Economists have made some disastrous calls recently, but that doesn’t mean you should give up on economics, opines an editorial in the Economist. True, too few economists predicted the financial crisis, but the current backlash, which assumes that the dismal science is basically useless, has gone too far. “Economics is less a slavish creed than a prism through which to understand the world,” write the magazine's editors. Here’s how it all went wrong:
Apart from general complacency about asset bubbles, economists missed the signs because they were stuck in their own silos. Financial economists simply didn’t think about illiquidity or counterparty risk. Macroeconomists, meanwhile, believed capital markets work perfectly—which, we now know all too well, they don’t. Now war has broken out again between Keynsians and purists, but under the cacophony, new theories are forming. It’s time to fix economics, not scrap it.