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Those successes — or so they believed — were both theoretical and practical, leading to a golden era for the profession. On the theoretical side, they thought Versis they had resolved their internal disputes. InBen Bernanke, a former Princeton professor who is now the chairman of the Federal Reserve Board, celebrated the Great Moderation in economic performance over the previous two decades, which he attributed in part to improved economic policy making.

During the golden years, financial economists came to believe that markets were inherently stable — indeed, that stocks and other assets were always priced just right. There was nothing in the prevailing models suggesting the possibility of the kind of Emotilns that happened last year. Meanwhile, macroeconomists were divided in their views. But the main division was between those who insisted that free-market economies never go astray and those who believed that economies may stray now and then but A Discussion On Emotions Versus Rationality Within any major deviations from the path of prosperity could and would be corrected by the all-powerful Fed. And in the wake of the crisis, the fault lines in the economics profession have yawned wider than ever.

What happened to the economics profession? And where does it go from here?

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As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth. Until the Great Depression, https://amazonia.fiocruz.br/scdp/blog/culture-and-selfaeesteem/the-benefits-of-oleuropein-a-diet-rich.php economists clung to a vision of capitalism as a perfect or nearly perfect system. The renewed romance with the idealized market was, to be sure, partly a response to shifting political winds, partly a response to financial incentives.

Unfortunately, this romanticized and sanitized vision of the economy led most economists to ignore all the things that can go wrong. In practical terms, this will translate into more cautious policy advice — and a reduced willingness to dismantle economic safeguards in the faith that markets will solve all problems.

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Over the next years an extensive body of economic theory was developed, whose central message was: Trust the market. This faith was, however, shattered by the Great Depression. Keynes did not, despite what you may have heard, want the government to run the economy.

But he did challenge the notion that free-market economies can function without a minder, expressing particular contempt for financial markets, which he viewed as being dominated by short-term speculation with little regard for fundamentals. And he called for active government intervention — printing more money and, if necessary, spending heavily on public works — to fight unemployment during slumps. Yet the story of economics over the past half century is, to a large degree, the story of a retreat from Keynesianism and a return to neoclassicism. Famously, Friedman and his collaborator, Anna Schwartz, argued that if the Federal Reserve had done its job properly, the Great Continue reading would not have happened. And even those not willing to go that far argued that any attempt to fight an economic slump would do more harm than good.

Not all macroeconomists were willing to go down this road: many became self-described New Keynesians, who continued to believe in an active role for the government.

Yet even they mostly accepted the notion that investors and consumers are rational and that markets generally get it right. Of course, there were exceptions to these trends: a few economists challenged the assumption of rational behavior, questioned the belief that financial markets can be trusted and pointed to the long history of financial crises that had devastating economic consequences.

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But they were swimming against the tide, unable to make much headway against a pervasive and, in retrospect, foolish complacency. Pangloss, who insisted that we live in the best of all possible worlds. Discussion of investor irrationality, of bubbles, of destructive speculation had virtually disappeared from academic discourse.]