Novel Economics System For A New Normal
Novel Economics System For A New Normal
Economics is a science of context, the nexus of social conventions framing and directing the behaviour of economic agents, while economy is an amalgamation of various forms of such behaviour. The economy is a man-made system that is extremely nonlinear, has frequent paradigm shifts, and is governed by a set of rules that describe how economic agents behave.
A toy in the hands of politicians
The standard economic hypothesis growth model has largely overlooked the operational principles of physical processes and the biosphere, ignoring negative externalities, resource depletion, and inequities. The deleterious implications of these fault lines have been suppressed by the anthropogenic climate problem and subsequent microbial changes. The traditional growth model is based on a linear production model. The related policy platform is based on two assumptions: the linearity of the economic system and economic participants' pattern matching behaviour. As a result, some opponents have claimed that economics is a "dismal science," a toy in the hands of politicians, due to unusual policies and their unforeseen repercussions.
The economic policy platform of neoliberal capitalism, as the latest incarnation of free market capitalism, has largely overlooked the government's coordination role. Inflation targeting has been used as a primary policy tool to maintain macroeconomic stability. This platform advocates two sets of policies: one for "good times" based on the market fundamentalism mantra, and another for "poor times" based on Keynesian deficit spending. There is no exit strategy from unconventional policy measures. Money printing and fiscal stimulus stifle innovation and drive reliant sectors to perform poorly. The economy enters free decline as the number of start-ups falls and the number of value-draining incumbents (Zombie enterprises) rises.
The economy in free decline will not be able to recover on its own and will no longer be able to sustain the planet. The economic system requires multiple and profound reforms, the Great Reset, not only to grow but also to survive. "The economic system, which must be oriented toward the global commons, is the first to undergo adjustments."
Coincidentally, four significant factors have had a large impact on the paradigm shift in Economics over the last four decades: the growth of behavioural economics, the demise of market fundamentalism, and the intensity of technological change inspired by two industrial revolutions (3IR and 4IR), and growing awareness of the global commons.
The achievements in behavioral economics have unmistakably demonstrated that humans are not always rational and consistent, that they are not by definition selfish, and that they do not have a symmetric risk-reward relationship. Furthermore, egoism's first derivative is not well-being. Economics is not a natural science like Physics or Chemistry. As a result, heuristics, trials-and-errors, and feedback loops have a larger explanatory power than targeting based on optimization modeling. Nonlinear systems are now the norm in natural sciences and engineering. When universal connection is a new free good, corporate leaders' preferred strategy is "large and disruptive." The rising level playing field of competitive dynamics is also nonlinear due to the amalgamation of many innovations and platforms. The economic system, which must be geared toward the future, is the first to undergo changes.
Stakeholder capitalism, a circular (and regenerative) growth model, a heterodox economic policy agenda with trade development and automatic stabilizers from the monetary and fiscal spheres, a "net-zero" vision, and impact investments financed with "green" instruments could all be part of the solution.The seeds of the Great Reset are thought to have been planted.