US President Joe Biden’s administration has embarked on a bold and long-overdue departure from the economic policy orthodoxy that has prevailed in the US and much of the West since the 1980s. But those who are seeking a new economic paradigm should be careful what they wish for.
The paradigm change
The needed paradigm change might usefully start with how we teach economics. Economists tend to be enamored of the power of markets to promote overall economic prosperity. Adam Smith’s invisible hand – the idea that self-interested individuals seeking only their personal enrichment might produce collective prosperity instead of social chaos – is one of the crown jewels of the economics profession. It also remains deeply counterintuitive, which is perhaps why economists devote an inordinate amount of time proselytizing about the magic of markets.
But economics is not a paean to free markets. In fact, much of economics instruction focuses on how markets may produce too much inequality, and how they fail on their own terms of allocating resources efficiently. Perfectly competitive markets that harmoniously produce stable equilibria are only one possibility among many. The Smithian model is not the only one. Still, the knee-jerk reaction of many economists is to treat well-functioning, competitive markets as the relevant benchmark for any proposed departure from laissez-faire.
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Such a new paradigm for teaching and doing economics will produce better understanding of social outcomes. But we should recognize that it will not produce a new paradigm for economic policy. And that is as it should be.
All of our previous policy paradigms – whether mercantilist, classical liberal, Keynesian, social-democratic, ordoliberal, or neoliberal – had important blind spots because they were conceived as universal programs that could be applied everywhere and at all times. Inevitably, each paradigm’s blind spots overshadowed the innovations it brought to how we think about economic governance. The result was overreach and pendular swings between excessive optimism and pessimism about government’s role in the economy.
Fortunately, a new paradigm for teaching economics does exist. The CORE Project is an online teaching tool and free, open-access textbook. Two leading economists, Samuel Bowles of the Santa Fe Institute and Wendy Carlin of University College London, are the visionaries behind it. But a large group of economists worldwide has collaborated in its development. Already, it is in use in a majority of university economics departments in the United Kingdom.
A key advantage of the CORE approach is that it tackles issues like inequality and climate change head-on. But the pedagogically more interesting move is that it replaces the standard benchmarks of economics with alternative benchmarks that are more realistic and useful. For example, in contrast to conventional economics, CORE assumes that individuals are pro-social and myopic, rather than selfish and far-sighted. Competition is imperfect, with winner-take-all characteristics, rather than perfect. Power is ever-present in the form of principal-agent relationships in labor and credit markets, instead of being treated as either diffuse or exogenous. Economic rents are ubiquitous and often required for well-functioning economies, not rare or the result of policy error.
Mostly Economics 
Such a new paradigm for teaching and doing economics will produce better understanding of social outcomes. But we should recognize that it will not produce a new paradigm for economic policy. And that is as it should be.
All of our previous policy paradigms – whether mercantilist, classical liberal, Keynesian, social-democratic, ordoliberal, or neoliberal – had important blind spots because they were conceived as universal programs that could be applied everywhere and at all times. Inevitably, each paradigm’s blind spots overshadowed the innovations it brought to how we think about economic governance. The result was overreach and pendular swings between excessive optimism and pessimism about government’s role in the economy.
Fortunately, a new paradigm for teaching economics does exist. The CORE Project is an online teaching tool and free, open-access textbook. Two leading economists, Samuel Bowles of the Santa Fe Institute and Wendy Carlin of University College London, are the visionaries behind it. But a large group of economists worldwide has collaborated in its development. Already, it is in use in a majority of university economics departments in the United Kingdom.
A key advantage of the CORE approach is that it tackles issues like inequality and climate change head-on. But the pedagogically more interesting move is that it replaces the standard benchmarks of economics with alternative benchmarks that are more realistic and useful. For example, in contrast to conventional economics, CORE assumes that individuals are pro-social and myopic, rather than selfish and far-sighted. Competition is imperfect, with winner-take-all characteristics, rather than perfect. Power is ever-present in the form of principal-agent relationships in labor and credit markets, instead of being treated as either diffuse or exogenous. Economic rents are ubiquitous and often required for well-functioning economies, not rare or the result of policy error.