Those who saw the 2008 crisis coming

As the previous two articles in this series have shown (article 1, article 2), there are ultimately two major ways of approaching economics. The first is mainstream economics, which is overwhelmingly taught in European universities today. Its inductive, empirical, and positivist methodology dominates the entire field of economics, including its so-called heterodox currents.

Its dominance is total. As we demonstrated, with supporting figures, in the second article, it accounts for 80% of what is taught in university economics programs in France, Germany, and the United Kingdom.

The second approach is what is now known as the Austrian School of Economics. Once dominant in the late nineteenth and early twentieth centuries, it was gradually abandoned in favor of the former.

One question remains, raised at the end of the second article: What happens to a nation when everyone who governs it has been taught to approach economics in the same way? One methodology, one intellectual heritage, one paradigm: that of aggregates, equilibrium, stimulus, and state intervention.

The same programs supply ministries, banks, and ministerial offices

What happens to economics students after they graduate from university? Some go on to work in the private sector, in banking for example, while others pursue careers in public administration: ministries, ministerial offices, public institutions, and so on.

This is particularly true of prestigious university programs. In France, one example is Sciences Po, officially the Paris Institute of Political Studies, which has presented itself since its foundation as a place for training the country’s future administrative and political elites. Several of its alumni have gone on to work in ministerial offices and the senior civil service. In the United Kingdom, the London School of Economics and the economics departments of Oxford and Cambridge play a similar role, supplying HM Treasury, the Bank of England, and the City of London with much of their senior staff. In Germany, the faculties of Volkswirtschaftslehre supply the Bundesbank and the Federal Ministry of Finance.

Europe’s economic and political elites share a relatively uniform outlook. It does not matter whether they share the same nationality or attended the same university program. Their overall vision is similar, as are their blind spots. This blindness is essential to understanding why similar crisis dynamics have recurred since 1929 and why it has proved so difficult to break out of them.

Those who didn't see the crisis coming

The 2008 financial crisis is a prime example of the disconnect between Western economic elites and the economy they are responsible for managing. One well-known anecdote illustrates this particularly well. On November 5, 2008, Queen Elizabeth II visited the London School of Economics. During her visit, she asked the professors: How is it that no one had seen the financial crisis coming?

The following year, the British Academy held a forum to address this uncomfortable question. The outcome of the debate was summarized as follows:

"Many people did foresee the crisis. However, the exact form that it would take and the timing of its onset and ferocity were foreseen by nobody."

(Besley and Hennessy, letter to Queen Elizabeth II, July 22, 2009).

The letter continued by explaining that risk calculations had been confined to specific segments of financial activity, involving “some of the best mathematical minds,” while losing sight of the bigger picture. It then offered the following diagnosis:

"the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole"

(Besley and Hennessy, letter to Queen Elizabeth II, July 22, 2009).

In short, the failure was essentially a lack of imagination on the part of economists worldwide, who were unable to view the economic process as a whole or recognize that no sector of the economy is ultimately isolated from the others. They therefore failed to see the flaws in the financial system or even identify the deep, long-term distortions caused by decades of interventionism. The blindness was therefore widespread.

Those who saw the crisis coming

As the British Academy letter stated, “Many people did foresee the crisis.” Some of them were Austrian economists. To understand why, we must examine one of the major strengths of this school: its understanding of economic cycles.

This theory helps explain the 2008 crisis, as well as past and potential future crises. It was developed by Mises as early as 1912 in The Theory of Money and Credit and further developed and popularized by Hayek in the 1930s (Prices and Production, 1931).

According to Austrian economists, every economic cycle follows the same logic. The price of capital over time, or the interest rate, must be left to the free market’s own judgment. It is the market’s most important price because it provides an immediate and accurate picture of the state of the market—income devoted to consumption and available savings—and therefore gives entrepreneurs reliable information about investment opportunities.

Thus, when a central bank manipulates this price downward, it misleads the market. It gives entrepreneurs the false impression that more savings are available than is actually the case. Entrepreneurs then embark on longer and more capital-intensive production processes that can never be completed because the corresponding real, non-reproducible, and non-manipulable resources are lacking. Investors can no longer distinguish between viable and non-viable investments, and non-viable businesses multiply alongside a booming market.

This theory applies relatively well to the 2008 crisis. Looking at the United States, the 2000s were marked by the monetary policy pursued by Alan Greenspan, then Chairman of the Federal Reserve, who kept interest rates artificially low in an attempt to prevent the dot-com bubble from bursting. The deeper causes of the crisis can also be traced to excessively lax credit policies extended to American households. The “Clinton plan” of the 1990s encouraged homeownership through eased mortgage-lending conditions for low-income households.

