Economics, as an academic discipline and a policy tool, is under siege, not least from its students and practitioners. Questions have been raised by both students and academicians about its usefulness in analysing economic developments and for policy making. It has been pointed out that the discipline has been overtaken by events in the global economy which it either failed to predict or was unable to come up with credible explanations.
Though cosseted by policy makers for a fairly long period, economics was never without its critics and sceptics. Even in its heady days it was stuck with the epithet 'dismal science'. Fancy models that made ex-post analysis of business cycles managed to rescue it from the public opprobrium. Policy makers' trust and confidence in its ability to guide decision making for the economy was retained in the absence of any other discipline having the potential of playing the same role. John Maynard Keynes, the guru of neo-classical economics, wrote in 1936: "The ideas of economists, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else".
The recent financial crisis (2008) gave a jolt to those who thought economics had answers for all the questions relating to the crisis. Paul Krugman put it succinctly when he asked: "What is the use of a model equipped with fancy mathematical equations, like most writings in game theory, if the model fails to capture the reality?" Krugman may be questioning the motivation for using mathematics and not its use par se, but his observation exposes the weakness of models built on mathematical equations alone. He, like many in recent times, has come to look upon these analytical tools as incomplete.
Like Paul Krugman many economics students are now unhappy with the discipline of economics that is taught at classes. They find the dominant neo-classical model too narrow and question why no economists predicted the 2008 financial crisis. According to them, the problem with economics lies in its pre-occupation with abstract theory to the neglect of studies of actual economies in a holistic manner. Their criticism tends to decry analysis that does not investigate the behaviour of all agents engaged in a 'rational choice'. It is also the starting point for critics of modern economics who point out that people do not always maximise, that preferences are not stable and markets are often out of equilibrium. The crisis of 2008 exposed how disconnected the discipline of economics is with real world events. Students from 19 countries have set up 'Rethinking Economics Network' based on the assumption that there was an alternative to what was being taught in classes in academia. The essence of this alternative, according to them, is pluralism. The students are keen for academic institutions to teach a wider range of theories and methodologies than those on offer now at most economics departments. They contend that lack of intellectual diversity does not only restrain education and research, it also limits their (economists) ability to cope with the multi-dimensional challenges of the 21st century - from financial stability, to food security to climate change. The students want the real world to be brought back into classrooms as well as debate and a pluralism of theories and methodologies. They believe this will help renew the discipline of economics and create a space in which solutions to society's problems can be formulated. It is pointed out by them that this call for pluralism is not for abandoning mathematics and models with equations. The students emphasise that pluralism is not to be confused with drawing upon techniques other than those that borrow from mathematics and statistics to model economic phenomena. The movement of the students under the Network aims at a broader field where there is not only scope for questioning the method but also to examine the assumptions at the root of the models. The manifesto of the students ask for economics to address the questions that are often considered beyond the scope of the discipline. These include the broader ramifications of policy making.
Economics was criticised as a 'dismal science' because it is not a pure science. As a social science, economics embraces sociological, political and historical dimensions. It is obvious that complex economic phenomena cannot be understood properly if presented in a vacuum in isolation from the various relevant contexts. In order to understand the broader social impacts and moral implications of economic decisions a broader perspective is required. When this condition is fulfilled economic policy can be pragmatic, aligned to the reality.
The new economic thinking propounded by the students' Network from 19 countries has many affinities with old economic thinking. Classical economists, going back to Adam Smith, did not consider economics as a value-neutral science or even as an autonomous discipline. They all understood economics to be a sub-field of moral and political philosophy. Amartya Sen, the Nobel laureate, is one of the few economists who have adhered to this view steadfastly and consistently. To be relevant, economists have to consider the broader socio-political contexts. They should be grateful to the 2008 financial crisis because without it there would be no need to re-think about economics today. Criticisms of students from 19 countries, who have established a Network to re-invent economics, should also be appreciated. Perhaps re-invention is not the correct expression because all that is being suggested is to revert back to the good old days of political economy, albeit with more analytical sophistication.
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