Economists must learn that people - and politicians - don't always act rationally
The economics profession globally has attracted a lot of negative press in recent times and it has caused the profession to engage in a severe soul-searching exercise. I am not sure what is emerging from this exercise other than the opening up of a massive chasm in the field of macro-economics, with many of the elite protagonists now at each other's throats, particularly in the realms of academia.
If anybody is curious, it is possible to follow some of the vitriolic exchange of views online or on the various blogs. It is faintly amusing.
The serious issue though is that most, if not all, of the economic models that have been utilised in recent years, many of which are based on very complex mathematical algorithms, failed to diagnose the serious imbalances that were building up in the global economy in the early years of the noughties, mainly on the back of the deregulation of the global financial services industry dating from the Reagan years.