In case you missed it, The Economist recently published a crystal-clear analysis of the problem with current economic theories and made the compelling case for the need for the Institute for New Economic Thinking. The piece could not have been more perfect since it was written by Anatole Kaletsky, a member of the INET governing board and author of “Capitalism 4.0: The Birth of a New Economy.”
The piece was part of print edition of The World in 2011 booklet that is sent to all subscribers to give insightinto the year ahead. It was also put on The Economist website, where you can read it in
its entirety.
Kaletsky lucidly lays out how the “rational expectations hypothesis” came to dominate economic thinking starting in the 1980s and how it provided the foundation for much policymaking and so bears some responsibility for the 2008 Global Financial Crisis. He’s particular damning about how the theory came to dominate Academia:
The rational-expectations theorists gradually acquired a near-monopoly on senior university appointments and research funding—and in a process familiar to all economists, this intellectual monopoly has ended up not only crushing the competition but also decaying from within.
Kaletsky then goes on to explain the genesis of the Institute for New Economic Thinking and how it’s is going about reforming the profession. He even telegraphs the themes we will be exploring in our upcoming annual conference in Bretton Wood, New Hampshire, in the spring. He ends the piece with a sobering warning:
Like any monopoly, the economic establishment will try hard to suppress competition. A hundred years ago Max Planck, commenting on the resistance among physicists to the revolutions of relativity and quantum mechanics, joked that “science progresses one funeral at a time.” The intellectual achievements of theoretical economics are meager in comparison with classical physics and its political importance is too great to allow such slow progress. Economics must reform itself quickly or the funeral will be for the discipline as a whole.
Peter Leyden
Director INET Online
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