Economists had good enough intellectual frameworks to have seen the risk of something like the banking and balance sheet crisis that burst upon us in 2008. But they ignored that risk.
My best answer is that they were caught up in the spirit of the times, with its faith in the wisdom of markets and of the financial industry. Nobody could deny the possibility of runs on conventional banks, which have happened so often in history. Few could deny that debt deflation had happened in the past. But to argue, or even to think about, the possibility that the old evils could manifest themselves in new forms would have been to question the whole basis of decades of policy, not to mention the foundations of a very lucrative industry. You don’t have to invoke raw corruption (although there may have been some of that) to see why this was a line of thought few were willing to pursue. And by not pursuing that line of thought, the profession fell down badly on the job.
via Eastern Economic Journal – The Profession and the Crisis.
Mark Carrigan 