The financial crash exposed the limits of modern macro-economics.  Neo-classical and new-Keynesian models did not predict the crash or the depth of the slump that followed.  The missing ingredient in many economic theories is a proper theory of “confidence”.  Keynes’s “animal spirits” matter, but economists have been vague about how and why. The crash and subsequent slump illustrate how “Big Players” – often, though not always, government agencies – can undermine confidence, reduce long-term investment, and reduce economic growth over a long period of time.  From crisis to confidence not only describes the process through which the economy must go through before a full recovery after the financial crash, it also describes the journey that must be travelled by the discipline of economics. A theory of confidence is needed in any economic framework that is to explain one of the most important periods in modern economic history.

Roger Koppl is Professor of Finance in the Whitman School of Management of Syracuse University. Koppl has served on the faculty of the Copenhagen Business School, Auburn University, Fairleigh Dickinson University and Auburn University at Montgomery. He has held visiting positions at George Mason University, New York University and Germany’s Max Planck Institute of Economics. Professor Koppl is a past president of the Society for the Development of Austrian Economics. He is the editor of Advances in Austrian Economics.

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