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Why Neoclassical Economists Didnt See the Great Recession Coming

Summary:
Mainstream “Neoclassical” Economists famously did not see the Great Recession coming, and when you look at their theories, it’s no wonder. Their favourite model prior to the crisis goes by the name of “Dynamic Stochastic General Equilibrium”, or DSGE. These models imagined that the entire economy could be modeled as a single individual. Yet neoclassical ...

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Mainstream “Neoclassical” Economists famously did not see the Great Recession coming, and when you look at their theories, it’s no wonder. Their favourite model prior to the crisis goes by the name of “Dynamic Stochastic General Equilibrium”, or DSGE. These models imagined that the entire economy could be modeled as a single individual. Yet neoclassical researchers proved decades ago that even a single market can’t be modeled that way. I explain this proof while outlining the fundamental truth that “Neoclassical Economists Don’t Understand Neoclassical Economics”.


Steve Keen
Steve Keen (born 28 March 1953) is an Australian-born, British-based economist and author. He considers himself a post-Keynesian, criticising neoclassical economics as inconsistent, unscientific and empirically unsupported. The major influences on Keen's thinking about economics include John Maynard Keynes, Karl Marx, Hyman Minsky, Piero Sraffa, Augusto Graziani, Joseph Alois Schumpeter, Thorstein Veblen, and François Quesnay.

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