Did Capitalism Fail?

Five years after the collapse of Lehman Brothers, economists are still picking over the corpse of the financial system in an attempt to understand why the financial crisis happened. Some simply blame capitalism. Such a view is naive at best. For others,and I include myself in this camp, there probably wasn't enough capitalism. In this op-ed, Roman Frydman and Michael Goldberg, extremely insightful economists, point the finger of blame elsewhere - the discipline of economics. Economists had totally the wrong economic models in their toolkit - they had models which assumed that the economy works in a mechanistic way, much like a complex piece of machinery. This reduces economics to an engineering problem. But at its heart, economics is a social and political science. The real issue for me is not whether economists had the wrong models (they quite obviously did), but why did they have the wrong models?  

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