Charles K. Wilber, author of "Misleading Indicators: How U.S. Economists Missed the Great Recession" will be responding to readers' question this Friday, September 25. So if you haven't already, read his article and respond with your own comment or question.
Wilber, a professor emeritus of economics at the University of Notre Dame, argues that the highly specialized way economists are trained in the academy contributed in many ways to the economic crisis:
Over the past 30 years or so the graduate economics curriculum has become more and more like a program in applied mathematics with a corresponding de-emphasis of economic history, history of economic thought, industry studies and industrial relations. This narrowing of focus gets reinforced as the student finishes the Ph.D. and gets a job in the academy. The greatest rewards go to those who make advances in theory and publish in the half dozen top academic journals. Few articles will be accepted by these journals that do not start with the standard abstract model and then derive some new “interesting” result. Publishing in public policy journals, by contrast, is considered much less prestigious and can even count against an aspiring academic by showing that one is not a serious economist.
Between their narrow technical training and their bias toward free markets, most economists failed to see the coming perfect storm of economic recession and financial crisis. In fact they paved the way for it by urging the deregulation of financial markets, which in turn allowed the creation of all kinds of dubious new debt instruments, wildly increasing the leverage of bank capital, and even allowing huge Ponzi schemes to go undetected. When the extremely low interest rates set by the Federal Reserve were added to this, the “bubble” created in the housing industry was a natural outcome, and the spread to the financial sector was catastrophic.