Paradigm Shift

New economic thinking

The wealth of thinking. Economist (and editor) Michael Jacobs explains in the Guardian the wealth of new economic thinking which can help tackle the challenges of the post-Covid era. The multiple crises we currently face “are not bugs in the economic system but inevitable outcomes of the way it is now organised,” meaning that deep economic reform is needed. The new economics, he notes, challenges much of the orthodoxy of the last 40 years.

  • Economics at a turning point? The discipline of economics has seen major challenges to the neoclassical assumptions that have long dominated policymaking. Berlin-based economist Dennis Snower explains these assumptions and why economics is close to its “Copernican moment” when the old orthodoxy is overturned. In a more academic vein J K Galbraith Economics Prize winner Mario Seccareccia called for “a paradigm shift in establishment macroeconomics” in his acceptance lecture.
  • Economics after neoliberalism. How far economics needs to, and can, overturn neoclassical assumptions has been debated between a group of economists led by Harvard’s Dani Rodrik, and critics including Alice Evans, Deborah Satz and others.
  • Unexpected voices. The President of Ireland, Michel Higgins, gave a powerful critique of economic orthodoxy in a recent speech, citing Mariana Mazzucato and Kate Raworth among others and arguing that “a paradigm shift, not reform, is urgently required”. Mark Carney, former Governor of the Bank of England, recently gave a webcast lecture at the OECD on new economic thinking, entitled Value(s): Building a Better World for All.

New economic thinking in the US? The Biden Administration has surprised many with the radicalism of its economic plans, with huge stimulus spending focused on climate change and social infrastructure, higher taxes on the rich, a “high pressure” labour market to raise wages and improve working conditions, and measures to curb the monopoly power of big corporations. In her speech “A Better Deal for Americans” US Treasury Secretary Janet Yellen has set out the Administration’s new economic approach.

New economic theory and policy. For the last decade the Institute for New Economic Thinking (INET) has been developing and publicising non-neoclassical academic and policy research. The independent website Evonomics publishes accessible summaries of and commentaries on new economic thinking.

  • … in the OECD. The OECD’s New Approaches to Economic Challenges initiative has brought some of the new economics into one of the world’s most influential economic institutions. Its report Beyond Growth provides a short summary of heterodox economics, including post-Keynesian, ecological, feminist, evolutionary and complexity economics.
  • … not just in the English-speaking world. The Berlin-based Forum for a New Economy is also exploring the idea of an economic “paradigm shift” (with papers published in English).
  • Pluralist economics. Rethinking Economics is the global student movement (plus academics and others) seeking to get more plural economics curricula into universities. Its book Rethinking Economics is an excellent introduction to the different schools of non-neoclassical economic thought. Visit our new website Resource Bank page, Changing the Paradigm, for more resources on new economic thought, and the institutions pioneering new economic policy ideas.

Weekly Updates

Fiscal policy

Investing in a resilient post-Covid-19 recovery. Building Forward, a new report from the Bennett Institute for Public Policy at the University of Cambridge, argued that “investing public funds - in people’s health and skills, and in social, natural, and physical capital - is the best way to bring about a more resilient and prosperous future, and to deliver the ‘levelling up’ agenda".

  • “A temporary rise in government debt/GDP ratio should not prevent investment”. The authors explain public investment as a fiscally responsible decision, able to ignite ‘virtuous cycles’ of productivity and growth: “In periods of high uncertainty, low confidence, and unemployed economic resources, public investments in the natural environment and local community programmes offer attractive economic returns.”

ONS moves beyond GDP? The Office for National Statistics Centre of Excellence has published a discussion paper outlining “a new wider index which is consistent with, and complementary, to GDP”. This new index will include “how the environment has been impacted by economic growth (natural capital)” and involves future plans to include “data on the investment in people’s education and learning (human capital) too”.


