Outdated economists are failing us

last updated 8 January 2015

Bill Davidow

TheAtlantic.com

Our economic theories have become as obsolete as travel agents and brick-and-mortar bookstores, said Bill Davidow. Most economists still cling to ideas that no longer hold true in our “overconnected world.” Adam Smith’s “invisible hand” was a brilliant guide to our economic actions when markets were local and communities “policed unsavory behavior”—a banker naturally hesitates to evict an indebted neighbor if he has to see him at church on Sunday. But that model fails when, as today, bankers pass off the costs of bad loans and never once have to “look the bankrupt person in the eye.” Similarly, John Maynard Keynes’s idea of priming the pump made perfect sense in an earlier era. Government spending stimulated demand and created local jobs, and when those workers spent their paychecks, more jobs were created. But today, the jobs and the wages all trickle off to China. It’s high time that economists came up with some new ideas better suited to the world as it is today. We can’t find a safe course forward with advice “based on a great deal of theory that was right then and wrong now.”