Monday, May 26, 2008

The Future of Economics?

What does the future hold for economics? What are the issues which economics will need to face in the coming decades?

Global Poverty.

Despite decades of effort, global poverty seems as intractable as ever. In some countries progress has been made. But, in other countries, especially sub saharan Africa and parts of Asia, people are still dying from malnutrition and preventable diseases. How can increasing affluence in the West be compatible with the extent of poverty that still exists? The problem remains - how to effectively deal with poverty. Does Aid help or hinder? To what extent can the West actually help reduce poverty in other countries?

Environment.

It is difficult to predict changes in the environment. However, there is a consensus that the world is hotting up. If the increase in world temperature continues, it could lead to serious economic problems such as shortage of arable land, shortage of water, migration of people. Can free market economies effectively deal with the externalities of growth? Are we actually willing to take painful measures necessary to deal with the environment?

A Future Without Oil?

It is assumed / hoped that a rise in the price of oil would lead to the development of alternatives. However, alternatives to oil have proved less satisfactory than many hoped. Bio fuels are becoming increasingly contentious in an era of rising food prices. Will economies be able to cope with a situation of rapidly rising oil prices. Can free markets effectively deal with growing shortages of commodities or is this a classic example of market failure. - where the solution will come too late. (finding alternatives to oil)

What is the Objective of Society?

Classical Economics assumes a rather simple objective of profit maximisation and increase output. But, as the environment deteriorates, maybe economics needs to be reoriented away from considering simple financial maximisation. Instead, increases in living standards should be the only objective. However, living standards, which include many more variables other than GDP, are more difficult to evaluate and measure. Economics may have to give increasing importance to normative opinions rather than positive views (positive economics deals with observable facts like GDP per capita).

Will Technology Solve Our Problems?

It is easy to think of the future and see all the problems - environment, global warming, overpopulation, shortage of commodities, rising inequality. However, it is possible to consider an optimistic view. If we consider the potential technological improvements, many of these problems could be solved. In the past we have usually underestimated the potential for future technological innovations. 100 years ago, who could have predicted modern technology would have evolved as it has? The next couple of decades could potentially see technological innovations which will solve our energy needs without a cost to the environment.

To What Extent Can Countries Work Together?

The issue of global warming highlights the importance of countries working together. There is a classic free rider problem to reduce emissions. Everyone wants other countries to reduce their emissions, but, are less keen on reducing their output. Is it possible for the development of a world government / world body with sufficient respect to negotiate and enforce treaties such as Kyoto?

What do you think will happen to future of economics? I would be interested to hear any views from our readers.

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