The End of the Free-Market Paradigm — Diane Coyle

The assumption of isolated individuals transacting in free markets has underpinned highly damaging economic policies since the 1980s. Given the interdependent nature of the digital world, economic researchers need to ditch their unscientific attachment to this paradigm and instead focus on the economy of the 2020s.

The 2020s will be the decade when the idea that economic problems can be “left to the market” to solve is finally put to rest – after some 40 years during which that belief has caused untold damage to society and the environment....

This sort of assumption may be appropriate, sort of, for micro-theorizing, but it unsuited to macro-theorizing, as the results reveal.  Now the stakes are so big as to require revisiting the foundations of the normal paradigm. The issue for economics is scope and scale. Microeconomic toy models don't scale and the issues of macro lie beyond the scope of micro. "Microfoundations" as a governing assumption must go.

Accountant Richard Murphy points out that the first step is taking externality into account in figuring costs. Capitalize the gains and socialize the losses, as is the case at present, is not working so well and things are just getting worse without the market dealing with true cost. The economic calculation errors are becoming enormous.

Project Syndicate
The End of the Free-Market Paradigm
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation