Why Economists Failed to Predict the Financial Crisis


	Why Economists Failed to Predict the Financial Crisis

JICWyllie

5-14-2009 12:28 PM

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tags:

1-policy, 1-skills, 2-failure, 2-lack, 3-reported, 3-research, 4-us

JICWyllie says:

And it was so obvious, too. We were writing about the coming crunch in 2002 in our report, Consumers: Going for Broke.

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<div style="margin: 12px 0px; font-family: arial; color: #333333; background: #ffffff; border: solid 4px #e5e5e5; width: 100%; clear: left;"><div class="CM_CTB_Content_Wrap" style="margin: 0px; padding: 0px;background-color: #ffffff;"><div style="border-bottom: solid 1px #dcdcdc; white-space: nowrap; margin-bottom: 8px; background-color: #eeeeee ;background-image: url(http://clipmarks.com/images/source-bg.gif); background-repeat: repeat-x; height: 24px; line-height: 24px; vertical-align: middle; padding-bottom: 4px; color: #666666; font-size: 10px;" ><a href="http://clipmarks.com/clip-to-blog/" title="see clips that are hot right now"><img src="http://content.clipmarks.com/blog_embed/70b75244-879b-4599-863b-28366de2efa4/D694FC37-D2E0-441C-9340-70C600A35345/" alt="" width="19" height="19" border="0" style="vertical-align: middle; margin: 0px 4px; display: inline; border: none; float:none;" /></a>clipped from <a title="http://knowledge.wharton.upenn.edu/article.cfm?articleid=2234" href="http://knowledge.wharton.upenn.edu/article.cfm?articleid=2234" style="font-size: 11px;">knowledge.wharton.upenn.edu</a></div><blockquote style="text-align: left; padding: 0px 8px; margin: 4px 0px 8px 0px; background: transparent; border: none;" cite="http://knowledge.wharton.upenn.edu/article.cfm?articleid=2234"><P aria-level="0" aria-posinset="0" aria-setsize="0">"It's not just that they missed it, they positively denied that it would happen," says Wharton finance professor <A aria-level="0" aria-posinset="0" aria-setsize="0" href="http://www.wharton.upenn.edu/faculty/allenf.html">Franklin Allen</A>, arguing that many economists used mathematical models that failed to account for the critical roles that banks and other financial institutions play in the economy. "Even a lot of the central banks in the world use these models," Allen said. "That's a large part of the issue. They simply didn't believe the banks were important."</P></blockquote><div style="height: 2px; font-size: 2px; background: #dcdcdc; border-bottom: solid 1px #f5f5f5; margin: 2px 4px;"></div><blockquote style="text-align: left; padding: 0px 8px; margin: 4px 0px 8px 0px; background: transparent; border: none;" cite="http://knowledge.wharton.upenn.edu/article.cfm?articleid=2234"><P aria-level="0" aria-posinset="0" aria-setsize="0">Over the past 30 years or so, economics has been dominated by an "academic orthodoxy" which says economic cycles are driven by players in the "real economy" -- producers and consumers of goods and services -- while banks and other financial institutions have been assigned little importance, Allen says. "In many of the major economics departments, graduate students wouldn't learn anything about banking in any of the courses." </P></blockquote></div><div style="margin: 0px 6px 6px 4px;"><table style="font-size: 11px;border-spacing: 0px;padding: 0px;" cellpadding="0" cellspacing="0" width="100%"><tr><td style="background:transparent;border-width:0px;padding:0px;">&nbsp;</td><td align="right" style="background:transparent;border-width:0px;padding:0px;width:107px" width="107"><a href="http://clipmarks.com/share/D694FC37-D2E0-441C-9340-70C600A35345/blog/" title="blog or email this clip"><img src="http://content8.clipmarks.com/images/c2b-foot.png" border="0" alt="blog it" width="107" height="17" style="border-width:0px;padding:0px;margin:0px;" /></a></td></tr></table></div></div>

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