For Hayek, a market was a personal voyage of discovery. Malthus once told Ricardo to be wary of becoming too attached to abstract ways of thinking. Keynes believed in “animal spirits.” Schumpeter sensed a brutal dynamic of “creative destruction” at the heart of capitalism. Heilbroner sternly warned economists to abandon their “suicidal formalism” if they wanted to progress … but such crunchy, philosophical insights into the soul of economics have largely been lost on the last few generations of its practitioners. For 50 years they’ve been rationalizing human behavior, sanitizing their models and trying their best to turn economics into a mathematically driven exact science like physics.
Now the old guard is under attack by students and scientists from other disciplines for its profound disconnect from reality. The logic freaks of neoclassical economics are in retreat … the old certitudes are crumbling. Economists are being forced to admit that their understanding of nonlinear, real-world systems is frail at best and that their abstract models have limited value. Everything, from banking, financial regulation and credit, right down to the bedrock fundamentals – growth, freedom, happiness, progress – are now being rethought. The profession is entering an almost Nietzschean period of creative destruction. Here are some of the tectonic mindshifts now underway:
• A theoretical shift from free market back to Keynesian economics. The idea that governments should step aside and let markets regulate themselves has been publicly, viscerally discredited.
• An aesthetic shift in the tone, style and spirit of economics. The abstract number cruncher, alone in his tower, lost in the abstraction of models – that dusty Apollonian archetype – is dead.
• An operational shift: After years of self-imposed isolation, economists are finding inspiration in psychology, environmental science, design, philosophy and art.
• An existential shift: Before last year’s meltdown it was considered heresy to question the wisdom of growth. Now economists are coming out of the closet and doing exactly that: openly proclaiming infinite growth cannot be sustained on a finite planet. This is the most far-reaching, penetrating paradigm shift imaginable – a monumental mindshift on par with what Einstein’s relativity did to physics. It points to what is perhaps the most exciting and intractable problem of our time: how to create a sustainble economy that does not feed off nature. It heralds the beginning of a debate that will occupy the best minds on the planet for centuries to come: How to manage our planetary household – how to live and be happy – without crashing Gaia?