ECONOMIC THEORY IN CRISIS

The current crisis has shown how far macroeconomic theory is from the economic phenomena it is supposed to explain. I give some historical explanations for the development of this gap between theory and reality. Then I discuss the solidity of the foundations of the general equilibrium model and of the basic model in financial economics and the reasons for which these do not contain even the possibility of a crisis. I suggest several avenues towards an analysis which do take account of the occurrence of such episodes with simple examples. Once one considers, as I propose, the economy as a complex evolving system the nature of the problem of its analysis and of its regulation changes. Policy makers are aware of the need for such new approaches and it is up to economists to provide them.