The economic crisis we face today is not only a crisis of the economy. It is also a crisis of economics. The free-market fundamentalism that attained ideological dominance in the final decades of the 20th century has been discredited by financial collapse, global imbalances, mass unemployment, and environmental degradation. To confront these challenges, we need an economics for the 21st century.
We need an economics for open minds that breaks free of the closed-minded economic dogmas of the past. We need an economics that aims to secure long-run human well-being, not an economics preoccupied with maximizing short-run output and profits. We need an economics that recognizes that we need to safeguard the Earth for our children and generations to come. We need an economics for people, the planet, and the future.
Economics for our times and for our shared future requires profound departures from the orthodox economics of the past. To secure long-run human well-being, an economy must meet four necessary conditions:
- A level playing field: Every child ought to have equivalent opportunities for economic advancement. A child’s life chances should not depend upon accidents of birth such as race, gender, or parental income. Access to food, health care, education, and a clean and safe environment are basic human rights. These are not commodities that ought to be allocated on the basis of purchasing power, nor privileges to be bestowed on the basis of political power. A level playing field requires fairness in the distribution of these elements of private and social wealth.
- Resilience: A healthy economy is a resilient economy able to withstand unanticipated shocks. To borrow a metaphor from the physical sciences, resilience is the ability to bounce without breaking. We can build resilience into our economy and its infrastructure by following the design principles of diversity and dispersion. The aim is not to maximize “efficiency” at a single point in time, but rather to minimize economic vulnerability over time.
- True-cost pricing: The prices that guide economic decisions in markets and government policies must be based on a full accounting of costs and benefits. When costs such as pollution – or benefits such as care for children and the elderly – are hidden from view, the result is implicit subsidies and taxes that deflect incentives away from the goal of long-run well-being. Costs that are hidden from view can grow over time, as in the case of global warming pollution; and benefits that are hidden from view can erode over time, as in the provision of unpaid labor for care of dependents. A full accounting of costs and benefits does not mean that non-monetary aspects of well-being such as liberty, community, and life expectancy must be translated into dollars and cents. It means that non-market values should not be ignored and thereby effectively valued at zero.
- Real democracy: An effective economy requires transparency, accountability, and democratic governance. Institutions in the private, non-profit and public sectors alike will serve long-run well-being only if safeguarded from capture by powerful players pursuing their own myopic self-interest. This can be secured only by a democratic distribution of power. A central goal of education, including economics education, must be to equip students for a life of active citizenship.
These are the central pillars of Econ4: economics for people, for the planet, and for the future. The following table lists some of the key differences between a healthy economy organized on Econ4 principles and our currently ailing economy that has been guided by the economic orthodoxy of the past:
The foundations of Econ4 already exist. Resistance to intellectual monoculture in the economics profession was sustained throughout the last century in the work of distinguished scholars such as Thorstein Veblen, John Maynard Keynes, Karl Polanyi, Joan Robinson, Hyman Minsky, John Kenneth Galbraith, and Amartya Sen. In the U.S. a few institutions of higher education – such as the New School for Social Research, the University of Missouri-Kansas City, the University of Massachusetts-Amherst and the University of Utah – kept the flame of heterodox economics alive in the closing decades of the 20th century.
Our effort to build an alternative to economic orthodoxy thus does not start from a blank slate. But the sudden collapse in the credibility of orthodox economics in the wake of the 2008 financial crisis has opened a yawning gap between the demand for non-orthodox economics and its supply.
Some recent initiatives are tackling important elements of this gap. For example, the Institute for New Economic Thinking, to which George Soros has committed $5 million/year over the next ten years, is seeking to develop pragmatic alternatives to laissez-faire economics in financial markets. The U.S.-based Schumacher Society together with the U.K.- based New Economics Foundation is launching a New Economics Institute to promote environmentally conscious economics. The New Economy Working Group is working on educational materials for civil society groups concerned with economic justice, environmental sustainability, and peace. The Solidarity Economy Network is seeking to advance cooperatives, fair trade organizations, open-source technologies, and other alternative forms of economic organization.
What is missing is a unifying vision of economics that brings these and kindred initiatives together, and a strategy to translate it into lasting impacts on the economics profession and on economics as understood by the public at large. This vision must be more than the sum of disparate parts; the strategy must set out systematically to reorient economics education as well as economic practice.
Our aim is to change both the economics profession and common-sense understanding about how the economy works and should work. For this we need to disseminate new ideas, train the new generation of scholars and public intellectuals, and advance new research agendas.
Among the concrete steps we propose to take are these:
Disseminate new ideas
New media and viral information networks play an increasingly important role in the propagation of new ideas. We can harness these to extend public education beyond the classroom, disseminating “atoms of consciousness” that will influence economic understanding and debate.
To do so we will launch a concerted effort to use new vehicles, such as short videos shared online, to critique the discredited economics and popularize economics for open minds, for people and for the future.3 Younger economists and media professionals will play a key role in this effort. We envision a two-way collaboration: economists will learn how to reach wider audiences more effectively, and media professionals will learn more about the new economics.
Reboot Econ 101
At the same time we cannot neglect the classroom. Approximately 40% of students in four-year colleges and universities in the United States take a course in introductory economics – about half a million students each year.4 If we add students who take economics in high schools and community colleges, this number is much higher.
To transform the key ideas taught in introductory economics, we need to create a suite of basic teaching materials including syllabi, power points, online courses, video materials, and written works. We want to disseminate these materials widely, and to train teachers to teach these courses. And we want to encourage students to demand these courses.
End intellectual monoculture in the economics profession
The orthodox economics that privileges free-market ideology, turns a blind eye to economic and social inequalities, and buries its head resolutely in the sand on pressing issues like global climate change, continues to dominate the training of new PhD’s in economics, thereby perpetuating itself. We need to propagate economics for people, for the planet and for the future in the intellectual gene pool.
To change the way America understands economics, we need to change the way economics PhD’s are trained. To do this we can:
- provide dissertation fellowships
- provide post-doctoral fellowships and research network support
- create professional Econ4 journals so that young faculty can publish and get promoted
Upload ethics into the economics profession
Among professions explicitly concerned with human well-being, economics has the dubious distinction of lacking a body of professional ethics. Over the past century, orthodox economists consistently refused to adopt or even explore professional economic ethics. The failure of economists to disclose potential conflicts of interests when writing about deregulation of financial markets has kindled fresh interest in this issue.
We need to upload ethics into the operating system of the economics profession, not only as a shield against conflicts of interest but also to integrate greater awareness of the ethical ramifications of economic theory and practice into professional training. To this end, we will press for the development and adoption of a code of professional economic ethics, and we will develop and disseminate educational materials to promote discussion of the ethical premises and impacts of economics.