Thursday, April 8, 2010

Three reasons for new economic thinking

I believe we are at a turning point in the way we value, measure, plan and teach economic development. There are three reasons for this:


1. The global financial crisis has signaled us that our current economic system operates at a dangerous edge. In 2008 the world had an economic heart attack. Reinvigoration measures have worked, the patient is alive and on the way of recovery. But now it is time to understand the underlying reasons for the heart attack and how to avoid future, possibly deadly, heart attacks from recurring. A doctor would advise to evaluate one’s life style to avoid future attacks. This is what we need to do now rather than jumping back into the economic rat race. Otherwise the global economy may share the fate of the middle aged manager who has not understood the message of his first heart attack.


2. Climate change is a result of human economic activity. Some say that it is a symptom for the unsustainability of our current economic system. I agree. But we have to deal with climate change urgently, politically, technologically and through changing behaviors. The sheer dimension of the change needed will change our economic system. Only by adapting our economic system will we be able to successfully mitigate the impact of climate change.


3. The rise of China: A one2one translation of the Western economic system in China will lead to unpredictable political, environmental, social and cultural results. Because of resource scarcity, pollution, internal migration and climate change, the rise of China may become a crisis factor for China and the world.


That is why we need to rethink the basis, the theories, the teaching and the practices of our current economic thinking. This is not just an academic debate. This is a fundamental issue with relevance for our future well being. It needs to affect the way we understand economic well being, the way we measure it, the way we understand incentives and the way we teach.


It is not about central economic engineering. This has failed quite visibly in the Soviet Union, and I have myself experienced it. But we have to understand and mitigate the dangerous effects of our system.


The creation of the Institute for New Economic Thinking is a way of starting this conversation.




Andre Wilkens, welcome words at the Inaugural Conference of the Institute for New Economic Thinking 'The Economic Crisis and the Crisis of Economics', Kings College Cambridge, 8 April 2010