Image courtesy of Cliff Kule
In recent years I’ve been curious about the fluidity of presumed objectivity at the heart of modern economics. Chiefly, its occasional lack of ability to explain the behaviours of markets:
Central bankers still debate whether it’s possible to recognize asset bubbles when they occur, and whether they can or should be deflated. Regulators and bankers are still at odds over new financial products such as credit derivatives: Do they simply improve the market’s ability to process and reflect information, or do they also present new dangers of their own? This is a failure that left the world unprepared for the most recent financial crisis, and the economics profession has been far too complacent about it. Economists can’t be expected to predict the future. But they should be able to identify threatening trends, and to better understand the conditions that can turn a change in prices into a financial tsunami.
Following events such as the financial crisis of 2008, and rising levels of destabilizing inequality (especially in the United States, at the center of the world economy) in the years since, a growing number of economic minds have begun conceiving of a “Brave New Math:”
While the limitations of GDP have since been echoed by many prominent economists including Nobel laureates Joseph Stiglitz and Amartya Sen (whose landmark 2010 report included dozens of important socio-economic measures drawn from the developing world), there has been little change in the obsessive overreliance on GDP as the primary economic barometer. And if GDP was an unreliable indicator in the pre-globalized world, it is woefully misleading today. Increasingly, understanding the quality of GDP and its composition, especially the weighting of its four constituent parts—consumption, government spending, investment, and net exports—is most important to our long-term national health. Yet few governments have managed to divorce themselves from the simple GDP figure, regardless of how irrelevant it has become.
Editorialists at the New York Times have opined that:
“Infinite growth in a finite world is impossible, growth based on speculative finance is unstable, and since the 1960’s, GDP growth and self-reported well-being have been completely uncorrelated phenomena. In this sense holistic, deep-reaching change of both thought, education and practice is needed. Indeed, we were brought together by an increasing realization that our global economic troubles aren’t just a few bad apples; the problem is indeed the apple tree.”
Writers at the Guardian have called for an expanded undergraduate economics curriculum:
We propose that neoclassical theory be taught alongside and in conjunction with a broad variety of other schools of thought consistently throughout the undergraduate degree. In this way the discipline is opened up to critical discussion and evaluation. How well do different schools explain economic phenomena? Which assumptions should we build our models upon? Should we believe that markets are inherently self-stabilising or does another school of thought explain reality better? When economists are taught to think like this, all of society will benefit and more economists will see the next crisis coming. Critical pluralism opens up possibilities and the imagination.
From a certain perspective it could be stated that we are reaching the end of an economic paradigm, giving us something of a real-time example to examine in the realm of Epistemology, as old truths are investigated, and assumptions are tested against the possibilities of the new.
That’s the thing about shifting paradigms: How do we know that the existing paradigm is flawed to its foundation? Might it require merely ‘tweaks’ as opposed to full-scale revolution and regeneration?
How do we ensure that this conversation has a means of happening democratically?