Reconceptualising economics

The global financial crisis of 2007-08 had shattered the intellectual consensus of economists that prevailed after the Cold War, and since then, they have failed to correctly predict repeated shocks across a number of years. Besides, economists have failed to arrive at a consensus on a universally accepted model for sustainable global growth. Moreover, there have also been criticisms of economics and economists from within the discipline itself. To quote the former managing director of the International Monetary Fund (IMF) and the current president of European Central Bank (ECB) Christine Lagarde, "[Economists] are the most tribal scientists you can think of; they quote each other, men more than women, by the way. They don't go beyond that world because they feel comfortable there, and models have something to do with it. We need to bring in people who are not members of the tribe".

In the above backdrop, the flagship quarterly publication of IMF - Finance and Development (F&D) - has published a cover-story styled 'Economics: How should it change?' in its latest March issue. It takes a fresh look at the discipline of economics by inviting prominent economists having different perspectives to tell the readership about the ways economics can better address the challenges of the 21st century. The luminaries included the author Niall Kishtainy, the Nobel laureates Angus Deaton and Michael Kremer, Jayati Ghosh of the University of Massachusetts at Amherst, Dani Rodrik of the Harvard University, Kate Raworth of Oxford, Wendy Carlin of the University College, London, John Cochrane of Stanford, Atif Mian of Princeton and the labour economist Betsey Stevenson. However, a notable omission has been the Bangladeshi Nobel laureate and revered proponent of social business Muhammad Yunus, who has been calling for reconceptualising and redesigning economics since the 1990s.

In his article titled 'Addressing Challenges of a New Era', Harvard's Dani Rodrik opines that the most pressing economic problems of our time require pragmatic remedies closely tailored to the context. He points out that a better economics must start from the premise that our existing policy models are inadequate for the range of challenges humans face today. Economists should therefore address these challenges imaginatively by applying their tools in a way that takes into account the differences in economic and political contexts at various locations of the globe.

Oxford's Kate Raworth, on the other hand, stresses in her article titled 'A New Compass for Economics' that economic renewal must begin with the goal of humans flourishing on a thriving planet. Her vision prioritises the essential needs and rights of every person - from food, water, and health to decent work and gender equality. She also recognizes that the health of all life depends on protecting the earth's life-supporting systems: a stable climate, fertile soil, healthy oceans, and a protective ozone layer. Economists should therefore strive to enable mankind to thrive between a social foundation and an ecological ceiling, through which the needs of all people are met within the means of a thriving planet.

The Nobel laureate Angus Deaton opines in his interview with F&D that questioning one's views constantly as circumstances evolve can be a good thing. He also holds the view that the practitioners of economics can benefit a lot through greater engagements with the ideas of philosophers, historians, and sociologists, just as its founder Adam Smith once did.

The Indian-origin professor of the University of Massachusetts at Amherst Jayati Ghosh represents the viewpoints of the South, and feels that economics needs greater humility, a better sense of history, and more diversity. The most interesting part of her write-up in F&D refers to the problem of hierarchical discriminations in economics. She laments, "The enforcement of strict power hierarchies within the discipline has suppressed the emergence and spread of alternative theories, explanations, and analyses. These combine with the other forms of discrimination (by gender, race/ethnicity, location) to exclude or marginalise alternative perspectives. The impact of location is huge: the mainstream discipline is completely dominated by the North Atlantic region - specifically the US and Europe - in terms of prestige, influence, and the ability to determine the context and direction of the discipline. The enormous knowledge, insights, and contributions to economic analyses that are made by economists located in global majority countries are largely ignored, because of the implicit assumption that 'real' knowledge originates in the North, and is disseminated outward".

In his write-up, Atif Mian of Princeton warns that dependence on credit to boost demand has imperilled the world economy; the underlying imbalances should therefore be corrected. He notes that rising imbalances traceable to the very rich and certain other countries have generated a global debt super-cycle that largely finances unproductive indebted demand. Therefore, economics needs to find a way to rebalance and reverse the debt super-cycle.

Stanford's John Cochrane, on the other hand, refers to the neo-liberal mantras of the 2010s, which preached government initiatives for borrowing or printing a huge sum of money and hand those out for prosperity, which he feels are now in the dustbin. He opines that economic policy-making suffers from too many pundits who rush to Washington to demand trillions of spending and untold intrusions in people's affairs based on half-baked stew-pots of novel ideas. Instead, economic policy should rely on well-tested notions. When economists try to supply ideas in response to political demands for the appearance of novelty, they dispense both bad economics and bad politics, he laments.

In his F&D article, the Nobel laureate Michael Kremer of the University of Chicago opines that economists should contribute to the design of institutions to better align private incentives for synchronising the pace and direction of innovations with human and environmental needs. The author Niall Kishtainy, on the other hand, holds the view that economists have turned the classical word-based political economy into a mathematical discipline. He pleads that good economics should rely on new theories that simplify in useful ways while striking the right balance between models as fascinating objects and as instruments to peer into the chaos of economic reality.

All these perspectives from reputed economists, mostly from the Global North, imply that economics must remain open to institutional alternatives and experimentations, while at the same time correctly reflect the complexities of economic reality as well as values and norms of our time.

Dr Helal Uddin Ahmed is a retired Additional Secretary and former Editor of Bangladesh Quarterly.
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