The error persists after the crisis

This is where the divergence between the two schools of thought becomes apparent. In the face of a recession, many economists and governments recommend stimulating the economy by lowering rates, supporting demand, and increasing public spending. The government can correct this market failure in one way or another.

If these schools of thought disagree on the origins of the crisis, then they also disagree on its nature and when it will end. The recession is not the beginning of the crisis, as mainstream economists believe, but rather its end.

This is why the error persists: the state intervention that led to the crisis is not recognized as the cause; rather, it is considered the solution. Specifically, the goal is to save jobs, bail out companies, and prevent bankruptcies. However, according to the Austrian school, this interventionism is precisely what prolongs the crisis. By preventing the market from liquidating non-viable actors and reallocating resources, an artificial equilibrium is maintained, delaying recovery.

It's important to note that capital isn't destroyed during this period. It remains available, waiting to be purchased or taken over by new entrepreneurs who will use it more profitably than the previous entrepreneurs, who were overly dependent on easy credit and "cleared out" during the recession. For the Austrians, preventing the liquidation of bad investments prolongs the distortion and paves the way for the next one.

The "whatever it takes" approach prevented the market from purging itself

The same economic-cycle logic applies today. The 2020 pandemic and the massive creation of fiat money are certainly the clearest examples. Under the pretext of public health, governments shut down the economy, while central banks flooded the market with liquidity to support businesses and workers. This was the “whatever it takes” approach.

Consequently, there have been very few business bankruptcies in France during this period. By acting in this way, the state prevented the market from purging non-viable businesses, those whose business models were not economically viable without credit and government support, and from freeing up capital, resources, and misallocated labour. This prevented other entrepreneurs from taking over this capital and putting it to genuinely productive use.

This observation is even more striking when France is compared with other European countries and with the United States. In Germany, for example, the number of business failures fell from 18,749 in 2019 to 15,841 in 2020 and then to 13,993 in 2021 (Destatis). In 2025 they stand at 24,064, above the 2019 level. In England and Wales, the number fell from 17,166 to 12,634, then to 14,048 (Insolvency Service); in 2025, it reached 23,938. In contrast, the United States experienced a surge in establishment closures and a significant increase in labour productivity in the following years. Why? Simply because capital was reallocated to more productive businesses.

In 2025, France is still suffering from the effects of the unprecedented economic intervention of 2020-2021. Capital has not been fully reallocated yet, and productivity and society have stagnated. This situation will persist as long as the state continues to intervene.

Productivity of labor in France, base 100 = 2019, annual data corrected for working days. Insee, Comptes de la Nation, May 29, 2026.

Productivity of labor in GDP per capita, France and the eurozone excluding France, compared to their trend. Insee, July 19, 2024.

The cost of ignoring the Austrian School

The differences between the mainstream and the Austrian school are significant because they concern the primary method. The first article in this three-part series addressed this well. The absence of this tradition in university education is striking. It is mentioned only briefly in a course on the history of economic thought. This absence is detrimental not only to students at European universities, but also to professionals and political decision-makers, who are deprived of an essential analytical framework and a solid theory of capital. This framework and theory would help them understand and prevent the violent economic cycles to which our market economies have become accustomed for decades.

Individuals have every right to prefer macroeconomics and mainstream economics to all other schools of thought. However, they should first be presented with an alternative so that they understand what they are choosing to give up. Ultimately, this is the central issue: it is not a matter of preferring one school of thought over another, but of giving equal consideration to other schools of thought and methodologies that offer a broader and richer view of the complexity of the economic process.

** Photo by Anne Nygård on Unsplash

1. Letter to Queen Elizabeth II, British Academy, 22 July 2009 - https://www.ma.imperial.ac.uk/~bin06/M3A22/queen-lse.pdf ↩
2. Défaillances d’entreprises : les dynamiques à l’œuvre au terme de six années atypiques (Bulletin n° 265) https://www.banque-france.fr/fr/publications-et-statistiques/publications/defaillances-dentreprises-les-dynamiques-loeuvre-au-terme-de-six-annees-atypiques (Banque de France / Fiben) ↩
3. Unternehmensinsolvenzen im Jahr 2025: +10,3 % zum Vorjahr (communiqué, GENESIS 52411) https://www.destatis.de/DE/Presse/Pressemitteilungen/2026/03/PD26_085_52411.html (Destatis) ↩
4. Company insolvency statistics (collection Angleterre et pays de Galles) https://www.gov.uk/government/collections/company-insolvency-statistics-releases (UK Insolvency Service) ↩