Double economic crisis

Year: 2007 - 2024?

In 2007, the build-up of risky mortgages led to a collapse of the US housing market, and the bankruptcy of many financial institutions, causing a global financial crisis that lingered for years. Economists and financial experts were caught by surprise: almost nobody had predicted the event, sending the field of macroeconomics into a crisis as well.

How could economists not see this coming? Critical reports and commentaries have pointed at the use of simplified models, which assume that individuals and institutions only act rationally in accordance with behavioural economics, and do not account for complex financial products that were involved in the housing bubble. Several experts point at the overreliance on markets and the ideological beliefs of economists, who often favour deregulation and minimal government intervention. While others point at the role of governments in the crash.

The financial crisis shows that not only single studies, but also whole methodologies and conventions of a field can fail. Collective reflection on these failures can help sift out these failures - but will it be enough to predict and prevent a next crisis?

See this article by the New York Times, this commentary and this article.