Economics in the 21st century

THE CRISES OF THE 21ST CENTURY DEMAND A NEW ECONOMIC UNDERSTANDING

- ATANU BISWAS Professor of statistics, Indian Statistical Institute, Kolkata

WHEN THE GLOBAL economy crept into the 21st century, it inevitably carried the wounds and inertia-as a haunting memory-of the 1990s dotcom bubble burst. But, it might be intriguing to see how the concept of economics has been reshaped to a great extent thereafter.

Well, technology changes with time, as do human needs and the nature of crises. Unfortunately, many economic ideas, like the theories that justified the wage stagnation in the US since the 1980s or the failed Washington Consensus approach to developing countries, are not appropriate to 21st-century economies, where human and natural capital are increasingly valued, and simplistic assessments of wealth, national product, growth, and human happiness are increasingly questioned due to bad economic ideas in high places. Thus, economic thought must be moulded to keep pace with these changes, adapting to new theoretical frameworks.

In his 2013 book Capital in the Twenty-First Century, French economist Thomas Piketty analysed datasets from 20 countries spanning from the 18th century to uncover a crucial economic and social framework and showed that inequality is not an accidental event but rather a structural feature of capitalism. The book argued that capitalism inherently tends towards extreme wealth inequality as inherited wealth grows faster than earned income, creating a hereditary elite class.

The 20th century was a temporary deviation from the mainstream of economics when overall inequality decreased due to world wars, strong growth, and high taxes. Without such policy interventions, the 21st-century economy is returning to 'patrimonial capitalism,' as Piketty believed, where inherited wealth prevails over entrepreneurial merit. Piketty prescribed controlling this through progressive wealth and inheritance tax.