Rethinking Economics
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Bibliographic details
- Authors: SAMUEL BOWLES, WENDY CARLIN
- Published: March 1, 2021
Pandemic as a test of economic paradigms
- The pandemic adds health risk to low pay for many "essential" workers (eldercare, supermarkets, distribution warehouses, meat-packing plants, restaurants), forcing wrenching choices between livelihood and health.
- The crisis makes ethical concerns unavoidable for economics and highlights that "market failure is now the norm not the exception," rendering the standard economic model anachronistic.
- The pandemic and the climate emergency have increased disenchantment with laissez-faire individualism and neoliberal assumptions.
Evidence from students and emerging pedagogy
- Between 2016 and 2020, authors surveyed 9,032 students in 18 countries at the start of their introductory economics course about the most pressing problems economists should address.
- Students most frequently cited inequality, climate change, and unemployment as top issues of concern.
- A "new benchmark model" is increasingly taught and is encouraging young people concerned about these issues to remain in economics.
Components of a new benchmark economic model
- The new model must take positions on:
- the economy as part of the social system and biosphere;
- representations of people as economic actors and decision makers;
- the key institutions governing interactions; and
- the characteristics of underlying technologies.
- The behavioral revolution contributes key insights:
- People are neither omniscient nor entirely self-interested; they are influenced by "moral sentiments" (dignity, ethical convictions, concern for others, altruism, reciprocity, parochial intolerance, tribal hostility).
- Contract incompleteness is central:
- Most contracts are incomplete; effects on others not covered by contracts are the rule.
- Incomplete contracts lead to consequences such as persistent excess supply or demand in competitive markets.
- Employers may pay wages above the worker's next best alternative, creating a rent that disciplines worker effort by threat of job loss.
- Interactions are governed by a combination of contract, social norms, and exercise of power (employer power, lender power).
Normative frameworks and historical paradigms
- Successful economic paradigms paired economic models with moral frameworks and emblematic policies that entered everyday discourse:
- Classical liberalism combined commitments to order, equal dignity, anti-paternalistic liberty, utilitarianism with competitive markets, division of labor, specialization; hallmark policies included free trade and antitrust.
- Keynesianism paired egalitarian commitments (reducing insecurity, raising incomes of the less well-off) with propositions about saving behavior, automatic stabilizers, and aggregate demand; emblematic policies included government programs and trade union bargaining.
- Neoliberalism advanced "freedom from" government coercion and a procedural view of justice, tied to a model of individualistic, amoral agents interacting via exchange in competitive markets under complete contracts; emblematic policies included school vouchers and negative income tax.
Policy space expanded by social motivations and institutions
- Conventional one-dimensional policy continua (e.g., carbon tax and dividend versus cap and trade) are too narrow because they assume sufficient information and efficacy of solely market or government mechanisms.
- A three-pole policy framework integrates government, markets, and civil society; policies can lie inside the triangle and combine:
- state capacity,
- market mechanisms,
- social norms and civil society action.
- Examples:
- Vaccine response: research, production, distribution, and population coverage can be coordinated by mixes of government, market, and civil society mechanisms.
- Worker protections during pandemics: expanding workers' individual rights on the job and providing support for those who stay home to minimize epidemic spread.
Analytical and policy implications
- Incorporating motivations such as commitment to justice, dignity, and voice opens a broader set of policy options that include reshaping rules via market instruments, government action, private power restrictions, and strengthening social norms.
- Recognizing power transfers in employment contracts (transfer of power from worker to employer) gives policymakers a framework to address the plight of low-paid essential workers forced to choose between livelihood and health.
- Ethical considerations—fairness and solidarity—even among strangers are central to policy debates (e.g., vaccine priority, definitions of "essential" work).
- The new benchmark model integrates ethical concerns with an economic model suited to a world connected by markets, contracts, private power, infection spread, biosphere effects, in-group ties, and concern for the common good.
Source: Rethinking Economics — IMF F&D (SAMUEL BOWLES, WENDY CARLIN, March 2021).
Content in this bundle
- إعادة النظر في النظام الاقتصادي
- 经济学反思 - 金融与发展 - 国际货币基金组织季刊 -2021年3月号·第58卷
- Rethinking Economics – IMF F&D
- Replanteamiento económico ● Finanzas y Desarrollo ● Marzo de 2021
- Переосмысление постковидной экономики – Финансы и развитие – март 2021 года