Bankers have deservedly received much of the blame for the financial bloodbath that's paralysed governments and transformed societies. But economists are just as much to blame. Possibly even more because so many of the financial models were based on the work of economists. What's more, these are the people who had access to power.

A recent paper prepared by economics academics in the United States, Germany, Denmark and France, sheds light on the hubris of the profession. The paper, The Financial Crisis and Systemic Failure of Academic Economics points out that this crisis is different from its predecessors. While most previous crises were the result of too much money pouring into new physical investment opportunities, this one was caused to a large extent by financial innovation, a shadow banking system and financial products that reduced the US market to a giant Ponzi scheme. Secondly, the problem is global because of the financial system's increased inter-connectivity. Economics as it has been taught ignored both. Research on the instabilities, over -investment, slumps, not to mention the herding and contagion of markets, has always been considered an exotic side track from the academic research agenda.

The authors write: "The economics profession appears to have been unaware of the long build-up to the current worldwide financial crisis and to have significantly underestimated its dimensions once it started to unfold. In our view, this lack of understanding is due to a misallocation of research efforts in economics. We trace the deeper roots of this failure to the profession's insistence on constructing models that, by design, disregard the key elements driving outcomes in real-world markets. The economics profession has failed in communicating the limitations, weaknesses, and even dangers of its preferred models to the public…It has failed in its duty to society to provide as much insight as possible into the workings of the economy and in providing warnings about the tools it created."
<>br />It's unlikely that economists didn't realize their model was flawed. Economists and financial engineers are exceedingly bright people. What's more likely is that they simply didn't think it was their job to warn the public. In that case, they failed in their broader duty to serve the public interest. That's the way it is with parasites.