In the wake of the 2008 global financial crisis, and with society facing challenges ranging from growing economic inequality to the threat of climate change, we need new insights into how the economy really works, and how it might be made to work better.
For much of the twentieth century economics was dominated by ideas that humans are perfectly rational, markets are perfectly efficient, institutions are optimally designed, and that market economies tend to self-correct, finding an equilibrium that delivers the best social outcome.
New economic thinking takes a more realistic view that embraces the messy reality of the economy. It sees the economy as a dynamic, complex, evolving, network of interacting, heterogeneous individuals and institutions who who don't always behave rationally and have limited information, but nonetheless learn, are innovative, and evolve over time. In the real world, economies may sometimes self-correct, but they may also be prone to instabilities, or become trapped in dysfunctional states. The economy has more in common with complex systems such as biological ecosystems, the brain, or the internet, than it does with the simple mechanical neoclassical models used in much traditional economic theory.
Understanding the economy in this way requires economists to break-out of their disciplinary silo and embrace new tools from a range of fields including computer science, physics, mathematics, biology, ecology, psychology, sociology, anthropology, political science, and philosophy. It requires both quantitative and non-quantitative analyses, a deep appreciation of economic history, and a strong orientation towards data to re-ground economics as an empirical science.
A more realistic and more empirically grounded understanding of the economy could have a broad and positive impact on society by helping leaders in government, business, and the social sector make better decisions on a host of critical issues. These issues range from financial system reform, to policies to spur growth and innovation, initiatives to address rising inequality, policies to address climate change and other environmental issues, and efforts to reduce poverty and encourage economic development.
We also believe it is essential to change the way students are taught economics to ensure that the next generation of leaders is equipped with the most effective intellectual tools possible for the challenges they will face.