Shifting paradigms in Economics

There are clear evidences of a paradigm shift in the methods and approaches of teaching and learning off economics now. The pride of economists as the practitioners of a discipline supposedly superior to other social sciences has slowly started eroding.

Modern economists are now trying to free themselves from mainstream economics dominated by the neo classical economics and Keynesian macro economics.Neo-classical economics with its reliance on unscientific assumptions and complex mathematical models is found to be unfit to address the dynamic contemporary issues.

Reinventing economics

The global economic crisis of 2008 exposed the inadequacy of economists’ traditional tool kit, forcing them to reinvent economics. They are earnestly trying to understand the precise reasons for the crisis and are struggling to provide policy makers the tools to avert a repeat of the crisis.

The crisis has greatly influenced the research domains of economists. It has resulted in new researches in topics like bubbles and crashes, bank insolvency and illiquidity, bail-out and moral hazard etc.Now many macro economists are researching on the real reasons of the financial collapse of 2008.Traditional mainstream economics does not provide them a fertile land for research and they are now trying to incorporate finance in macroeconomic models.  Collaborative researches with financial economists are gaining momentum in many research rich universities. These researchers are trying to examine the events that led to the 2008 crisis and their researches will help in designing policies and remedies to avert the repeat of the crisis. The current global economic environment requires interdisciplinary researches in economics by a harmonious integration of the disciplines of economics, finance and management.Such an approach in economics research is essential to protect people from the excesses of the financial markets.

Restructuring curricula

The methods and approaches in teaching economics are also undergoing phenomenal changes.  More attention is being paid to topics such as credit market imperfections and macroeconomic instabilities. Business school curricula are being restructured to facilitate a detailed treatment of financial uncertainties and macroeconomic instabilities.  Serious students of economics have started showing a renewed interest in economic history to learn from the economic instabilities and crises of the past. Other themes of interest to students and teachers of economics should be the pros and cons of fiscal policy activism and the institutional role of central banks in macroeconomic policy management.

Both professional and academic economists have to totally rethink the intellectual structures to capture the economic aspects of reality. Because the typical economy is embedded in a large social system, the study of economics should take place within the context of other elements in that system. Indeed students should not be allowed to study economics without a basic grounding in consumer decision making, ecology, economic sociology, managerial decision making, political science and technology. Other subjects which will help in understanding the changing face of economics include behavioural economics, econophysics, evolutionary economics, experimental economics, the new institutional economics, the new economics of location and neuro economics. More over economists and students of economics should not ignore the relevant works in other disciplines.  In addition to traditional econometrics, newer techniques such as agent based modelling and network analysis should be used where ever appropriate.

Development should not be treated as a purely economic phenomenon, especially not as the mindless pursuit of higher per-capita incomes and greater gross domestic products.

Instead development should be treated as a people’s struggle to attain a full state of objectives sanctioned by a democratic process. As the Nobel Prize winning Swedish economist Gunnar Myrdal states, ‘economic development is the upward movement of the entire social system’. Economists are inventing new and better indices to measure development. Human Development Index, Genuine Progress Index, Gross Happiness Index etc are Just few of them. An ideal curriculum in economics should inevitably include detailed discussions on these and similar inventions in the science of economics.

It is high time to liberate ourselves from the influence of Neo classical economics which has lost its credibility due to its accumulated failures. With its unrealistic assumptions and excessive reliance on complex mathematical models, the Neo classical school of economics together with Keynesian macro economics still forms the core of main stream economics .The institutional power the proponents of main stream economics exert on research and teaching diverts students from issues critical to society. Under the current conditions, the academic world cannot be expected to train the open, innovative, responsible minds that are required for facing current and future challenges. This makes a very strong case for the changing face of economics

(The writer is a professor of economics at Christ University, Bangalore.)