The best explanation I’ve seen for the economic meltdown came from George Soros:

It is important to realize that the crisis in which we find ourselves is not just a market failure but also a regulatory failure, and even more importantly, a failure of the prevailing dogma about financial markets. I have in mind the Efficient Market Hypothesis and Rational Expectation Theory. These economic theories guided, or more exactly misguided, both the regulators and the financial engineers who designed the derivatives and other synthetic financial instruments and quantitative risk management systems which have played such an important part in the collapse.

Soros is laying much of the blame for the collapse at the feet of economist. I agree wholeheartedly. The more I study about economics the less impressed I become. My biggest complaint is why it isn’t treated more of a science. Some say it is too complex to study in that way, but wouldn’t have people said the same thing when doctors began studying the body? Where medical science has advanced by leaps and bounds in the last century, economics has spent that same time arguing a handful of concepts over and over again. Science is the history of disproven theories. Economics is still arguing as they have disproved nothing. It’s embarrassing.

Economists are basically witch doctors

In many ways economist aren’t much different from witch doctors. Most of their act is playing to our emotions rather than applying direct medicine. They spend their days trying to manipulate, working on their act and spectacle rather than trying to advance their knowledge of healing. No wonder they were such stooges for the banks and investment banks.

Their dogma starts early

As Soros said, it’s all about dogma. And interestingly enough Brit Marling, the Sundance breakout, can attest to that as well. Before turning to film she was an intern at Goldman Sachs and studied economics at Georgetown.

After three years of college, Marling spent her junior summer at Goldman Sachs in New York. “The experience there was deeply upsetting,” she confided. Her economic education she felt was more about indoctrination than exploration.

Their dogma never ends

As Dean Baker (an economist himself) points out over and over, most of the economists and nearly everyone we hear from about the economy completely missed the housing bubble. The biggest asset bubble in history and they missed it. Worse they seem to have learned nothing.

Nearly all economics reporters missed the housing bubble on the way up. They still seem determined to ignore it even after its collapse wrecked the economy.