The Philosophy of Economics: The Institute Kicks Off Event in China

Economic theories that have been predominant over the past few decades have broken down, and we now have to start creating a new economics that reflects the realities of today.

The Institute for New Economic Thinking and China’s Tsinghua University today kicked off their seminar in Shenzhen, China, called “The Good Life: The Challenges of Progress in China.” The event started with an engaging dinner panel discussion on the philosophical aspects of economics.

In his welcoming address, Yongxin Tao, vice president of China International Trade Promotion for the Shenzhen Municipal Committee, paraphrased the late Nobel Prize-winning economist Ronald Coase, reminding the audience that, “China’s struggle is the struggle of the human race.” Considering the state of the global economy and the question of whether China is ready to help lead the world on a new path, Tao’s statement was a poignant reminder of the challenges we face.

Tao was followed by Institute for New Economic president Rob Johnson, who moderated the keynote panel featuring Nobel laureate Robert Engle of New York University’s Stern School of Business. The other panelists were Wanda Guo, vice president of the China Development Institute of Shenzhen, andAnatole Kaletsky, who is Institute for New Economic Thinking chairman, a Reuters columnist, and co-chairman of GaveKal Dragonomics. Johnson set the tone for the conversation by stating that the goal of the conference was to address the elements and mechanisms needed to create “the good life” and how society can achieve it.

Engle focused his presentation on the notion of risk and the ways that people, companies, and governments handle the systemic risk built into the economic system. Risk is necessary for markets to work, Engle noted, but if that risk is not properly contained it can destroy entire economies. For China, Engle believes that managing risk comes down to the way the government allocates capital and the way it regulates the country’s financial markets.

Guo came next, delivering an animated talk about China’s need to pursue development and allow for experimentation as the country grows. Guo urged China to focus not on finding perfection in growth, which is illusory, and to try instead to understand imperfection and allow for mistakes to happen. In this way, Guo said, China will be able to satisfy the needs of its people by tackling the seemingly intractable problems of poverty and satisfying the nation’s demand for further development.

Kaletsky then followed with a discussion of the economic lessons from the most recent financial crisis. He said that the meltdown revealed that economics provided no theories to help us understand what had happened or what our next step should be. This failure has resulted in questions about the role of economic policy and the proper division of macro and microeconomics. Kaletsky urged society to recognize the imperfections in current economic theories and to go beyond traditional thought to come up with new ways of thinking about economies.

Johnson closed the evening by noting that the economic theories that have been predominant over the past few decades have broken down, and we now have to start creating a new economics that reflects the realities of today. He punctuated his remarks with a poignant quote from quote Bob Dylan, saying, “I accept chaos; I’m not sure whether it accepts me.” He then thanked the audience and promised more engrossing conversations tomorrow.

Stay tuned for more from tomorrow’s main event.