## Why and How Economics Must Change by Jayati Ghosh

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**Canonical URL:** [Why and How Economics Must Change by Jayati Ghosh](https://www.imf.org/en/publications/fandd/issues/2024/03/symposium-why-and-how-economics-must-change-jayati-ghosh)

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## Bibliographic details
- Authors: Jayati Ghosh
- Published: March 4, 2024

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### Executive summary
- 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.
- Read time note as presented: Less than a minute(0 words) Read

### Urgency and context
- 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.

### Core critiques of mainstream economics
- 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.

### Methodological and institutional problems
- 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.

### Hierarchy, discrimination, and geographic bias
- 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.

### Interdisciplinary shortcomings
- 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.

### Consequences for credibility and policy relevance
- 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.

### Recommendations and calls to action
- 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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_Source: https://www.imf.org/en/publications/fandd/issues/2024/03/symposium-why-and-how-economics-must-change-jayati-ghosh_