Why and How Economics Must Change by Jayati Ghosh

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Author: JAYATI GHOSH, professor of economics at the University of Massachusetts Amherst.
Publication: F&D Magazine, March 2024.
Core claim: The economics discipline requires drastic change—greater humility, a better sense of history, and more diversity—to address existential crises, deepening inequalities, and dysfunctional sociopolitical outcomes.
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Humanity faces existential crises, with planetary health and environmental challenges becoming major concerns.
The global economy was already limping and fragile before the pandemic; the subsequent recovery has exposed deep and worsening inequalities in incomes, assets, and access to basic human needs.
Resulting sociopolitical tensions and geopolitical conflicts risk creating societies that “may soon be dysfunctional to the point of being unlivable.”
Discipline response criticized: mainstream economics persists in “business as usual,” treating marginal tinkering as if it can have meaningful impact.

Misleading or false received wisdom on critical issues, including:
- how financial markets work and whether they can be “efficient” without regulation;
- the macroeconomic and distributive implications of fiscal policies;
- the impact of labor market and wage deregulation on employment and unemployment;
- how patterns of international trade and investment affect livelihoods and the possibility of economic diversification;
- how private investment responds to policy incentives such as tax breaks and subsidies and to fiscal deficits;
- how multinational investment and global value chains affect producers and consumers;
- the ecological damage wrought by patterns of production and consumption;
- whether tighter intellectual property rights are really necessary to promote invention and innovation.
Omission of “power” from mainstream discourse:
- reinforces existing power structures and imbalances (greater power of capital compared with workers; private abuse of market power; rent-seeking; political power advancing private interests);
- obscures unsustainable exploitation of nature, social labor market segmentation, and distributive impacts of fiscal and monetary policies.
Overreliance on GDP:
- “Deep and continuing concerns with GDP as a measure of progress are ignored”; GDP remains the basic indicator “just because it’s there,” despite conceptual and methodological flaws.

Persistent reliance on neoclassical assumptions (perfect competition, constant returns to scale, full employment) that “bear no relation to actual economic functioning anywhere,” yet survive in policy models.
Tendency to downplay the significance of assumptions in deriving analytical results and presenting policy recommendations.
Professional incentives and gatekeeping:
- “Tyranny of so-called top journals and academic and professional employment” diverts talent toward narrow, esoteric contributions (relaxing one small assumption or minor econometric variations).
- Hard-to-model elements and inconvenient truths are excluded; fundamental constraints presented as “externalities.”
- Economists who primarily communicate with each other propagate findings to policymakers without sufficient external critique.
Modeling complexity away:
- Complex economic forces—shaped by history, society, and politics—are squeezed into mathematically tractable models that may lose resemblance to reality.

Strict power hierarchies within the discipline suppress alternative theories and analyses.
Multiple forms of discrimination (gender, race/ethnicity, location) marginalize alternative perspectives.
Geographic dominance:
- The mainstream discipline is “completely dominated by the North Atlantic—specifically the US and Europe—in terms of prestige, influence, and the ability to determine the content and direction of the discipline.”
- Contributions from economists in global majority countries are largely ignored due to the implicit assumption that “real” knowledge originates in the North.

Arrogance toward other disciplines and lack of historical sensibility impoverish analysis.
Behavioral economics and randomized tests:
- Popularity of behavioral approaches and “nudges” often presented ahistorically, neglecting social and political contexts.
- Shift toward micro randomized tests in development economics erases background and context, favoring methodological individualism.
Few economists perform philosophical assessments of their own approaches.

The flaws described have reduced economics’ credibility and legitimacy among the wider public.
Without substantive change, economics will be ill-equipped to confront major contemporary challenges.

Adopt intellectual humility across the discipline.
Integrate a stronger sense of history into economic analysis.
Recognize and explicitly study unequal power relations within economic systems.
Actively encourage diversity in perspective, geography, gender, and methodology.
Re-evaluate reliance on GDP as the default measure of progress.
Broaden acceptable research agendas beyond narrow, technically esoteric contributions to include context-rich, interdisciplinary, and empirically grounded work.

Source: F&D Magazine, "Why and How Economics Must Change" by Jayati Ghosh, March 2024.

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