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Economy and economics: the twin crises

Alessandro Vercelli ()

Department of Economic Policy, Finance and Development (DEPFID) University of Siena from Department of Economic Policy, Finance and Development (DEPFID), University of Siena

Abstract: This paper explores the interaction between the Great recession triggered by the US subprime mortgages crisis and the twin crisis of macroeconomics. We argue that a major determinant of the subprime crisis and its dire consequences has been an approach to economics that is unable to deal with irregular phenomena. On the other hand, the unexpectedly deep financial crisis that has heavily affected the real economy makes clear that we need a major redirection of macroeconomic theory to make it able to explain, forecast and control irregular phenomena. The recent interaction between the crisis of the economy and the crisis of macroeconomics is analyzed in the light of similar preceding episodes in the 20th century: the Great contraction of the 1930s and the Great stagflation of the 1970s.

Keywords: subprime crisis; Great recession; Great stagflation; Great contraction; Great depression; liberalism; laissez-faire; Keynesism; neoliberalism; new classical economics; theory and facts; scientific revolutions. (search for similar items in EconPapers)
JEL-codes: A11 B22 B41 E02 E32 E58 E63 G01 G20 N1 (search for similar items in EconPapers)
Date: 2010-06
New Economics Papers: this item is included in nep-cba, nep-his, nep-hpe, nep-pke and nep-sog
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Persistent link: https://EconPapers.repec.org/RePEc:usi:depfid:0410

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