The most important thing that global financial crisis has done for economic theory is to show that neoclassical economics is not merely wrong, but dangerous.
Neoclassical economics contributed directly to this crisis by promoting a faith in the innate stability of a market economy, in a manner which in fact increased the tendency to instability of the financial system. With its false belief that all instability in the system can be traced to interventions in the market, rather than the market itself, it championed the deregulation of finance and a dramatic increase in income inequality. Its equilibrium vision of the functioning of finance markets led to the development of the very financial products that are now threatening the continued existence of capitalism itself.

A number of unsustainable trends, such as those related to climate change, biological diversity, environmental pollution, depleting fish stocks, deforestation, accumulating radioactive waste threaten people in different parts of the world and globally. In addition to this we are experiencing a financial crisis. Something appears to be seriously wrong with the mental maps of influential actors in different parts of the world. In both cases of crisis, the tendency is to blame market actors for their greediness and risk behavior or national governments for the lack of relevant regulation, or both.
I will here argue that among potential explanatory factors we also need to include ideas about the role of science in society, paradigms in economics, established political ideologies (and other ideologies) as well as institutional arrangements. This means that also science and universities are involved. It is argued that the monopoly position of neoclassical economics at university departments of economics has played a significant role by influencing the mental maps of many actors and making them more legitimate. Even the so called Nobel Prize in economics is part of this picture.

The current financial meltdown is the result of under-regulated markets built on an ideology of free market capitalism and unlimited economic growth. The fundamental problem is that the underlying assumptions of this ideology are not consistent with what we now know about the real state of the world. The financial world is, in essence, a set of markers for goods, services, and risks in the real world and when those markers are allowed to deviate too far from reality, “adjustments” must ultimately follow and crisis and panic can ensue. To solve this and future financial crisis requires that we reconnect the markers with reality. What are our real assets and how valuable are they? To do this requires both a new vision of what the economy is and what it is for, proper and comprehensive accounting of real assets, and new institutions that use the market in its proper role of servant rather than master.

The current moment of financial crisis and the prospect of deep recession offer a historic window of opportunity for change in economics and in economic policy. The combination of crisis and accumulated popular resentments following two decades of wage restraint, widening income inequality, and increased economic insecurity makes for a political atmosphere conducive to change.
In the 1930s and ’40s, the Great Depression and World War II provided the launch pad for the Keynesian revolution in economics. In the 1970s, monetarists and New Classical economists used the economic crisis created by the OPEC oil shocks to launch a counterrevolution (Johnson 1971).

Non-formal economic exchange is not a relic of the distant past nor is it a practice limited to the most underdeveloped and economically “backward” of modern times. It is ubiquitous, yet frequently overlooked; under various guises, non-formal economies exist today alongside and intermixed with formal markets, even in the most advanced capitalist countries. From the trading of snacks in an elementary school playground to the trafficking of people all around the world, the workings of non-formal economies are embedded in our daily lives, actively shaping everything from bank policies to foreign policies. The world we know floats atop a tumultuous ocean of non-formal economics. It’s about time economists—and the ordinary person on the street—take a look.

The events of summer and fall 2008 have shown with stark clarity that the modes of accumulation pursued across the banking industries —not only, but particularly those of the US and UK—were so deeply flawed, so toxic in their consequences, that they call into question the fundamentals of the economics on which they were based. Yet to date there is precious little evidence of any fundamental rethinking, either in the industry or by the economics profession, —much of which still seems in denial about the character and gravity of the present crisis. With few exceptions, the argument from all sides—and from most in politics too—is for a return to business as usual as quickly as possible.
It is not difficult to see why this should be so. Crises of this scale, in opening severe uncertainty, call forth two contradictory impulses. The first is towards action. What was unthinkable may suddenly become, in heat of the moment, the applauded, bold and essential action of government. Such was, briefly, the response last September to the threat of a complete collapse of the banking system.1 But hard on the heels of the impulse to act comes reaction, the adamant re-assertion that everything must, in the end—and preferably as quickly as possible—be just as it was before.

Mr. Chairman and Members of the Committee, it is again a privilege to appear today at these hearings, which as a member of the staff I worked on from their inception in 1975.
In 1930, John Maynard Keynes wrote, “The world has been slow to realize that we are living this year in the shadow of one of the greatest economic catastrophes of modern history.” That catastrophe was the Great Crash of 1929, the collapse of money values, the destruction of the banking system. The questions before us today are: is the crisis we are living through similar? And if so, are we taking adequate steps to deal with it? I believe the answers are substantially yes, and substantially no.

Tony Lawson has become a major figure of intellectual controversy on the back of juxtaposing two relatively simple and seemingly innocuous ideas. In two books and over fifty papers he has argued:
1. that success in science depends on finding and using methods, including modes of reasoning, appropriate to the nature of the phenomena being studied, and
2. that there are important differences between the nature of the objects of study of natural sciences and those of social science.
Taken together, these two ideas lead to the conclusion that the methods found to be successful in natural sciences are generally not the ones that should be used in social science.

In their recent article The Unhappy Thing about Happiness Economics http://www.paecon.net/PAEReview/issue46/JohnsOrmerod46.pdf Helen Johns and Paul Ormerod make the strong claim that “time series data on happiness tells us nothing”. Their argument is based on three main points: that statistically significant correlations between time series happiness data and other important socioeconomic indicators cannot be found, that the nature of happiness scales makes them insensitive and difficult to compare with most other economic data, and that using time series happiness data for policy-making creates several undesirable problems. While some of Johns and Ormerod’s concerns about the rigour of studies using time series happiness data should be taken note of, their main conclusion lacks the strong evidence such a claim requires. This article will evaluate all of the main points from Johns and Ormerod’s paper and provide considerable evidence that, far from telling us nothing, time series happiness data can actually tell us a great deal.

Our original article http://www.paecon.net/PAEReview/issue46/JohnsOrmerod46.pdf in Real-World Economics Review has been downloaded well over 10,000 times. The editor of the journal invited a range of leading happiness researchers to respond to our critique of time-series data on average happiness. The only response, however, has been from Dan Turton, whose contribution is the focus of this short note.