Abstract
In this paper we deal with two questions, (1) what are the origins of the current financial crisis, and (2) what did economists contribute, or why did economists fail to provide a convincing answer for the origins of the crisis, and possible solutions to overcome it? The economics profession apparently was unaware of the looming worldwide financial and economic crisis, and significantly underestimated its global dimensions and consequences. A first and preliminary analysis is undertaken to explore reasons for these failures. We conclude by pointing to some consequences for economics as well as for economic policy.
Article PDF
Avoid common mistakes on your manuscript.
References
Acemoglu, D. (2009). The crisis of 2008: Structural lessons for and from economics, CEPR policy insight No. 28, January. http://www.cepr.org/pubs/PolicyInsights/PolicyInsight28.pdf.
Adams, F. G. (2009). The world financial crisis: new economy, globalisation and old-fashioned philosophy. World Economics, 10(1), 45–58.
Banerjee, A. (1992). A simple model of herd behaviour. Quarterly Journal of Economics, 108(4), 797–817.
Caballero, R., Farhi, E., & Gourinchas, P.-O. (2008). An equilibrium model of ‘global imbalances’ and low interest rates. American Economic Review, 98(3), 358–393.
Chamley, C. P. (2008). Rational herds: Economic models of social learning. Cambridge: Cambridge University Press.
Coates, J. M., & Herbert, J. (2008). Endogenous steroids and financial risk taking on a London trading floor. Proceedings of the National Academy of Sciences, 6167–6172.
Colander, D., Föllmer, H., Haas, A., Goldberg, M., Juselius, K., Kirmen, A., Lux, T., & Slot, B. (2009). The financial crisis and the systematic failure of Academic economics. Working paper No. 1489, February 2009, Kiel Institute for the World Economy.
Congleton, R. D. (2005). Toward a political economy of crisis management: Rational choice, ignorance, and haste in political decision making, dynamics of intervention. Advances in Austrian Economics, 8(2), 183–204.
Congleton, R. D. (2009). On the political economy of the financial crisis and beyond of 2008, Public Choice.
Eichengreen, B. (2008a). Thirteen questions about the subprime crisis. Unpublished manuscript. University of California, Berkeley (January). emlab.berkeley.edu/users~eichengr.
Eichengreen, B. (2008b). Origins and responses to the crisis. Unpublished manuscript, University of California, Berkeley.
Friedman, D. (1996). Anarchy and efficient law. In J. Sanders & J. Narveson (Eds.), For and against the state: New philosophical readings (pp. 235–254). Rowman: Littlefield.
Himmelberg, C. P., Mayer, C. J., & Sinai, T. M. (2004). Assessing high house prices: Bubbles, fundamentals, and misperceptions. Federal Reserve Board Staff Report 218.
Krozner, R., & Rajan, R. (1994). Is the Glass-Steagall Act justified? A study of U.S. experience with universal banking before 1993. American Economic Review, 84(4), 810–832.
Krozner, R., & Rajan, R. (1997). Commercial bank securities activities before the Glass-Steagall Act. Journal of Monetary Economics, 39(4), 475–516.
Kindleberger, C. P. (1989). Manias, panics, and crashes: A history of financial crises. London: MacMillan.
Krugman, P. (2000). The return of depression. In Economics. New York: Norton.
Krugman, P. (2004). The great unravelling: Losing our way in the new century. New York: Norton.
Leijonhufvud, A. (2000). Macroeconomic instability and coordination: Selected essays. Cheltenham: Edward Elgar.
Lo, A., Repin, D. V., & Steenbarger, B. N. (2005). Fear and greed in financial markets: A clinical study of day traders. American Economic Review, 95(3), 352–359.
Mandelbrot, B. (1963). The variation of certain speculative prices. Journal of Business, 36(3), 394–419.
Mason, J., & Rosner, J. (2007). Where did the risk go? How misapplied bond ratings cause mortgage back securities and collateralized debt obligations disruptions. Unpublished manuscript, Drexel University and Graham Fisher.
Minsky, H. P. (1986). Stabilizing an unstable economy. New Haven: Yale University Press.
Paulson, H., et al. (2008). Blueprint for a modernized financial regulatory structure, Washington D.C.: US Department of the Treasury (March).
Reinhart, C., & Rogoff, K. (2008). This time is different: A panoramic view of eight centuries of financial crises. Manuscript, Harvard University and NBER.
Shleifer, A. (1998). State versus private ownership. Journal of Economic Perspectives, 12(4), 133–150.
Stiglitz, J. E. (2008). It doesn’t take Nostradamus. The Economist’s Voice: 5(8), Article 1.
Stiglitz, J. E. (2009). America’s socialism for the rich, The Economist’s Voice: 6(6), Article 5.
Warnock, F., & Warnock, V. (2006). International capital flows and U.S. interest rates. International Finance Discussion Paper no. 860, International Finance Division, Board of Governors of the Federal Reserve System (September).
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
About this article
Cite this article
Schneider, F., Kirchgässner, G. Financial and world economic crisis: What did economists contribute?. Public Choice 140, 319–327 (2009). https://doi.org/10.1007/s11127-009-9479-y
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11127-009-9479-y
Keywords
- Financial crisis
- Crisis management
- Failure of economics
- Failure of economic researchers
- Origin of the crisis