This conference will explore
new thinking in economics (“New Economics”), which may
be regarded as now already the mainstream. The new thinking is concerned
with institutional behaviour, expectations and uncertainty, as opposed
to traditional economics with its emphasis on equilibrium, mathematical
formalism and deterministic solutions. With the financial crisis brought
on by the unrestrained pursuit of personal and corporate profit, sanctioned
by traditional economics, now is the time to establish a new way of
approaching economic understanding, based on new economic theory.
It is also a good time to bring forward new ideas on the approach
to policy across a wide range of areas, such as macroeconomic and
global governance, employment and unemployment, social security and
New thinking in economics is an interdisciplinary approach to economic
problems that acknowledges and respects the insights and analysis
from other disciplines, e.g. those from ethics, history and engineering.
It also recognises complexity and evolutionary theory as relevant
to understanding economic systems and economic behaviour. Five issues
can be highlighted to contrast new thinking with traditional theory:
- A critical issue in economics is the treatment of uncertainty.
This is one criterion that distinguishes the traditional
and new economic analyses. For example, in the traditional
cost-benefit analysis, the form of the expected probability
function is simply assumed, converting any and all uncertainty into
'certainty equivalence' and subjecting the final model to a sensitivity
analysis. The estimates prevalent in the literature can be highly
misleading, because the studies disregard deep uncertainty in costs
- The economy is a complex, non-linear dynamic system
with technological change inherent in economic growth.
Traditional economics is organised around the concepts
of equilibrium and marginal changes. Many economic
policy issues, however, are potentially non-marginal
changes to the system, in the context of strong uncertainty.
issues in economic policy (traditionally called “welfare
economics”) are primarily ethical-economics in nature, and
should be informed by moral philosophy rather than
economics in isolation. Traditional economic models
adopt an extreme utilitarianism, with a questionable
selection and use of discount rates, ignoring the
philosophical literature and the concept of justice.
and history inform economics through studies of the
production processes involving the supply and demand
of materials, energy, skills and entrepreneurship. Economic history
is critical in understanding the relationship between economics
and technological change, because the technologies
evolve in response to economic conditions, as seen
in carbon-price signals for example. Traditional
models assume continuity and path independence.
- The politics of macroeconomic
policy implies unstable alliances and trade-offs
between governments and political parties. However, by the use of
the social welfare function (required for the calculus), traditional
economists simplify social choices and pre-empt political
negotiation, claiming an optimality for their assumptions
and market interpretations, which are actually subjective.
Traditional economics has developed an approach that has persistently
ignored the conclusions and insights of other disciplines. The new
economics is more pluralistic and more respectful of other disciplines.
For example, cost-benefit analysis is formally replaced by multi-criteria
analysis as developed in management science and applied to sustainable
development in which socio-economic, ecological, and ethical perspectives
are taken into account.
The above themes are suggestions of how we propose to bring together
our approach. The point we wish to emphasise is that
the new thinking in economics goes beyond the traditional approach,
which is arguably no longer mainstream economics.