Deborah Hardoon, who really ought to be resting on her laurels after her report for Davos went viral yesterday, springs to the defence of (the right kind of) economics.
Nerd Alert. As a student of economics, I always found the technical aspects of the subject deeply satisfying. Getting to the ‘right’ answer using algebra and statistics, solving ‘proofs’ and finding that stable equilibrium. Bliss.
But what’s always been more fascinating is that economics is a social science, it’s about real places, human behaviours and complex environments and governance systems. This is messy and diverse, so in order to derive textbook ready models, principles and theorems, economics has had to cut through the mess to make simple standard assumptions about the world we live in. ‘People’, with different characters, abilities and oportunities are replaced by identical ultility maximising individuals. Echo chambers, propaganda and manipulative marketing are replaced by the assumption that all consumers and businesses have perfect information about each other.
Put the messiness back in and the models soon start to look a whole lot less satisfying. Economic growth doesn’t always trickle down to benefit the poorest. When people receive higher wages, they tend not to work fewer hours (as the backwards bending labour supply curve would suggest). Production is not just a function of capital and labor, but also environmental resources and impacts,not to mention unpaid labour.
And of course, hardly any economists saw the financial crisis coming… The reputation of the ‘dismal science’ is facing further derision. Last week Andy Haldane the chief economist at the Bank of England said that economic forecasting was in crisis.
But before we throw the baby out with the bathwater (has anyone ever actually done that?) and deem all economists irrelevant and useless, I think it helps to be more specific about the ‘problem’ with economics and economists today.
So let’s start with why at least some economics deserves the current kicking. If we look at economic orthodoxy, there is a lot that Oxfam can take aim at.
Take the captain of economic measures, GDP and GDP growth. As a measure, it completely ignores who get’s what from the economy – people living in poverty can be netted off by high incomes elsewhere. It is indifferent to the kind of production (cigarettes or vegetables) that’s growing or what’s happening to the environment. Yet it remains at the forefront of economic decision making and it’s the first economic indicator listed in the back of The Economist every week, despite a recent (April 2016) special edition that highlighted its flaws and limitations.
Neoliberal economics promotes markets as the most efficient way to allocate resources, as the forces of supply and demand fight it out, free from distorting government intervention, and the most efficient price and output is achieved. But unfettered ‘markets’ also allow medicines to be priced out of reach of the most vulnerable, bankers to take risks which destabilise the global economy, more investments in dirty energy at a time when we know our environment can’t handle the impacts.
But despite the flack that economics is getting today, I still think it’s a pretty exciting, relevant and dynamic subject– if you look outside of that orthodoxy. Innovative academic Institutions and think tanks are promoting new ways of using economics to understand our current reality. This is a reality which includes a warming climate, societies that are built on patriarchy and value that can’t be monetised. Degrowth, alternative economics and new economic paradigms – the ideas are flowing, the mutations are proliferating. Students are challenging their professors in the rethinking economics movement.
Last month 13 of the world’s leading economists, including Nobel laureate Joseph Stiglitz and four former Chief Economists of the World Bank, released a statement that said ‘It is now evident that some of the recommendations of more traditional economics were not valid’ and proposed an alternative set of principles for organising economies.
At Oxfam, Kate Raworth published work on the donut economics in 2012, which brought together the need to meet the basics for people whilst respecting the planet boundaries. She left Oxfam to turn it into a book, which is out in April – it could be very influential. Last week my colleague Katherine Trebeck, who has been exploring New Economic Paradigms for some years, published (with two other authors) Tackling Timorous Economics, using Scotland as an example but with much wider application of how to manage our economies better.
And yesterday we published ‘An Economy for the 99%’, timed to coincide with the week that the super rich and powerful convene in Davos for the annual World Economic Forum. First and foremost, the report highlights the extreme level of economic inequality, by way of a killer stat that is great clickbait: 8 men now have the same amount of wealth as the bottom half of the world’s population. Get beyond the headline and you will read our analysis of how we got to such a perverse, unequal and unfair situation. We unpack the assumptions on which governments, businesses and individuals base decisions, find them to be false and driving our societies and our planet off a cliff.
Inequality is increasingly recognised as a problem in our societies. We saw in the UK referendum on the UK and the election of Donald Trump in the US, how people are feeling left behind, deriding experts and blaming immigrants. But what we need now are solutions, not scapegoats. And economics, which attempts to unpack, model and understand the world in which we live can continue to be helpful, provided we embrace an understanding of where it has gone wrong in the past. In this report we provide a compelling alternative to the economic orthodoxy – a human economy, where people and planet are put before profits.