That radical flip in perspective invites us to become agnostic about growth and to explore how our economies—which are currently financially, politically and socially addicted to growth—could learn to live with or without it. I am convinced that these seven ways to think like a 21st-century economist are fundamental to the new economic mindset this century demands. Their principles and patterns will equip new economic thinkers—and the inner economist in us all—to start creating an economy that enables everyone to prosper.
Given the speed, scale and uncertainty of change that we face in coming years—and the diversity of contexts from Beijing to Birmingham to Bamako—it would be foolhardy to attempt to prescribe now all the policies and institutions that will be fit for the future. The coming generation of thinkers and doers will be far better placed to experiment and discover what works as the context continually changes. What we can do now—and must do well—is to bring together the best ideas to create a new economic mindset that is never fixed but always evolving.
The task for economic thinkers in the decades ahead will be to bring these seven ways of thinking together in practice, and to add to them. We have barely set out on this adventure in rethinking economics. Please join the crew.
Seven ways to think like a 21st century economist | openDemocracy
Originally published at Open Democracy. We spend hundreds of hours and lots of dollars each month creating, curating, and promoting content that drives the next evolution of economics. We welcome you to take part in the next evolution of economics.
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Sign up now to be kept in the loop! By Kate Raworth No one can deny it: economics matters.
Economics matters enormously for the future, but its fundamental ideas are centuries out of date.
Get Evonomics in your inbox. And Changing the World. Lessons from the Leading Game Theorist. The Economy Isn't A Machine. Full investment expensing should be standard; deductions for debt interest, which incentivise risky leverage for no good reason, should be scrapped. As the labour market continues to polarise between high earners and everyone else, income taxes should be low or negative for the lowest earners.
That means getting rid of regressive payroll taxes which, in North America, could be replaced with underused taxes on consumption. Though these are also regressive, they are much more efficient. Adam Smith said that taxes should be efficient, certain, convenient and fair. Politicians rarely consider the purpose and scope of taxation. When they do change tax codes, they clumsily bolt on new levies and snap off old ones, all in a rush for good headlines.
Rewriting the codes means winning over sceptical voters and defying rapacious special interests.
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Topics up icon. Blogs up icon. Current edition. Audio edition. Economist Films. What determines which activities are done inside a firm, under the direction of management, and which activities are handled externally to the firm, by the decentralized market? The most promising theories of the boundaries of the firm stress intangible factors, such as information processing by management and the challenge of providing motivation and compensation in a setting where output is the joint product of teamwork.
Austrian Economics in the 21st Century
But because economists are more comfortable working with tangible, measurable goods, there has not been much effort devoted to applying these theories to the real world. In the 21st century, there is an opportunity to rectify this. The entire business ecosystem is complex in ways that no economist imagined a hundred years ago. My essay on the value of economic classification systems pointed to examples of economists who have explored this complexity. We need more work like theirs, which involves staring at the real world instead of at a mathematical model.
Mainstream economists have a very simple, stylized model of banking that ignores most of the vast array of financial instruments and strategies that have developed over the past 50 years. They claim to be able to answer questions about financial regulation, such as how to set capital requirements for banks, without having a clear understanding of what financial intermediaries do to create value in the first place. Mainstream economics is materialistically oriented.
Economists view the firm as an entity that transforms tangible inputs into tangible outputs. But banks and other financial intermediaries operate entirely in the realm of the intangible. They change the way that risk and duration are perceived. All forms of business debt, whether issued by banks or by non-bank firms, serve to alter perceptions of investors.
21st Century Economics
People are willing to hold debt instruments who would never be willing to delve into the risks of the underlying assets. Because this effect on perceptions is intangible, economists have been reluctant to explore it. As a results, many obvious questions about financial intermediation have not been addressed. These include:.