Classical Economics lunacy

http://www.positivemoney.org/2012/12/new-documentary-economic-science-and-the-debt-crisis/

This video has mainly Swedish dialogue and (retro-added) English subtitles, occasionally the reverse, and yet more occasionally dilogue in a third language with in vision Swedish subtitles superimposed with retro-added English subtitles. This can make it hard work if you don't know Swedish, and occasionally the English subtitles are obsured by the video content.

A main point I took away from this is that classical economic models do not include the banks and debt, and this is why economists mainly failed to see the latest financial crisis coming. You can take delight in watching various Nobel prize winning economists splutter and stammer when this point is put to them - unsurprising as (and the film points this out via other commentators) they have built careers and reputations over many years using the flawed model. One at least cogent retort is that banks and debt can be ignored becuse "for every loan there is a lender" (I think I quote correctly) , but this conveniently ignores the fact that debt carries interest, so debts are always greater than loans.

The film concludes that reducing the size of the financial sector in an economy - resetting it  - is the way forward, but this srikes me as either doing less of the wrong thing, or doing the wrong thing righhter, or just again in the hope that this time it will be OK.

The film stops short of really showing up the contradictions / fallacies in our GDP growth paradigm. It features a Spanish family who narrowly avoid eviction for mortgae arrears, and a vast unoccupiable housing development started before the bubble burst. The references to the 'value' of homes were in the common usage of the price they could be sold for, ignoring the fact of an underlying value of the home as an amenity. [Nature /  physics teaches us that there is entropy. So, untouched, a buiding will eventually crumble: its innate value is falling from the moment the builders leave the site - it is depreciating in real terms. Yet we are so indoctrinated by market orthodoxy that we tend to equate price and value.]