New economic thinking

In applying for a workshop taking place later this year, I was asked to write up to 250 words on what I think “new economic thinking” means and why it is important.  This is what I wrote (and believe):

 

The pessimist in me too often sees Economics as a discipline whose objective is to maximize understanding of socio-economic issues subject to a rigid set of mathematical tools. We’re often a discipline unaware of the limitations we impose on ourselves: as a professor of mine once observed, when the real world doesn’t agree with our models, economists tend to question the real world rather than our tools.

New economic thinking should be about being more aware of our limitations, and more willing to accept new approaches, untying ourselves from older, limiting ones. Those new approaches can come from other disciplines–for example, modelling the behaviour of our agents on research from psychology, or allowing for emergent behaviour from complexity that computational economists would have us explore through agent-based models. We need to recognize that equilibrium is only one of many possible states of the world, and that what happens away from equilibrium is no less important than what happens at equilibrium.

New economic thinking must be cognisant of and open to these new approaches. We need to accept at least the novelty, if not the results, of bold new approaches to exploring the behaviour of the world around us in the hope that at least some of those approaches give us a revolutionary leap in our ability to analyse social behaviour. Fundamentally, new economic thinking needs to be about new thinking for old problems rather than the easier but limited pursuit of new tweaks to old models.