In a long piece in The New York Times Magazine called "How Did Economists Get It So Wrong?", Nobel Prize-winning economist and Times op-ed columnist Paul Krugman tries to "explain" the current crash without analyzing the macroeconomic impact of land speculation and land monopoly or mentioning "Progress and Poverty — An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth…The Remedy" by Henry George. That’s like trying to explain why objects fall to earth without discussing the law of gravity or mentioning Sir Isaac Newton.
Krugman writes:
The birth of economics as a discipline is usually credited to Adam Smith, who published “The Wealth of Nations” in 1776. Over the next 160 years an extensive body of economic theory was developed, whose central message was: Trust the market. Yes, economists admitted that there were cases in which markets might fail, of which the most important was the case of “externalities” — costs that people impose on others without paying the price, like traffic congestion or pollution. But the basic presumption of “neoclassical” economics (named after the late-19th-century theorists who elaborated on the concepts of their “classical” predecessors) was that we should have faith in the market system.
This faith was, however, shattered by the Great Depression. Actually, even in the face of total collapse some economists insisted that whatever happens in a market economy must be right: “Depressions are not simply evils,” declared Joseph Schumpeter in 1934 — 1934! They are, he added, “forms of something which has to be done.” But many, and eventually most, economists turned to the insights of John Maynard Keynes for both an explanation of what had happened and a solution to future depressions.
To learn the truth about neoclassical economics and why it was invented, read "Neo-classical Economics as a Stratagem against
Henry George" by Mason Gaffney, a professor of economics at the University of California, Riverside.
