Economics isn’t dismal if it opens up!

Thomas Carlyle, a Scottish philosopher, called Economics ‘the dismal science’ in response to the prediction of Malthus that the world will face acute starvation owing to population growth. Has the dismal science remained dismal with limited reproducibility of research outcomes, increasing biases and the usage of unnecessarily sophisticated statistical gimmicks?

Discounting the roots of the subject in the social sciences, mainstream economists strived to raise it to the level of the hard sciences claiming predictability through their causal models. This painstakingly built reputation, however, took a beating during various crises and economics returned to being called a dismal science again. There is an increasing realisation that the discipline is unable to contend with the real-world complexities of asset price bubbles, the climate crisis, the debt crisis or the most recent geopolitical tensions.

Economists predicted nine out of the last five recessions; shockingly the recession of 2007 and the depression of the late 1920s are not part of the nine predicted! They ruled out the depression of 1929 as ‘outside the range of probability’

The primary role of economic models and theories is not forecasting, but to help us better understand the present world with all its complexities. However, the current lens through which we see the world has some inherent flaws, long-contested within and outside the circles of the discipline. A significant portion of our academic references is still eaten up by the marginalist tenets that have limited applicability in real-world scenarios; that ‘rational people making decisions at the margin’ results in dangerous and unjustifiable predictions.

An example of such thinking can be found in the argument of the Nobel prize winner William Nordhaus, that a 3°C rise in the global temperature would result only in a 2.1% decline in GDP based on his ‘empirically validated model’. This context demands a need to peruse the contribution and research output of many academics including the Nobel Laureates in Economics.

Another influential school of thought, Keynesian Economics arose in the backdrop of the Great Depression, defying the classical notion of Laissez-Faire. It was bold enough to introduce the State into the equation. Keynes revolutionised the field with his seemingly simple but effective phrase of ‘dig holes and fill it’ against the backdrop of the Great Depression of the 1930s. However, the statement of Keynes “The boom, not the slump, is the right time for austerity” has been totally disregarded and misinterpreted in economic policy circles.

The need for pluralism

The Covid-19 induced lockdown has presented a puzzling situation of sporadic and simultaneous supply-demand shocks. This situation left many of the traditional economic models nugatory. Many economies are on the brink of stagflation owing to the immediate response to contain the economic impact of the pandemic. There is no consensus among economists on what would be the best way forward.

Can this crisis provide the opportunity to advance the gamut of this discipline beyond the barriers? Economics is in a dire need of a transition in its outlook, thoughts and approaches that can better reflect and delineate the complexities of the present time and situations. Hegel’s idea of Zeitgeist (“spirit of the age”), i.e. ideas and beliefs of the time, needs to be contemplated in this backdrop, and our approaches should be re-evaluated to see if they capture the essence of the current time.

The advancements in pluralistic thinking in economics offers a promising approach that opens up the space for accommodating heterodox frameworks within the discipline such as the Sraffian, the Marxian, the Feminist and the Behavioural, to name a few. As Kuhn puts it, “All significant breakthroughs are break –“withs” old ways of thinking.”. However, what economics needs today is not a ‘paradigm shift’ that would lock the discipline into another theoretical approach but rather more openness and an acceptance that reality is better understood through multiple lenses.

This will not only open up the space for conversations among schools within the discipline but also with other social science disciplines. Hegel uses the term ‘aufhebung’, which translates to ‘sublation’ to explain how this process happens; a negation of the past ideologies should also mean preserving and absorbing lessons we learnt from the past, which ultimately leads to change and growth. There are many lessons to take from the past in the progress of the subject which needs to constantly evolve reflecting the spirit of the time.

(The writers are Assistant Professors at Christ Deemed-to-be University, Bengaluru)