Terry Burnham resumes “Economics is a lost field. More than 200 years after Adam Smith wrote the Wealth of Nations, economics has no answer to the most important economic questions.” (See intro)
The conclusion is correct but drawn from weird symptoms. The fact that Merton/Scholes have bankrupted LTCM does not tell anything about the state of theoretical economics, just like a plane crash does not tell anything about the state of theoretical physics.
The real and ultimate reason why economics is indeed a lost field is that the profit theory is false since Adam Smith. After more than 200 years economists do not understand the foundational concept of their subject matter.#1 And this means that employment theory, distribution theory, growth theory, monetary theory, and all the rest are provably false. Because of this, the representative economist gives false answers to the most important economic questions. No Walrasian, Keynesian, Marxian, or Austrian economic policy advice ever has had sound theoretical foundations.
“As Joan Robinson said, our essential object in economics is ‘to understand how the economic system works’; ... we know little more now about ‘how the economy works,’ or about the modus operandi of the invisible hand than we knew in 1790 after Adam Smith completed the last revision of The Wealth of Nations.” (Clower, 1999, p. 401)
Economics is a failed science. And there is no hope that those economists who are responsible for the ‘sorry state of economics’ will ever get out of the self-made cul-de-sac (2013).
Economics is a lost field and both orthodox and heterodox economists are lost scientists. As Joan Robinson put it “Scrap the lot and start again.” And — most important — make sure that those Walrasian, Keynesian, Marxian, or Austrian dilettantes and know-nothings are left behind the curve for good.
Clower, R. W. (1999). Post-Keynes Monetary and Financial Theory. Journal of Post Keynesian Economics, 21(3): 399–414. URL
Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL
#1 Profit and the collective failure of economists.
Related 'How the intelligent non-economist can refute every economist hands down' and 'The Profit Theory is False Since Adam Smith'. For details of the big picture see cross-references Failed/Fake Scientists.