The Case for a New Economics to Meet the Challenges of the 21st Century

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Political economy had its origins in a world with apparently infinite resources. One of the challenges for the 21st century is to develop a political economy that recognizes that the carrying capacity of our planet and its resources are finite. This problem is even more apparent today as the future use of nuclear energy is called into question. An economics of the 21st century will have to deal with the limits to growth imposed by nature. Neva Goodwin argues that our current approach to economics is primarily devoted to understanding how economy's work. To meet the challenges of the 21st century we will need to understand how economies can be made more adaptive and resilient to meet the challenges that we face.

One of the changes Goodwin proposes is that we must view GDP as an intermediate goal instead of a final goal. The purpose of economic activity should be well-being and not growth per se. Market systems provide many advantages but we need boundaries, rules and safeguards against the internal tendency of markets toward the concentration of power and the lack of an internal motivation to work for the public good. She is concerned that economic thinking is biased towards maintaining the status quo and against public goods. It tends to avoid concepts that cannot be assigned a dollar value. For example, the standard use of discounting puts a dollar value on future benefits that might be derived from limiting the impact of global warming below the real value. Some things, as the commercial tells us, are priceless. What is the dollar value of loses to life and property that are most likely to be affected by rising sea levels and other affects of global warming?

Goodwin, along with her colleagues at Tufts University's GDAE Institute, has developed a contextual concept for the teaching of economics in the 21st. I have been using materials from GDAE in a macroeconomics course that I am teaching at the Bainbridge Graduate Institute in the Seattle area. I believe that the contextual approach that GDAE has developed is much better suited for dealing with the challenges that we face than the typical approach which views economics in a social, political and cultural vacuum under the tacit assumption that economics is a part of nature, and not something developed within a culture. The political debates that we are witnessing today reflect different value systems and these debates will shape the economic system that we must understand in the 21st century. Hopefully, we can do it right.

The contextual approach to economics posits three spheres: the for- profit sphere, the core sphere which consists of families and communities, and the public purpose sphere composed of non-profits and government. The object of the contextual approach is to bring these spheres into greater harmony. What we are seeing today is a dominance of the for-profit sphere which has created meta-externalities of culture and politics on the core and public spheres. Our current economic crisis is the result of developments in the for-profit sector that place winning over integrity and the capture of government to limit the boundaries and rules that might bring the for-profits sector into greater harmony with the core sphere and the public good. Families and communities have been forced to deal with the loses and uncertainties that are a consequence of this dominance.The economics profession has not been helpful in developing greater harmony. Economic theory has become increasingly mathematical and obscure to a public that needs to be better informed, and its focus on internal consistency has led to the use of assumptions that achieve consistency at the expense of relevance to the real economy. Contextual economics at least has the value of relevance.