Why economists need to evolve just like the rest of us

It is increasingly accepted that the economics profession will need to adapt to a more complex world. As befits a field perceived to exert such immense influence, the profession has long been granted an implicit – as opposed to legal – social contract, whereby benefits accrued for society are rewarded with enormous power over society’s everyday affairs.

But since the global financial and economic crisis, the contract between economics and society can plausibly be considered much more susceptible to change.

The profession, and especially its “market” manifestation in finance, has put itself at the centre of power. Alternately idolized and vilified, economists populate and run key ministries, central and commercial banks, rating agencies, the financial press, insurers, private equity, and sovereign and hedge funds. They counsel the most powerful among us and are often afforded near ecclesiastical deference. The profession is expected to keep societies from “going under”, to help management be prudent, to enable us to do well and to hand over a better world to future generations.

Economics, and the theories the field rests upon, has been resilient – so far. Although it trembled with the 1930s depression, the profession has not only survived but also thrived in the years since. It has done so despite enduring major setbacks periodically, the most recent being the ongoing crisis which began in 2008. Economics has spawned and accommodated a broad set of ideas and concepts – Keynesian, supply-side, neoclassical, behavioural economics, to name but a few – that often disagree with one another. Mathematics and its algorithms, the spreadsheet’s ubiquity, computer servers and faster communications have all bolstered the field. With these tools, financial arrangements, analyses and the policies they support appear ever more “scientific”, “rational” and “objective” – but all too often beyond the understanding of all but a few “economics experts”.

Yet the failures of the profession are numerous, growing and now potentially lethal. Systemic risk has not been priced into products. Climate change illustrates that the longstanding tactic of treating things to which it is difficult to affix a numeric value as “externalities” may ultimately prove fatal. So-called “trickle-down” economic development has not worked as expected. Growing inequalities may give rise to socially and politically unviable conditions. Many millions are excluded from “the game” economists describe and do not benefit from the efficient resource allocation promised. This year alone, 21 millioni individuals, as outsiders to “the market”, have themselves become commodities exchanged for drugs, weapons or money by traffickers; 36 million are slaves.ii

Questions have arisen about the fundamental assumptions upon which economics has been premised. To wit, LSE anthropologist David Graeber found no hard evidence anywhere in history that money was invented to replace barter.iii To the contrary, he showed the monetization of what might remain unpayable obligations as having provided an alternative to violence – and how quickly the two can switch places. In the July 2009 issue of The Economist, Paul Krugman said that much of the past 30 years of macroeconomics had been “spectacularly useless at best and positively harmful at worst”.iv The Dali-esque cover depicted modern economic theory as melting down. Could it be that economics arose in a historically anomalous period, one we are now exiting? Could the conditions that favoured its pre-eminence be ending?

It is not impossible to conceive that societies might take away, or at the very least severely curtail, the license to operate they have afforded the economics profession.

One possible way for such a shift to occur might be via civil society movements, such as the “altermondialistes”, “Occupy Wall Street” or the “Indignados”, who advocate an alternative societal model to the growth-based one advocated by economists.v A second might be through creative destruction: obligations might come to be automatically traded and accounted via apps, with software engineers and technicians replacing economists, just as the navigator in the cockpit was replaced.

Various scenarios of the relationship between society and the profession can be imagined.

One scenario might be called “the official future of economics”, where the profession remains adaptive and close to power. Here, no significant change in the economics profession’s license to operate in society would occur.vi

An alternative scenario, referred to as the “Naked Economics Emperor”, depicts economics as having been discovered to wear far fewer clothes. Here, a rewriting of the contract between society and the profession would occur, raising interesting questions. Could banks become like utilities? Deprived of their current complexity, anybody decently schooled and of reasonable intelligence could run banks. Could “citizen scientists” include economics to help the local citizenry directly engage in economic decisions?vii Could machines and engineers take over a lot of what economists do now? How might such changes occur without society suffering?

Exploring possible futures of the economics profession and potential changes to its contract with society offers opportunities to reconsider long-held assumptions and to investigate key issues confronting the field, allowing proactive steps now to address them.

The World Economic Forum’s stated mission is to improve the state of the world. Surely, then, it is important to contemplate the potential future of economics; after all it is the “E” at the centre of the World Economic Forum’s logo.