Excerpt

The future of economics and the future of complexity economics are one and the same. The economics of the future will be inexorably driven toward complexity economics. 

This transition needs to happen as fast as possible in order to create tools that can help guide us through the crises that the world faces. As I write, we are in the grips of the most economically devastating pandemic since the Black Death in the Middle Ages. For example, in Britain, where I live, economic activity decreased by an astounding 23.4 percent in the second quarter of 2020. Unemployment in the US soared to almost 15 percent in April and remains at the high level of about 8 percent. The depth of the long-term damage to the economy that will be caused by the pandemic remains to be seen, but there is no question that it is significant, and it seems likely that the after-effects will linger for some time. 

In these times, I shouldn’t need to convince anyone how important economics is to our well-being. With better economic models, we could do a better job of guiding ourselves through crises like this one. The COVID-19 pandemic is just one of several big problems facing the world, including climate change, inequality, and financial crises.

Like an immense tsunami that is rolling toward us, climate change looms on the horizon and presents a far bigger problem than COVID. While climate change manifests itself as a physical phenomenon, it is important to bear in mind that it is caused by the economy. To mitigate climate change, we urgently need to rewire our economy to reduce carbon emissions to net zero as soon as possible. This means completely changing our energy infrastructure, which will in turn require major shifts in the complex supply chains that support it. These changes will reach deeply into the structure of the economy itself.

Inequality is ripping apart the fabric of society in many countries, particularly in the US and the UK. Although the problem has been building for the last fifty years, COVID is unfortunately making it much worse. The political divide that currently cripples the US government is caused at least in part by this widening chasm. We need to fix this as quickly as we can.

The aftermath of COVID threatens to cause yet another financial crisis. The damage to the real economy has put stress on businesses and households that is likely to be transmitted to banks and other financial institutions. This could reverberate back to the real economy, causing a feedback loop with the potential to deepen and prolong the damage for a long time to come.

Mainstream economics has not provided adequate guidance to solve these problems. Even worse, there are good arguments that it has contributed to creating them. A good example is neoliberalism, which has provided rationales for lowering taxes on the rich, dissolving labor unions, and other policies that have fostered the development of rampant inequality. Despite the fact that it is based on idealized arguments with little empirical support, its adherents have won numerous Nobel Prizes. Even if most economists are not neoliberals—indeed, most modern economists argue against it—the mere existence of these prizes calls into question the judgment of the profession.

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