World Economy at the Crossroads

World Economy at the Crossroads

World Economy at the Crossroads

World Economy at the Crossroads

Synopsis

At the close of the 20th century, the world economy is at a crossroads. After the increase in both inflation and unemployment in the 1970s, the postwar economic paradigm based on the supposed trade-off between unemployment and inflation collapsed, sending shock waves through much of the economics profession and stimulating the search for a new paradigm. That search continues. This study examines the critical issues underlying the search for a new paradigm and outlines the new global political economy that seems to be emerging and replacing the old policy consensus.

Excerpt

Consider the concern in the economics profession and elsewhere on the apparent collapse of the postwar paradigm. The paradigm apparently foundered on the supposed trade-off between unemployment and inflation.

The increase in both inflation and unemployment as a result of policy manipulation blessed by the paradigm produced consternation in the 1970s and 1980s and search for a substitute paradigm. In the closing years of the twentieth century, the world economy is at a crossroads and the paradigm search continues. This study examines the critical issues underlying this search and the new global political economy that seems to be emerging and replacing the old policy consensus.

The challenge for economists and others is to articulate what in their view constitutes a new paradigm that recognizes the rapid transformation in the late-twentieth-century economy. Not everyone agrees that economics has undergone a Kuhnian paradigm shift. Indeed, the basic paradigm in economics remains as received from Adam Smith more than two hundred years ago. Unlike the case in the physical sciences, the economist's fundamental way of viewing the world remains unchanged. Smith's postulate of the maximizing individual in a relatively free market remains the basic paradigm.

This paradigm can take into account the rapidly growing groups of knowledge workers, who earn their living with their minds, not their . . .

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