Wednesday, May 7, 2014
Gary Becker Was Correct. The Financial Crisis Has Not Changed Economics
Gary Becker, a Nobel Laureate who passed away this week, was interviewed about the financial crisis and how it might affect the teaching of economics. He argued that the financial crisis was not at the same scale as the Great Depression which led to the New Deal and the rise of Keynesian economics. This article reviews the response of the economics profession to the financial crisis and concludes that some modest changes have taken place but that the teaching of economics has not changed. Moreover, central banks are using the same models that they used to forecast the economy before the financial crisis, and the German central banks is still using a model that that does include the financial sector. Old paradigms do not die easily. They must be replaced by a new paradigm which has not emerged from the financial crisis.