Our Children’s Economics

Many analysts today believe that economics will not change significantly in the next 20 years, despite the flaws revealed by the recent financial crisis. This presumption is almost certainly mistaken, for it reflects the same error made by scholars of technology who argue that all of the radical breakthroughs have already been made.

TOKYO – The economics profession has not had a good crisis. Queen Elizabeth II may have expected too much when she famously asked why economists had failed to foresee the disaster, but there is a widespread sense that much of their research turned out to be irrelevant. Worse still, much of the advice proffered by economists was of little use to policymakers seeking to limit the economic and financial fallout.

Will future generations do better? One of the more interesting exercises in which I engaged at the recent World Economic Forum in Davos was a collective effort to imagine the contents of a Principles of Economics textbook in 2033. There was no dearth of ideas and topics, participants argued, that existing textbooks neglected, and that should receive more attention two decades from now.

Economists working on the border of economics and psychology, for example, argued that behavioral finance, in which human foibles are brought to bear to explain the failure of the so-called efficient markets hypothesis, would be given more prominence. Economic historians, meanwhile, argued that future textbooks would embed analysis of recent experience in the longer-term historical record. Among other things, this would allow economists-in-training to take the evolution of economic institutions more seriously.

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