Crisis and the Failure of Economic Theory

The Responsibility of Economists for the Great Recession

New Directions in Post-Keynesian Economics series

Giancarlo Bertocco, University of Insubria, Italy

Economists have rightly been criticized for not having foreseen the crisis that exploded in 2007–2008. As Giancarlo Bertocco eloquently argues, responsibility does indeed rest heavily on their shoulders. By developing a theory which excluded the possibility that a catastrophic crisis could ever happen, the economics profession has justified decisions and behaviours that caused the Great Recession. This book presents an alternative theoretical approach built on the lessons of Marx, Keynes, Schumpeter, Kalecki, Kaldor and Minsky, which highlights the structural instability of a capitalist economy and the endogenous nature of the current crisis.

‘Bertocco’ s forceful and convincing narrative provides a solid basis for further research on an alternative theoretical framework, and on social and economic policies that dispense with and avoid the consequences of Keynes’ s “accountant’ s nightmare”. The book makes the reader wonder why mainstream economists continue to cling onto a useless theoretical framework that leads them to violate, in their practice, the most basic and fundamental axiom of their models: rational behavior.’
– Review of Keynesian Economics

主流经济学家可以not see the Global Financial Crisis coming because their theories rule out the possibility of crisis. Their ex post apologies rely on stories of black swans with fat tails and compare the crisis to an unpredictable but inevitable earthquake. Professor Bertocco relies, instead, on the analyses of Schumpeter and Minsky to understand the forces that plunged the global economy into crisis almost a decade ago. The crisis was foreseeable, it could have been prevented, and policymakers could have mounted a more effective response – if they had adopted a Schumpeterian–Minskyan analysis.’
– L. Randall Wray, Bard College and Levy Economics Institute, US

‘Giancarlo Bertocco’s Crisis and the Failure of Economic Theory is an old-fashioned volume, and all the better for that. The author identifies a major historical episode of malfunctioning in the advanced capitalist world, asks what light mainstream economic theory throws on it, and explains clearly its approach and structure, and why with these attributes failure was inevitable. He then sets about developing an alternative approach and structure that not only illuminates what happened but also suggests how it may be avoided in the future. He sets out honestly and clearly the limitations and imponderables in his contributions, acknowledges in a scholarly manner the many sources of his ideas, and discusses the likely political constraints within which more relevant and enlightened policies will have to be pursued. Painting on such a broad canvas in a deep manner calls to mind the great names of our discipline–Adam Smith, Karl Marx, Maynard Keynes. Readers may not agree with the details of Giancarlo Bertocco’s book, but they will be challenged to absorb the ideas from his narrative and hopefully to build on them.’
– G.C. Harcourt, University of New South Wales, Australia