Why didn't economists predict the Great Depression?

Taylor, Leon (2014): Why didn't economists predict the Great Depression?

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Great Depression, theory of business cycles, history of macroeconomic thought, marketplace of ideas, learning by doing.
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B1 - History of Economic Thought through 1925 > B10 - General; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles

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