Joseph Stiglitz in the Financial Times on the Need for a New Economic Paradigm

Joseph Stiglitz, noted economist, Nobel Laureate and Institute advisor, had a letter
published in the Financial Times yesterday. In it, he noted the need
for new ways of thinking about economics, and how this can be achieved.

The need for a new economic paradigm, and how to go about realizing this, is core to the Institute’s mission. Many in our network believe that the old paradigm of economic thought has led us astray, and to some extent led to the financial crash of 2008.

Joe Stiglitz made the case better than anyone in his letter to the Financial Times. In trying to determine who was responsible for one of the worst economic collapses since the Great Depression, he writes “the economics profession bears more than a little culpability. It provided the models that gave comfort to regulators that markets could be self-regulated, that they were efficient and self-correcting.”

“Bad models,” he continues, “lead to bad policy.”

Stiglitz also notes that beyond the models, some underlying assumptions of economic theory, such as Adam Smith’s invisible hand and the efficiency of markets, might have to be addressed. “Even the sacrosanct assumption of rationality has been attacked,” he notes, and “there are systemic deviations from rationality and consequences for macroeconomic behavior that need to be explored.”

However, Stiglitz makes it clear that not all is lost: “a new paradigm, I believe, is within our grasp,” he writes, “the intellectual building blocks are there and the Institute for New Economic Thinking is providing a framework for bringing the diverse group of scholars striving to create this new paradigm together.”