Eichengreen on the crisis

Barry Eichengreen's essay is here. Effectively, he argues that the primary cause of the crisis was an ideology (a socially-constructed mental model?) that underestimated the risks of business self-regulation, etc...

He also argues that the age of deductive economics based on abstract theoretical models is over, and the age of inductive economics is beginning.

This is an important point--it's a shame it's buried at the end of the article. With deduction, you've got theory. Maybe, you've got elegant, compelling theory, but theory is only theory, not reality. Theory only should be accepted as something resembling reality when it includes evidence. This comes from inductive analysis. Looking at the real world, through data or otherwise.

And, although I'm getting a little simplistic, I think we in the social sciences sometimes forget that theory is only one part of the scientific method. You've got to have theory, hypothesis, and observations that confirm those hypotheses. Models are only models--and where many economists (and political scientists!) go wrong is that they assume that their models are reality, even when they're based on unrealistic assumptions about human behavior.