The crisis and the economists: a guide to the perplexed

Few economists anticipated the current economic crisis and economists continue to stand in the way of effective economic policy. Over a century after Karl Marx and nearly 75 years after John Maynard Keynes, orthodox economists continue to believe in a version of Say's Law where production is for consumption and economic crises originate in bad monetary policy. In the orthodox view, proper monetary policy is not only necessary but is sufficient for recovery; once governments have restored liquidity to the banking system, there is no need for further intervention or stimulus spending. Based on a pre-capitalist, even pre-social, image of economic activity, the orthodox approach is inadequate to understand modern economic conditions. Should its prescriptions be followed, we risk compounding the current economic crisis and dragging the economy into a long term malaise comparable with the economic crisis of the 1930s.