21st Century Economics

During the last decade of the 20th century, two empirical realities became of overriding concern to economists- the collapse of communism (a state-owned political system, transition fromsocialism and the failure of development planning and foreign aid programs to lift the less developed world into a position of greater freedom and prosperity. Second, as we prepare to enter the second decade of the 21st century, two other empirical realities become overriding concerns to economists- the tensions of globalization and the threat of international terrorism and the financial crisis and threat of worldwide depression.

In the 18th and 19th centuries, economics was a part of a larger discourse in political economy and moral philosophy. As the discipline self-identified with a more technical and scientific approach to economic questions in the 20th century, the scope narrowed. By 1950s, the discipline of economics was narrowed to the midpoint of an hourglass.

By the turn of 21st century, economists are once again tackling questions that could be recognized by the likes of Adam Smith and John Stuart. Amartya Sen tried to explain this shift in an intellectual focus using the language of modern economics rather than a mere imagery. To him, there is a production possibility frontier for economic research with economics as engineering on one axis and economics as philosophy on the other. During the 20th century, economics had moved towards a corner solution of economics asengineering but during the last quarter, it has once again moved away from the corner solution towards a more philosophical manner.

Since the questions have broadened once again, what can be done is to simply identify the methodological constraints that produced the transformation in the 20th century. That much said one would be blind not to see the important changes in research focus and methods of analysis that have taken place. In one sense, puzzles of collapse of communism, the transition tocapitalism and failure of development planning led to a renewed appreciation for the underlying institutional context of economic life and on the other hand, transplanting of institutions from one environment to another has proven to be a very difficult policy task. As a question of public policy, many economists saw the link between the puzzles of the 1990s and 2000s which resulted in examining of institutional assumptions and behavioral economics respectively. Many economists such as Douglas rejected the neoclassical depiction of marketeconomy while the others argued for a more sophisticated understanding of the traditional model. However, these debates shall continue.

Economics is what economists do and what they do is to build models and test those models against data sets with statistical tools. There are always exceptions to the rule but exception proves the point. Economics is no different from physics in this regard. Conservative forces areweighed against revolutionary innovations to provide discipline so that wishful conjectures in truthseeking are channeled in a productive direction.

There has not been a revolutionary shock to the methodology ofeconomics since the mid-twentieth century but there has been broadening of topics and even the emergence of new and exciting methods but the basic notion of what it means to be doing scientific economics (as standards for theory set by Paul Samuelson and the need for positive economics as said by Milton Friedman) has not changed. Methods of analysis are constantly changing and policy disputes are ongoing but the underlying methodology has yet not been challenged.

In conclusion, it can be said that so far, nothing in the 21st century practice of economics suggests that change to this self-understanding of scientific economics will come anytime soon.