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.