The great recession and new directions for economic thought

Abstract

The common belief in the era before the Great Depression was that the market mechanism functioned almost perfectly. After the crisis, however, many economists took sides with John Maynard Keynes who defended active government intervention to prevent depressions. But, this also changed in the mids of 1970s. Neoliberalism started to gain ground in the economic and political area. In the economic area Friedman's doctrine known as Monetarism became popular. Later, Friedman's monetarism was taken a step further with the "Efficient Market Theory". Efficient Market Theory held that the market mechanism was the best alternative concerning financial transactions to take place. However, Great Recession reminded of interventionist policies to economists again. In this context, Efficient Market Theory has been criticized by some of the schools of thought in economics such as post- Keynesian and Institutionalist economists. The aim of this study is to analyze rising schools of thought inside economics after the effect of Great Recession and new challenges awaiting economic thought itself.