A large number of discussions are being undertaken on how the fundamentals of the economies have changed owing to the pandemic with respect to structural and behavioural paradigm shifts. This change is being witnessed in the labour markets, consumption changes, rise of the digital economy and technological dominance, environmental concern, climate change and the capitalism crossroads.
Wow, so many disciplines in just one sentence. The primary purpose is to show the radical change the economies are going through, and if economics doesn’t move along, we’re going to see a huge gap between what ought to be done and what is being done. After all, who has been able to separate the people from economics, right?
The sections that follow, aim to carefully examine how this change is prompting questions on some primary assumptions of the discipline. It also aims to explore how the understanding of these changes would require some critical breakthroughs in the economic lens we use, with a shift in focus in our approach.
The fact that the global economy and capitalism are at colliding paths has become one of the primary concerns of economists around the world. Corroborating this fact has been the fact that the theme of the International Economic Association’s triennial world congress was on these lines only. The IEA’s World Congress is one of the largest gatherings of its kind.
It brings people from all over the world to discuss their research and policy issues of mutual concern and to address and debate the big economic and policy challenges of our time. To be exact, the theme of this online world congress was “Equity, sustainability and prosperity in a fractured world.” To be honest, each word in this theme is correlated with the changes we discussed upon and mentioned, and the fractured world’s notion is just the cherry on the top.
It is because while major policy decisions came under scrutiny explicitly due to the sudden fall of the burden of the pandemic on the economists’ shoulders, these paradigm shifts structurally and behaviourally have been rather implicit. The change in our environment, a behavioural shift in our work habits, and our changed viewpoint to the world’s problems have been ingrained in a tacit, yet significant manner. I mean, how did we grow so comfortable with work, shopping, and fun from home? As I said, economics and people are synonymous terms, and with change in our habits needs to come changes in the subject matter too.
Every economic crisis calls for change in the economics profession and new thinking. This was true after the global financial crisis, and it is even truer after the devastating effects of the COVID-19 pandemic on health and livelihoods around the world. We hope the world pulls out of the pandemic quickly. Greater availability of vaccines and their distribution in poor nations will be critical for that. But even with the pandemic behind us, the economic scars on labour markets in advanced nations and the reversal in developmental gains in poor countries will remain with us. And they are likely to exert a long shadow on the future, says the introductory passages of the
International Economic Association Online World Congress.
Let’s begin with the basics and see how they change the way we approach things. Digital is the new norm and we’ve all readily on-boarded ourselves with it. However, this brings with it a change in the property space. Economists estimate that the demand for retail and office spaces would likely go down with this change since people and organisations have become more open to working from home normalcy. As a result, the demand for property is to follow an upward trend, meaning a rise in the prices where they were initially low and higher where they were primarily higher. Economists refer to this as the levelling effect.
And o think beyond bounds, let’s bring into picture the impact of globalisation in the prospective picture. Because remote work describes the new normal, outsourcing is going to pick pace if things go as predicted, even despite a few hiccups. This stamen isn’t too radical to imagine because the dynamic global environment is brimming with such advances. What primarily would be the concerning factor here is the salary disparities and even tighter competition for the skilled talent pool. Therefore, it is not too hard to imagine the impact this leap would have on the global labour markets, work policies, and the political environment.
This analysis is important to underline the often forgotten assumptions that economic theory runs on, since the assumptions imposed for simplicity lead to a result that may or may not be true in the pragmatic sense any longer. To prove this idea, consider the revelation of asymmetric information proposition in economics that made quality control and product standards of the modern economic world possible.
The point here is an urge towards the need for another breakthrough in the field of economic theory that challenges one such assumption of economic theory that no longer has its essence in the practical sense, to include the radicalism of transformation the world is going through. When economics made its move towards the behavioural approach as opposed to the rational economicus ideology, the world witnessed a great set of movements towards effective public policy, and one such act would be very imperative at this changing time as well.
The behavioural shift in question is how policymakers should approach the change in perspective. This brings into spotlight the growth with less economically and environmentally wasteful resources, growth with climate change considerations and a more equitable consumption pattern. The growth in income inequality that has led to how privileges described too entirely distinct survival response between the rich and the poor is coming increasingly into question.
The lawmakers across the globe need to realise the urgency to act on it. A more exclusive and creativity inducing work environment, with a respectable amount of work and a break from the hustle culture define how the next generation would approach their work demands, and the market needs to move accordingly.
This means that moral economics that we have talked about as another discipline needs to be brought forward in the mainstream because if everybody considers their well-being in the current period, as explained by the former chief economist of the World Bank, Kaushik Basu, who takes this approach in the discipline of game theory and inculcates problem using the moral economic approach.
So, the other-regarding approach that has been coming into the highlight in recent literary works in the field has been announced as a quality that needs to be imbibed as we move forward. This is witnessed in the generational approach of the coming group and how policy makers have had to take a step in the aforementioned direction. Even though it is a small one as yet, it cannot be denied that bigger ones are just around the corner.
To conclude, let’s just say the road is going to be a long, scary and tough ride. It is because, with the above accounted instances and the need for moral and intellectual confrontation gripping out thought processes for the future, the lookout for change is growing even stronger. We, together, need to take up this confrontational challenge and set foot on our journey towards a change in the essentiality of assumptions of the economic theory and make space in it for the changing world.
Edited by Aishwarya Ingle