Economic ideas matter. The writings of Adam Smith over two centuries ago still influence how people in positions of power – in government, business, and the media – think about markets, regulation, the role of the state, and other economic issues today. The words written by Karl Marx in the middle of the 19th century inspired revolutions around the world and provided the ideological foundations for the cold war. The Chicago economists, led by Milton Friedman, set the stage for the Reagan/Thatcher era and now fill Tea Partiers with zeal. The debates of Keynes and Hayek in the 1930s are repeated daily in the op-ed pages and blogosphere today.
Economic thinking is changing. If that thesis is correct – and there are many reasons to believe it is – then historical experience suggests policy and politics will change as well. How significant that change will be remains to be seen. It is still early days and the impact thus far has been limited. Few politicians or policymakers are even dimly aware of the changes underway in economics; but these changes are deep and profound, and the implications for policy and politics are potentially transformative.
For almost 200 years the politics of the west, and more recently of much of the world, have been conducted in a framework of right versus left – of markets versus states, and of individual rights versus collective responsibilities. New economic thinking scrambles, breaks up and re-forms these old dividing lines and debates. It is not just a matter of pragmatic centrism, of compromise, or even a ‘third way’. Rather, new economic thinking provides something altogether different: a new way of seeing and understanding the economic world. When viewed through the eyeglasses of new economics, the old right–left debates don’t just look wrong, they look irrelevant. New economic thinking will not end economic or political debates; there will always be issues to argue over. But it has the promise to reframe those debates in new and hopefully more productive directions.…
So how might new economics move us beyond the mechanistic view of policy and regulation, and towards a view that takes into account the complexity, unpredictability, and reflexivity of the economy?
My view is that we must take a more deliberately evolutionary view of policy development. Rather than thinking of policy as a fixed set of rules or institutions engineered to address a particular set of issues, we should think of policy as an adapting portfolio of experiments that helps shape the evolution of the economy and society over time. There are three principles to this approach…Theoretical physicist John Hagelin ran for president on a similar platform some time ago as the Natural Law Party candidate. (I voted for him because of the platform rather than because he happens to be a friend.) While he had no chance of winning, it got him in a lot of doors with both parties and also leaders in important fields. He said he found a surprising level of agreement with his position that through science we already know promising solutions to virtually all our major problems, but that we are not trying them. The reason he got from those who agreed was that no one wanted to buck the trend by proposing something new and unknown to the public. It was just too risky for a politician career-wise.
The Great Transformation: Economics, Policy, Politics
Eric Beinhocker | Executive Director of the Institute for New Economic Thinking at the Oxford Martin School, University of Oxford