'...the elements in the economy that are at the root cause of the current crisis are absent from the models of economic activity that are used to guide economic policy. The entire financial sector is absent. The very elements that have siphoned the life blood out of the economy have been completely off the radar screen. The FIRE was hidden behind a shield of invisibility, just pumping money into their coffers until the real economy bled out."
No One Saw This Economic Crisis Coming?
A research paper, published in June by Dirk J. Bezemer, Groningen University, addresses this question and says the answer is that many saw it coming but those with the power to act did nothing. Bezemer contends that the problem is that economic policy is executed using macro equilibrium models and what is needed to establish economic policy that can anticipate crises, such as we have now, and take actions to head them off, are micro accounting cash-flow models. The entire paper can be read here.
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