Krugman's Whodunnit

Here is an excellent article with the title "How Did Economists Get It So Wrong?" by Paul Krugman in the NY Times magazine.

It’s hard to believe now, but not long ago economists were congratulating themselves over the success of their field. Those successes — or so they believed — were both theoretical and practical, leading to a golden era for the profession. ...

Last year, everything came apart.

Few economists saw our current crisis coming, but this predictive failure was the least of the field’s problems. More important was the profession’s blindness to the very possibility of catastrophic failures in a market economy. During the golden years, financial economists came to believe that markets were inherently stable — indeed, that stocks and other assets were always priced just right. There was nothing in the prevailing models suggesting the possibility of the kind of collapse that happened last year. ...

What happened to the economics profession? And where does it go from here?

Go read the article. It is an excellent read. It walks you through the history of economic thought and explains just how things went so badly wrong. It is very readable. It is very enlightening. It is well worth your time.