If there was any possible upside from the destruction stemming from the financial crisis and Great Recession it was that neoclassical economics’ intellectual hegemony began to be more seriously questioned. As such, the rising interest in complexity theory is a welcome development. Indeed, approaching economic policy from a complexity perspective promises significant improvements. However, this will only be the case if we avoid a Hayekian passivity grounded in the view that action is too risky given just how complex economic systems are. This would be a significant mistake for the risk of non-action in complex systems is often higher than the risk of action, especially if the latter is informed by a rigorous thinking grounded in robust argumentation.
The flaws of neoclassical economics have long been pointed out, including its belief of the “economy as machine”, where, if policymakers pull a lever they will get an expected result. However, despite what Larry Summers has written, economics is not a science that applies for all times and places. It is a doctrine and as economies evolve so too should doctrines. After the Second World War, when the United States was shifting from what Michael Lind calls the second republic (the post-Civil War governance system) to the third republic (the post-New-Deal, Great Society governance structure), there was an intense intellectual debate about the economic policy path America should take. In Keynes-Hayek: The Clash That Defined Modern Economics, Nicholas Wapshott described this debate between Keynes (a proponent of the third republic), who articulated the need for a larger and more interventionist state, and Hayek (a defender of the second republic), who worried about state over-reach. Today, we are in need of a similar great debate about the future of economic policy for the emerging “fourth republic.”….This is really quite good. The next step beyond Hayek v. Keynes, where the debate is stuck now.
Complexity and Evolution Need to Play a Foundational Role in the Next Economic Paradigm
Robert Atkinson | President of the Information Technology and Innovation Foundation, a Washington, D.C.-based technology policy think tank