is a New Economic Paradigm is possible? In fact, a new paradigm is currently already emerging. in the Last decades, and especially after the financial crisis of 2007-9, researchers developed and proposed many alternative economic indicators, economic theories and policies.
why is a new economic paradigm is needed? Today we face many systemic problems and challenges. Well-known problems are the threat of an environmental collapse, rising inequality and a new financial crisis. Moreover, rapid technological developments are changing the labour market and leading to new forms of monopolies. Because of the systemic nature of these problems and challenges ‘business as usual’ appears no longer to be an option. The new economic paradigm that is emerging is based on three elements. First, a new way of measuring economic progress. Second, new economic theories, analyses and methodologies. And third, new economic policies.
new ways of measuring progress. For the last 70 years economic growth has been the primary aim of economic policy and the main way to measure economic and social progress. Because of economic growth, material welfare increased significantly. This is a good thing. There are however three problems associated with economic growth. First, research show that economic growth often also results in rising inequality. Second, economic growth often does not contribute to an improvement in well-being. Above a certain income, more money does not make us happier. Third, today’s economic growth undermines sustainable development.
In the 21st century, we have to understand the impact of our economic activities. Economic growth can in itself no longer be the aim. We need to understand the form or the composition of economic growth. This is important. in the recent decades, many alternative aims of economic policy have been formulated. Four aims often mentioned are: environmental sustainability, declining inequality, rising well-being and improving the resilience of systems. These aims will become the explicit aims of policy in the coming decades. In other words, we will move ‘beyond growth’. But not only the aim of policy is changing, economic theory itself is also changing. During the last 40 years one theory dominated in economic science. This theory is called neoclassical economic theory. This theory has two starting points. The individual and rational behaviour.According to neoclassical economic theory, individuals maximize their utility and businesses maximize their profits. If markets are competitive, the outcomes of production, consumption, labour and profits are optimal. Based on this theory, politicians liberalized markets last decades. However, several researchers have argued that people, are not individual utility maximizers. We have multi-dimensional preferences and our behavior is formed in specific socio-economic and cultural settings. Because of the critiques, the neoclassical theory has been adapted last two decades. However, today it's often argued that these changes have not gone far enough.
A lot of the systemic problems such as the threat of an environmental collapse and rising inequality, cannot be solved with a theory starting with the individual. There are fortunately already many alternative theories available. Such as post-Keynesian economic theory and complexity economics. These theories not only have a different starting point than neoclassic economic theory but also study different topics. For example gender.New economists argue that these theories together give a better explanation of economic reality than neoclassical economics does.And what about economic policies?The Organisation for Economic Co-operation and Development recently stated in a report that the policies which have been implemented over the last four decades no longer improve economic and social outcomes. If we want to solve the systemic problems incremental changes in policy are not enough. Fundamental changes are needed. In several fields fundamental proposals have been developed. Examples are, a green tax system, proposals for monetary reform and alternative models for corporate governance.
“Is this realistic?” politicians generally prefer incremental change. But we often forget that fundamental change of policy happened quite often in the past. For example, in the 1940s, laissez faire was substituted by the ideas of the economist John Maynard Keynes. In the 1970s, those ideas were substituted by the ideas of Milton Friedman and Friedrich Hayek. Today, we are in a similar situation of change. To conclude, we’ve seen that a new economic paradigm is gradually emerging. In this paradigm, today's systemic problems and challenges can be addressed. By first: new ways of measuring economic progress. By considering more and different economic theories than before. And finally by making fundamental changes in economic policies.
No comments:
Post a Comment