Why didn't economists predict the Great Depression?
Leon Taylor ()
MPRA Paper from University Library of Munich, Germany
Economists failed to forecast the Great Depression, perhaps because they had lacked reason to theorize enough about business cycles. Since theory is a public good, the market produces too little of it. The prospect of ex post fame may induce theory; but fame comes from explaining famous events, not from averting adverse events. Also, learning-by-doing induces theory by cutting its cost, favoring the first theories to be developed. These dealt with markets – not business cycles – in the decades before the Depression.
Keywords: Great Depression; theory of business cycles; history of macroeconomic thought; marketplace of ideas; learning by doing. (search for similar items in EconPapers)
JEL-codes: B10 E32 (search for similar items in EconPapers)
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