The year 2008 was an important one in economics: the housing market in England, the United States and other countries crashed, and many banks had to close their doors for good.
In 2008, the Queen of England asked, at a dinner at the London School of Economics, why economists did not see the financial crisis coming. Britain’s nasty recession was not foreseen by Mervyn King, governor of the Bank of England. In May 2007, he insisted, “It’s quite possible that at some point we may get an odd quarter or two of negative growth. But recession is not the central projection at all.” International organizations, the great new hope of world leaders to provide an early warning of future problems, are equally fallible. The International Monetary Fund’s spring 2007 forecast gushed at the success of the world economy. “Overall risks to the outlook seem less threatening than six months ago,” purred its World Economic Outlook, overseen by Simon Johnson, its then chief economist. Among independent economists, the record has been just as bad. The forecasts for growth compiled every month by Consensus Economics show a persistent move toward pessimism, as Wall Street and City professionals catch up with events.
Some economists have been therefore saying it was something bigger, not only a forecasting error. Something more in the direction of a deep change of the set of ideological beliefs.
Consequently, some economists have been saying it was something bigger, not only a forecasting error — something more in the direction of a deep change in the set of ideological beliefs.
The study of economics too often relied on the assumption implementing minimal regulations in financial markets would allow these markets to self-recover through, for example, supply and demand or market clearing. Apparently, this is no longer the case.
Many people have raised questions about how economics is taught at universities and used by politicians: as a narrow view of free markets, which is the correct solution to problems; as political assumptions dressed up as economics and often misused as a trump cards in arguments, for example, “we can’t increase the money supply, as it will cost jobs”; as though economics is a science. Economics is also putting people off, and economic theories and strategies are apparently not working reliably.
Today the old models might work on a microeconomic level, but definitely not on a macroeconomic level.
How should economics then be changed? Since the 2008 financial crisis, things are already changing. Economics was previously taught with perfect markets in mind. The reality is different, as imperfections must be of high importance in modern economic models. An example is the labor market. The standard view is a model of full employment. In reality, because of informational problems and international competition, there is always the risk of job losses. That means there is always involuntary unemployment in the market.
On 12 December 2017, Rethinking Economics and the New Weather Institute published “33 Theses for an Economics Reformation” to mark 500 years since the Catholic Reformation. The theses were endorsed by students and economists and nailed to the doors of the London School of Economics.
Although these 33 theses sound reasonable, as they address the global economy we live in, I believe several of these points need to be readdressed, as they do not consider a huge revolution that is starting right now: the introduction of blockchain technologies and cryptocurrencies. They exist, they work, they are global, and their implementation cannot be stopped anymore, but most important — they bring amazing benefits. One of them is digital sovereign cryptocurrencies, or cryptos as legal tender.
When countries implement such currencies, they can automatically have access to features such as
- an increase in the real-time money supply without the need for printing. It can be achieved through a simple change of a variable in a software program.
- the ability to directly take care of economic problems (for example, housing projects) without having to rely on third parties. Through smart contracts, the process can be automated and implemented in a fraction of the time.
- the streamlining of tax collection and the potential to introduce new models. For example, governments could introduce a tax coin the taxpayer buys at the end of the year to pay taxes throughout the year.
- the ability to directly issue debit cards for people in need
- easier control of, reporting on, and monitoring of money laundering; for example, reporting on funnel accounts, tax evasion, and so on
- simplified support for financially innovative projects through fully automated processes by using smart contracts
- the ability to distribute wealth without having to rely on tax income
These ideas are just the beginning. Over the coming years, we will see many fantastic ideas and projects being presented and implemented. We are living in exciting times.