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Why didn't economists predict the Great Depression?

Leon Taylor ()

MPRA Paper from University Library of Munich, Germany

Abstract: 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)
Date: 2014-03-07
New Economics Papers: this item is included in nep-his, nep-hpe and nep-mac
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