Neo-clasical Delusions

Steve Keen

Krugman is right on many of the points that he makes in his article but it is the things that he doesn't mention that stand out most dramatically. Neo-classical economists make the mistake of disregarding the private sector debt, as if it wasn't a part of the economic problems that currently envelops the globe.

The shortcomings of neo-classical theories is apparent in their lack of having economic models that actually predict economic downturns.  Steve Keen and Nouriel Roubini are two economists (among others) that were predicting the collapse before it happened.  Their warnings were mostly ignored because they broke ranks with the prevailing theories that are like dogma to to most economists.

Steve Keen has written a book entitled "Debunking Economics" that lays out the failures of neo-classical theories.  He uses mathematical modeling as a means of developing economic models that can actually predict financial downturns.

It's time for economics to adopt more rigorus standards and let go of theories that have little or no connection to economic realities.  In the meantime the immediate future looks pretty gloomy.