Which groups are losing out in the recovery? A new briefing paper from the What Works Centre for Wellbeing looked at how Covid-19 has affected inequalities in employment status and income of different ethnic groups. (Blog post summary)

“The biggest overnight cut to social security since WW2.” The Joseph Rowntree Foundation has published analysis of the impacts of the £20 per week uplift cut to Universal Credit on every Westminster constituency. It finds that 21% of all working-age families (with or without children) in Great Britain will suffer a £1,040 cut to their annual incomes, with over 400 constituencies experiencing a third of working-age families with children hit. (Twitter thread summary)

  • Social security covers half of all children in the UK. The Resolution Foundation published a new briefing note on the changing incidence of social security benefits by age, which highlighted that half of all children in the UK are in families who receive Universal Credit or tax credits: “During the recovery from the Covid-19 crisis, more families will be claiming benefits than in previous years, meaning that living standards for families are more dependent on the benefit system.” (Key graph here)

Data on low-paid jobs by local authority. The Health Foundation has mapped the proportion of jobs below two-thirds of UK median gross hourly pay for each local authority in Great Britain. Explore their interactive map here.

Work and industrial strategy

Labour shortages, regulation and ‘pinch points’. The FT’s Sarah O’Connor explains why the labour shortages seen across the economy can’t be solved without stronger regulation in the labour market and improved rights for workers: “The system shaved money off our shopping bills but it wasn’t resilient.” The jobs website Indeed has reported further growth in advertised pay for sectors experiencing rapid hiring as demand for staff outpaces supply. But the Resolution Foundation’s Torsten Bell reminded readers that the number of furloughed workers has not fallen since July, implying only localised labour shortages in specific sectors.

  • Short-term solution. Business leaders have called for a relaxation of post-Brexit visa rules to “unblock Britain’s worst supply-chain crisis since the 1970s” and increase the supply of labour in the logistics sector. In a Twitter thread Labour’s Shadow Chancellor Rachel Reeves blames the government for “neglect of our industries over the last 11 years, the Brexit deal they negotiated and their failure to plan”, particularly to collaborate with employers and trade unions.
  • Long-term solution. A more resilient labour market requires sustained wage growth and improved working conditions to attract workers to key sectors. Commenting on the election of Unite’s new General Secretary, Sharon Graham, Eve Livingston explains how a shift towards “industrial strategy over party politicking...has to be the future of the UK’s labour movement”.

Normalising shorter working time in Germany. Autonomy’s Philipp Frey compared the proposals for shorter working weeks in the German election manifestos and concluded: “it’s clear that the demand for shorter working hours has begun to unite the centre left.”

The global consensus around industrial strategy continues. The New Statesman's Jeremy Cliffe writes: "French industrial policy, once deeply unfashionable, is taking hold elsewhere as even Anglo-Saxon governments recognise the value of a strategic state in an era of pandemics, climate crisis and geopolitical competition."

Climate change

Fossil fuel lobbying. A peer-reviewed academic article traced the history of an influential group of economic consultants hired by fossil fuel companies to inflate the forecasted costs of climate policies to delay action on climate change.

  • Cost of switching to electric vehicles, debunked. John Rhys, an academic at the University of Oxford, debunked a report from the Fair Fuel APPG which opposes government policy on electric vehicles. Refuting the claim that investment in electricity generation will “bankrupt UK plc”, the author found that “simple errors in the report are easily shown to have exaggerated investment costs by a factor of up to 50 or more.”

XR targets City of London. The City of London was the focus of last week’s Extinction Rebellion protests. WWF and Greenpeace’s analysis of the UK financial sector's environmental footprint judged the City of London as the 9th biggest emitter of CO2 in the world if it were a country.

Brown QE. Central banks have powerful tools to reduce emissions, but a new report by Oil Change International has found 12 of the world's largest central banks are “all failing to align their lending, asset purchases and regulatory activities with the Paris Agreement target.” Though the Bank of England (BoE) was “partially aligned” with IPCC emission pathways, its lending, asset purchases and regulatory activities were still found “grossly inadequate to address the climate crisis”.

Local economies

Bottom-up regeneration. A new report from Power to Change recommended a “neighbourhood strategy for developing social infrastructure” rather than top-down approaches to 'levelling up’, where communities compete for centralised pots of funding. The report points to US President Biden's Community Revitalization Fund as an example of best practice which “puts communities in the lead”.

Land for housing. David Steward published a blog for the Scottish Land Commission about moving from a market-led approach to housebuilding to “one governed by the public interest”, recommending Regeneration Partnership Zones, new approaches to land value capture, the creation of a Land Agency, transparency obligations over land ownership, and more.