The Credit Crisis and Recession as a Paradigm Test

Dirk J. Bezemer*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

24 Citations (Scopus)

Abstract

This paper contributes to the debate on what economics can learn from the credit crisis and recession. It asks what are the elements in the mainstream paradigm that caused many economists to misjudge the state of the economy so dramatically in the years leading up to the 2007 credit crisis and the 2008-2009 recession. It scrutinizes the work of twelve economists who warned of the crisis and identifies, as the common elements in their thinking, financial assets, debt, the flow of funds and behavioral assumptions on uncertainty, bounded rationality and non-optimizing behavior. These are then contrasted to mainstream thinking. The conclusion is that economics, if it is to be relevant to reality, should stop neglecting money, wealth and debt, and turn away from an individualistic view and toward a systemic view of the economy.

Original languageEnglish
Pages (from-to)1-18
Number of pages18
JournalJournal of Economic Issues
Volume45
Issue number1
DOIs
Publication statusPublished - Mar-2011

Keywords

  • credit crisis
  • paradigms
  • prediction
  • recession
  • MODEL

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