I highly recommend this Barry Eichengreen article on the failures of the economics profession in the pre-crisis years. I think it’s an excellent explication of what went wrong intellectually and an okay rough sketch of why it went wrong. His solution is a turn to a more empirically driven research program:
The late twentieth century was the heyday of deductive economics. Talented and facile theorists set the intellectual agenda. Their very facility enabled them to build models with virtually any implication, which meant that policy makers could pick and choose at their convenience. Theory turned out to be too malleable, in other words, to provide reliable guidance for policy.
In contrast, the twenty-first century will be the age of inductive economics, when empiricists hold sway and advice is grounded in concrete observation of markets and their inhabitants. Work in economics, including the abstract model building in which theorists engage, will be guided more powerfully by this real-world observation. It is about time.
I think that looked at realistically, three different strands — political, economic, and intellectual — are inextricably tied together in a mutually reenforcing way. It’s naive to think you just change what economics departments do and you get different policy outcomes. But it’s also wrong to see the intellectual trends as irrelevant.