The terrible simplifers : common origins of financial crises and persistent poverty in economic theory and the new '1848 Moment'

One element explaining the financial crisis is what Hyman Minsky called ‘destabilizing stability’: long periods of stability lead to increasing vulnerability. This paper argues that similar mechanisms are at work inside economics: long periods of economic progress in the core countries lead to increasingly abstract and irrelevant economic theories (‘terrible simplifications’). This leads to turning points towards more relevant economic theories, referred to as ‘1848 moments’. The paper further outlines the key variables that need to be re-introduced into economic theory in order to furnish poor countries with the type of productive structures that makes it possible to eliminate poverty.
Where economics went wrong: On abstraction vs. simplification -- Reconstructing Relevant Economics -- Economics Abstracted from Production: The Common Element in Financial Crises and Persistent Poverty -- The Challenge: Relearning the Art of Creating Middle Income Countries -- Financial Crisis as a Result of Overshooting Success -- Destabilizing Stability and Cyclicality of Economic Theory: the Mechanics -- Increasing Distance = Increasing Abstraction and Simplicity -- Increasing Returns as the Key to Wealthy Nations -- Increasing Returns and Synergies: Their Creation and their Destruction -- Conclusion: Towards ‘an 1848 Moment’ when Empirical Knowledge Matters Again -- Appendix 1. Frank Graham’s Theory of Uneven Development.

27 p. : graphs, tables

Includes bibliographical references (p. 25-27).