Universities and macro-economists still haven’t found a way to solve the crisis of economics that was triggered by the global financial meltdown says economist Martin Wolf.
Speaking to an audience of economics students at the University of Melbourne, Mr Wolf said the real world debate on economics and the global financial crisis was one between Keynesians, Monetarists and Austrians, none of whom were seriously represented in contemporary economic discourse.
“One of the most interesting things that happened in this crisis is we all went back and resurrected economics which the academic community had basically buried,” Mr Wolf said.
“A lot of people who came out of doctoral programs over the last 20 years had no way to actually think about the crisis because there was nothing they were taught that could explain why it might happen, or how it might work.
"When we hit the crisis, an event that shouldn’t have happened as it were, we suddenly found ourselves all going back to economists who had been dead for decades.”
Mr Wolf said economists didn’t know what to do about the mismatch between the rigorous academic framework of economics and the heuristics of applied policy work.
“I don’t think it’s a simple answer, but I think that branch of economics is in pretty serious crisis, as in the thirties.”
Mr Wolf acknowledged that many economists and journalists missed the triggers for the financial crisis, but said as a result we now lived in a time where everyone was aware that economic and financial forces were important in changing the way the world works.
He said in the past there were a small number of influential voices covering economics for major newspapers, creating a bottleneck.
“Now, any academic who’s worth anything to anybody can create their own blog, and if they’re any good they will get quite a following.”
Last night Mr Wolf delivered the Corden Lecture at the University of Melbourne, discussing the lessons to be learnt from the global financial crisis.
He described the world as living in a “contained depression”, and said while it was not likely future crises could be prevented, it was possible to make the financial system more robust by ring-fencing investment banking arms from retail banking operations, as was currently proposed by the UK’s Vickers Commission.