A Shifting Economics Paradigm?

The 2008 financial crisis shook the foundations of our society and how we think about the interconnectedness of economy and society. An important force in shaping how we think of the economic system is the economics discipline. Economics has historically built the conceptual and theoretical models that have influenced economic policy by our nation's leaders and central banks, and firm's strategies in the market. These dominant ways of thinking--paradigms--hindered most economists from accurately predicting the near-collapse of the financial markets and the broader shocks to the credit and housing markets. As a result, many argue that the profession is partly responsible for the crisis and must re-evaluate how it approaches the study of the economy. The dominant paradigm of the economics profession has been called into question. There is, however, a new community of scholars who are trying to nudge the economic's profession in a new direction and to shift the dominant paradigms that underlie it forward--The Institute for New Economic Thinking.

INETeconomics--It’s time everybody recognized that our 20th century economic thinking is not fit for life as we know it in the 21st century.

The prevailing thinking, that the economy is an idealized system of perfectly rational, optimizing individuals and institutions, who, by trading in markets, bring the economy to a balanced, efficient equilibrium has been rendered obsolete by developments in recent years.

Markets are global. Money moves instantaneously 24/7, and is now a raw material for financial innovations. Regulators are fallible and market participants frequently fall below the standard of being perfectly rational.

Economic thinking has not kept up with these and other developments that now define us, and that fact deeply affects everyone – as we learned in our most recent global financial crisis.

Spurred by the financial crisis and recent developments in the economics field, a far more realistic view of the economy is emerging that takes into account imperfections in individuals, institutions, and information, as well as the existence of complex global networks of interaction, and the dynamism of innovation.

This “new economic thinking” has the potential to profoundly impact society in areas ranging from government policy and financial system reform, to solving climate change, poverty and inequality, and driving sustainable growth in the long run. In other words, new economic thinking can enable a better world for all.

The Institute for New Economic Thinking’s mission is to nurture a global community of next-generation economic leaders, to provoke new economic thinking, and to inspire the economics profession to engage the challenges of the 21st century.