolves slowly, the ideological mood has changed rapidly....
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