Because I said so: the persistence of mainstream policy advice

Abstract

The current global crisis has shown the limitations of the mainstream approach. We trace the origins of the limitations of the dominant neoclassical views to the capital debates and to the rise to dominance of intertemporal general equilibrium. The limited use of the Arrow-Debreu model, which became dominant after the capital debates, in terms of policymaking, is central to understand the persistence of policy guided by the aggregative model. We use the International Monetary Fund (IMF) as a case study of this perplexing continuity of policy advice. Given our survey, we conclude that even though the economy is in the midst of the worst capitalist crisis since the Great Depression, a significant paradigmatic shift in economics is extraordinarily unlikely.