Revive political economy: Economics must go back to its basics to stay relevant
The world economy is at a turning point. As global supply chains face frequent disruptions, the structures underpinning markets and international trade are unravelling, leading to economic instability which is spilling over into other domains and fuelling conflict and political polarization. It is worth asking why, despite an unprecedented influx of data, mainstream economic thinking and policymaking appear to be failing.
I believe that the problem lies in the lack of theoretical research, particularly when it comes to exploring overarching ideas needed to connect and interpret seemingly disparate data points and trends. The growing backlash against economic theory in recent years has tended to focus on the field’s reliance on developing mathematical models for their own sake rather than to inform and improve public policy. Many argue that instead of trying to imitate physics, economists should emphasize data-based empirical analysis.
But while I do not doubt the importance of collecting data and addressing urgent social issues, major turning points demand that we direct our attention to more fundamental issues and consider the need for an economic paradigm shift. History is rife with such shifts. The Industrial Revolution was a period of rapid technological innovation that enhanced our ability to produce goods but also changed the rules of the game, as feudalism gave way to wage labour and large-scale factory production.
Children were put to work on the shop floor, and the skies darkened with smoke and pollution. Initially, no one understood how this new industrial economy worked. But the Industrial Revolution coincided with some of the biggest breakthroughs in economic theory, from Adam Smith’s seminal The Wealth of
. Read more on livemint.com
