Reconstructing Economics in Light of the 2007-? Financial Crisis


Friedman, Benjamin M. 2010. “Reconstructing Economics in Light of the 2007-? Financial Crisis.” Journal of Economic Education 41 (4): 391-397.


The lessons learned from the recent financial crisis should significantly reshape the economics profession's thinking, including, importantly, what we teach our students. Five such lessons are that we live in a monetary economy and therefore aggregate demand and policies that affect aggregate demand are determinants of real economic outcomes; that what actually matters for this purpose is not money but the volume, availability, and price of credit; that the fact that most lending is done by financial institutions matters as well; that the prices set in our financial markets do not always exhibit the “rationality” economists normally claim for them; and that both frictions and the uneven impact of economic events prevent us from adapting to disturbances in the way textbook economics suggests.


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Last updated on 03/21/2013