The Deficit in Current Economic Thinking

By Roland Bensted and Christian Nicholson

The recent financial crisis has stimulated a justifiable interest in the future of developed economies. Since the 2008 Lehman Brothers collapse the economics discipline has been forced to confront its failings. As Dominic Lawson has noted, it has partially undergone a much needed shift towards behavioural economics rather than the cold “rational” mathematical economics that failed so spectacularly. However, as this article describes, there remains enormous scope for a more fundamental rethinking of the political economy of the developed world.

Much has been written about the demise of the Washington consensus which dominated political economy for nearly thirty years until the great crash of 2008. The core assumptions of this paradigm have been thoroughly discredited in the face of rampant unemployment, lack of social mobility, and a deep malaise across North America and Europe that threatens the prospects of an entire generation.

In spite of the considerable scope and arguable necessity for different approaches, there has been a notable absence of alternative visions. The dominant force of the academe has focused on the development of micro-efficiencies; books such as Thaler and Sunstein’s Nudge have sought to perfect rather than challenge the limitations of current thinking.

What is more fundamentally absent is a hopeful vision of the future, a future to which we can aspire. Instead, the focus of much current thought rests on the pessimism of now and the future pain of austerity and economic stagnation. The once totemic alternative of Marxism has long since died, and rightly so.

However, no substantive vehicle has emerged for promoting the future, or the collective. Increasingly, both right and left are grasping- albeit vaguely - that what makes us truly wealthy is far more nuanced than reductionist monetary measures like GDP. This is evidenced by recent emphasis on concepts like the “Big Society”, “Blue Labour”, and David Cameron’s laudable decision to introduce a “happiness index” to national statistics from 2012. Yet these arguably fail to provide answers to the core question of meaning to which people can truly set themselves.

A questioning of “who is we?” resists simple answers, but it is immediate in the implications- both present and future- for the polity. The concept of “we”, rather than “I”, is crucially important. According to the late Tony Judt, it is not only the political right that has promoted self-interest at the cost of group solidarity. For Judt, it was the political left’s discarding of the collective in favour of atomistic individualism that helped sow the seeds of its own downfall.

Should we reattach significance to a more meaningful collective, and if so how? How are we to rearticulate the discourse and reality of the collective without promoting conformity? How do we bring this back into economics?

Questions like those above point necessarily to the more fundamental questions of the economics discipline. As noted in our previous article on John Maynard Keynes, economics is primarily a question of priorities: we identify the implications of certain policies and we select our preferences. What is clear from the past thirty years is that our preferences have been ill set, and have disastrously tried to remove social outcomes from the consideration of economic policy while focusing excessively on short term considerations. In a recent opinion piece, former Australian Prime Minister Malcolm Fraser has lamented the failure of Western policy makers to work towards long term future considerations, to the detriment of their economies and societies.

Economics must question these preferences; new answers need to be found. This requires deeper thought, and arguably a return to the more rounded economics in which its political and social aspects are integrally incorporated, and acceptance made of their more subjective nature.  

Necessarily complex issues such as social fairness do not lend themselves to easy answers. This is especially so, given the current dynamics of developed societies:  the parochialisms of the past have long been shed. Agreement on what constitutes a “good society” is hard to achieve, yet there must surely be a minimum threshold, a set of core norms around which the collective congregate in order to participate in society. Adam Smith, writing in the eighteenth century, diagnosed that ethical rather than purely contractual considerations are essential for a productive society. As referenced by the lead quote, although Smith is predominantly remembered for his conception of a market driven by self-interest, he never conceived this as in any way sufficient for a flourishing, or “good”, society.

In a similar vein, the centrality of fairness to a good capitalism has been articulated in a contemporary setting by Will Hutton in Them and Us. By engaging with underpinning ideas - like the concept of “fairness” itself - and linking these to concrete policies, Hutton provides something of an illustration of what is now required. There is a clear need for more publications like Them and Us. Ferment must be restored to debates surrounding the priorities of the future societies we wish to build. Equally importantly, evidence of progression towards determining the means of making it a reality is needed. This is the job of a renewed economics. There is a considerable gap to fill.


Christian Nicholson is reading for an MA in International Relations at King's College London, having graduated with first class honours in War Studies, also at King's, in 2009. His research interests include state building and the impact of ideas in social sciences.


7 September 2011


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David Bayon, The Markets Have Spoken