Copernican Moment In Economics Is Near (Hopefully!)

If you never understood some rudimentary economic principles and their "grand" problems; Dennis J. Snower's piece lays it out brilliantly. 

It's a great place to understand what is microeconomics, macroeconomics, behavior economics, government regulation, and the famous invisible hand of Adam Smith. 

Here are some grand problems in reality which current economic "theories" refuse to address: 

• If the free-market system is meant to satisfy our needs efficiently, why is it despoiling our environment? 

• Why is it generating inequalities and other inequities that threaten the social cohesion of our societies? 

• Why does it leave so many people economically insecure, vulnerable to unemployment and trapped in dead-end jobs? 

• Why does it not correct for the excesses of consumerism, workaholism and digital addictions, frequently leading to anxiety, depression, burnout, substance abuse and crime? 

• Why is it giving us so little guidance in promoting public compliance with social distancing rules during the Covid-19 pandemic, even though such compliance has economic causes and consequences?

• Why does it keep so many businesses focused on short-term profit and shareholder value, even though so many business leaders are genuinely concerned about the environment and the wellbeing of their customers and employees?

My meta-level answers to the above questions are (to state the obvious - socialism is the worst virus and here we are trying to avoid capitalism becoming a virus before its too late):

Capitalism and free-market have become an ideology rather than seen as a tools-in-progress to be improved continuously to benefit life on earth, 

Tribalism -  "believing" and "following" other sapiens in their network by mindless habit and for social bonding with relic moral values (and if morality is part of that bonding),

And finally, the sheer inability of sapiens to change their minds as and when realities change. 

Crazy as it sounds, economists answers to these questions have no skin-in-the-game and if-you-have-a-hammer-every-problem-is-like-a-nail syndrome: 

• These questions may be important, but the answers lie outside the domain of economics. For environmental problems, turn to the life sciences; for social problems, turn to sociology and anthropology; for psychological problems, turn to psychology; for crime, turn to law; and so on. 

• Economics can deal with these questions through its standard policy toolbox: taxes and subsidies, government regulations, quotas, remuneration schemes, and other instruments that provide monetary incentives for some behaviors and forbid others. 

Shower shares some positive news and I read with a healthy dose of skepticism: 

Now the practitioners’ patience with mainstream economics is wearing thin. Unlike the academic economists, the practitioners must actually address the great economic questions of our time. They cannot afford to be satisfied with the two above-mentioned standard answers. They cannot accept that these questions lie outside the domain of economics, even though they have many important economic causes (the world economy as driver of climate change, economic inequalities as drivers of populism and social fragmentation, and so on) and many important economic consequences (climate change driving migration, populism leading to protectionism, and so on). Nor can the practitioners be content with the economists’ standard policy toolbox, since these instruments are obviously not overcoming the growing problems of climate change, social conflict, “deaths of despair,” containment of the Covid-19 pandemic, and much more. 

And finally, the practitioners are no longer enamored by the mainstream narrative on the division of responsibilities. Consumers in their millions are taking an interest in the social, political and environmental consequences of consumption and production activities, school children are out in the streets in protest about climate change, international organizations are beginning to measure economic performance beyond GDP (such as through the OECD’s Better Life Index and the UN’s Sustainable Development Goals), businesses are beginning to measure business performance beyond shareholder value (such as through Environmental, Social and Governance criteria along with the initiatives of the WEF International Business Council, the OECD Business for Inclusive Growth coalition, the Value Balancing Initiative, the British Academy’s Future of the Corporation programme), national governments are beginning to design budgets with regard to notions of wellbeing that extend beyond consumption of goods and services (such as New Zealand’ wellbeing budget). In short, the practitioners are not waiting for the mainstream economics profession to adjust to reality; instead, they are forging ahead on multiple fronts, extending the domain of economics to the existential challenges we face. 

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This is a different starting point from the one underlying mainstream economics. The discipline of economics is based on classical physics, i.e. the inanimate world. Evolution, by contrast, is appropriate to the animate world. Not a bad point of departure for economics. After all, humans are living creatures. If we choose this path, economics will be reaching its Darwinian – not Copernican – Moment. 

This is why now is probably the most exciting and fruitful time ever to become an aspiring economist. The Dutch philosopher Erasmus famously said:

“At the end, you will ask yourself: What have I made of my life? That wish you wish to answer then, do now.” 

Who would not wish to be alive and active at such a moment, when a great contribution is waiting to be made and there is no one around to execute you for it?