Shlaes acknowledges that the students had a right to be dissatisfied with economists and their models that together failed to predict the financial meltdown and Great Recession and still cannot explain why it happened. She rightly recommends including more Austrian economics in formal macroeconomics courses. After citing Joseph Schumpeter's observations about the cyclical nature of the economy and the importance of entrepreneurship, she gets to the heart of the matter.
Schumpeter's fellow Austrian Ludwig von Mises noted that credit expansions and booms lead to misallocations of cash. The Austrian School of economics, of which Mises is the modern father, called such misallocations "malinvestment and overconsumption." Malinvestment, in turn, ensures that the boom is doomed. No better example has existed than the money that poured into obscure mortgage securities in 2006 and 2007. But there was no Schumpeter and no famous Austrian School philosopher at Harvard at the time.