The following correction was printed in the Guardian's Corrections and clarifications column, Wednesday 3 June 2009

The column below wrongly included Herman Daly in a list of great dead economists. He is, in fact, alive and well and a professor at the University of Maryland.

Let's play Fantasy Economics. It's a simple game based on Fantasy Football, where fans select a dream squad from the Premier League and win points if their players score, create or save goals.

In Fantasy Football, you want a solid goalkeeper, a playmaker, a couple of strikers likely to bag 15-20 goals a season each. So, here's the challenge. This, by common consent, is the most challenging global economic environment there has been since the second world war. Now is the time for big-picture economists to put in a performance on the big stage. Who among those plying their trade in the world of macro-economics would you want on your team?

Putting a team together of economists no longer with us is a breeze. A team of dead economists drawn from all strands of the discipline might include Adam Smith, David Ricardo, Thomas Malthus, Karl Marx, Alfred Marshall, John Maynard Keynes, Friedrich Hayek, Richard Kahn, Joseph Schumpeter, Hyman Minsky and Herman Daly.

Whether these classical economists, Keynesians, free marketeers and greens would gel is open to question, but on paper it looks a formidable line-up. Indeed, those on the bench would also be formidable: some would argue that William "Bill" Phillips or Milton Friedman deserve a place. I'd be tempted to find room for Karl Polanyi, even though he was an economic historian rather than an economist.

Still, you get the picture. There is a wealth of talent to pick from; so much, in fact, that it would be relatively easy for free marketeers, Keynesians, greens and Marxists to choose their own team. Keynes, for example, might be the creative midfield playmaker in a team including Joan Robinson, Kahn, James Meade, Phillips, Nicky Kaldor, John Hicks, James Tobin, Michael Kalecki, Tommy Balogh and Polanyi (if eligible).

Picking a modern 11 of comparable quality is a lot tougher. Indeed, trying the game out at a Cambridge college a couple of weeks back, the consensus among the economists there was that there has not been a Keynesian economist since Minsky who would make the cut. At the heart of Minsky's work was the notion that deregulated financial markets have an in-built tendency to produce wild boom-bust cycles, and that periods of stability carry within them the seeds of an eventual bubble. "A fundamental characteristic of our economy," Minsky wrote, "is that the financial system swings between robustness and fragility, and these swings are an integral part of the process that generates business cycles."

Unsurprisingly perhaps, there has been a revival in interest in Minsky's work over the past two years, and much debate about whether the moment when the boom of the mid-years of this decade turned to financial crisis was a "Minsky moment".

Fashion

Interestingly, Minsky delivered his warning in 1974, just as Keynesian economics was going out of fashion during the stagflation that followed the first post-war oil shock. Among living economists, the Cambridge academics thought only Joseph Stiglitz and Paul Krugman would be vying for a place. The demise of ­Keynesian economics in the land of its birth was underlined by the rueful acceptance that there is no longer a ­living ­British economist who would get into the squad.

In truth, though, the same might be said of a team captained by Hayek or Schumpeter. Neither believed that conventional economics was much good at describing the way the world actually works; Schumpeter, in particular, was scathing about the validity of perfect competition, the basis for almost all economics teaching. But candidates for an all-star team of free-market macro-economists are also thin on the ground.

The success of ­Freakonomics and similar books tell their own story: until the crisis broke in 2007, it was assumed that the big picture was largely sorted and economists needed to concentrate on micro-economics, where much good work has been done, incidentally.

As a profession, economics not only has nothing to say about what caused the world to come to the brink of financial collapse last autumn, but also a supreme lack of interest in it. If, for example, you scroll down the list of papers scheduled for publication by the Review of Economic Studies, one of the prestigious UK journals, there is not the slightest sense that the world of general equilibrium and real business cycle models has been turned upside down in the past two years. There is, on the other hand a paper on "Generalised non-parametric deconvolution with an application to earnings dynamics", which includes the insight that "Monte Carlo simulations show good finite-sample performance, less so if distributions are skewed or ­leptokurtic". Got that? And that's just the abstract. The full article is even more fun – if you get your kicks from fantasy economics divorced from reality.

Mathematical

The big divide in economics is not between Keynesians and Hayekians, but between those who are interested in looking at the world as it is and those who are interested in how it would be if it conformed to the dictates of their mathematical models. The insights that Smith, Marx and Keynes brought to economics came not from differential calculus but from an attempt to understand what was happening during the early stages of the Industrial Revolution, the expansion of the mid-19th century and the Great Slump.

To those who believe in it, general equilibrium theory is a beautiful expression of the world assuming that the price mechanism works to align demand with supply and that human beings are rational economic agents. There is no room for the idea – ­supported by Minsky and Schumpeter – that instability is inherent to the economy, and might be good for it.

Experiments have shown just how limited the modern approach can be. Try this one for size: you are given £100 and told to share it with a stranger. If the stranger accepts your offer you get the money, but if he rejects it neither of you get a penny. How would you divide the cash? An economist's answer is that you offer the stranger £1 and keep £99 for yourself. That way you are both better off but you maximise your benefit. But this is not what tends to happen, since it offends people's sense of fairness. Many people share the money equally.

There are economists out there battling against the mainstream. Andrew Oswald, Amartya Sen, Robert Frank – you can take your pick of those who have insights into the way we live now. Paul Ormerod has written a series of books describing how general equilibrium theory has driven economics down a blind alley.

But it should be of concern that mainstream economics is disappearing up its own fundament, with the determination to see economics as a hard science crowding out a more nuanced and ­relevant approach. In the 1930s, ­Keynes was more interested in casino economics than he was in Monte Carlo simulations, but there is no Keynes, Schumpeter or Hayek out there with answers to our predicament.

Perhaps Henry Ford got it wrong: it's ­economics that's bunk, not history.

larry.elliott@theguardian.com