On 15 September 2008, Lehman Brothers – then the fourth-largest investment bank on Wall Street – filed for Chapter 11 bankruptcy protection. A year later, the world economy was in the depths of its worst recession since the 1930s. This prompted many economic commentators to suggest that a major upheaval in economic thinking was imminent: ‘We could be looking at a paradigm shift’. And yet, three years after Lehman’s bankruptcy, there is little evidence the paradigm has shifted.
In this paper, we seek to understand why, despite the economic dislocations of the last four years, there has been no revolution in economic thinking, and to ask whether change could still occur in the next few years. We do so by first setting out a framework for paradigm change based on the writings of Thomas Kuhn, Imre Lakatos and Peter Hall. We use this framework to take a necessarily brief look at the two major paradigm shifts in macroeconomic thinking in the 20th century: from neoclassical economics to Keynesianism and then from Keynesianism to monetarism/neoliberalism. We then analyse developments over the last three years in an attempt to understand why there has not been a comparable paradigm shift and to gauge whether such a shift is likely over the next decade.