How the COVID-19 Pandemic Unmasks a Growing need for Economic Pluralism
One of the many ruthless lessons that the pandemic has taught us is that societies can’t go back to the dysfunctional, pre-pandemic “normal” that caused the pandemic in the first place. While disease outbreaks are very aptly biological issues, they surely translate into socio-economic concerns in consequence. As evident, the currently ongoing COVID-19 pandemic has brutally scathed global health and wellbeing, and its concomitant economic impact cannot be understated. Within India, local economies witnessed large-scale labour migrations that disrupted supply chains. Investment-heavy international collaborations were initiated to collectively combat the crisis. Nationwide lockdowns reduced economic activity significantly, and expenditure on health infrastructure and vaccine development had to be increased urgently. Over the span of a few months, there was enough economic turbulence to make a common human worry for their bread and butter.
However, women have faced a greater economic toll than men, as the effect of this crisis has not been gender-neutral. Women have fewer savings and lesser access to social protection. Existing pay gaps have widened due to pandemic-induced poverty. In India, most domestic helpers are females, who were sent back home because of the lockdowns. Even in higher-income groups, women are more likely to be burdened with unpaid care and domestic work, coercing them to drop out of the labour force.
Likewise, the poorer sections of society and those belonging to racial or ethnic minorities are hit hard by the pandemic. The socioeconomic impact has evidently been non-uniform, and hence uniformly implemented policies don’t equitably help everyone. As we probe deeper into the economics of the pandemic, the dearth of health infrastructure, medicines, and equipment has led to black marketing and hoarding in times of urgency. Government interventions attempt to control but often end up disrupting the market. It is said that politics is the limit of free markets; what’s allowed to be sold, is sold.
When things get worse, the collapse of social paradigms and economic construct is inevitable. But the failure of economic thought is no news. To an economist, it is not a surprise when price control measures disarrange the market, or when stagflation baffles the theory of Phillips curves. It is crucial to address such shortcomings of contemporary economics and look at them for what they are: Avenues for disciplinary progress. Resultant debates and discussions have facilitated the development of different schools of thought, like the Austrian School, Keynesian or the Classical, Marxist, Institutionalist, and the Schumpeterian School, to name a few. While all of them have their own merits and limitations, their heterogeneity is an indication that there is no one right way of looking at a complex economy. Given that different approaches emphasize different aspects and offer varying perspectives, knowing a range of schools and not just a handful allows us to have a fuller and more balanced understanding of the economy. This Plurality is essential as the economy affects everyone disproportionately and, in the long run, only a pluralist discipline can cope with an intricately diverse, constantly evolving world.
Economics borrows from multiple sciences, such as psychology and mathematics, and its applications work parallelly with sociology, political science, etc. It is inherently multi-disciplinary and pluralistic in its theoretical basis. But since the 1950s, economics began having an axiomatic approach with mathematically-heavy methodological formalism. While such rigour has advanced the progress in economics, it seems to have taken us farther away from the empirical roots of the discipline, and even Nobel laureates attest to this fault.
“It is a peculiar fact that the literature on economics and economic history contains so little discussion of the central institution that underlies Neoclassical economics” (Douglas North, 1977)
“…economics has become increasingly an arcane branch of mathematics rather than dealing with real world economic problems” (Milton Friedman, 1999)
The problem with such methodological fixation is that instead of observing the real world and then seeking appropriate methods for its study, economics now fixates on defining itself through its methodological approaches. Tony Lawson, the British economist and philosopher, describes the situation as follows:
“Rather than starting with a question about an aspect of social reality and determining an appropriate method, modern economists usually start with a particular type of method and presume, mistakenly, that it must be appropriate to all social contexts. The result is that, in their conceptions, modern economists end up distorting social phenomena just to render them open to treatment by their chosen approach”.
Stipulated axioms and methods cannot describe or analyze the reality of an elaborate economy, rendering the increasing axiomatisation faulty. Many argue that economics tried to imitate Newtonian Physics as it attempted to establish universally and timelessly valid assumptions, which disregards the nature of economics as a social science. Schematically describing every detail of an economy is impossible. Models truly enable us to stand back and look at the bigger picture. However, even wonderfully sophisticated mathematical models become futile when they paint an inaccurate picture of reality. Being problem-led, and not method-led is vital to economic study. Restoring pluralism then becomes necessary as openness to alternative methodologies as well as theories is conducive to a better understanding of the world.
The aim for reinvigorating pluralism is to direct the teaching and research in economics towards more openness in its approaches, topics, and the standpoints it considers. While the discipline is advancing in research, with upcoming trends such as the philosophical analysis of economic modelling and economic explanation, public policy implications of behavioural economics, and experimental economics methodologies, it still largely exhibits monism. The difference lies between tolerating diversity and embracing it. Any social science should be knowledge-driven, instead of being ideology-driven.
Another area of fault is undue emphasis on the ideas of rational choice and efficiency. Economic agents are not perfectly rational, but are rather characterised by ‘bounded rationality’. Rational decision-making is limited, and obtaining perfect information to do so, almost impossible. Often, the interests of an individual and that of society are in conflict. In these times, the rational choice for an individual need not always be the best choice. The paradox of thrift, tragedy of the commons, Game Theory, and Pareto optimality testify to it. Likewise, it is an established consensus that efficiency is always favourable. But the idea of efficiency depends on what one chooses to count. No efficiency claim is ever based on the identification of all the consequences, but only on one-time cost benefit analysis. Even rich and efficient economies have been environmentally destructive, which depletes their resources in the long run. The effect of time is seldom taken into account. If the availability of medicines, surgical equipment, and medical assistance is in question, their well-timed availability can be the difference between life and death for a large number of people, even if it is an inefficient allocation. Time as a relevant causal factor has been underemphasised, and its importance is especially highlighted during the unfortunate times of the COVID-19 pandemic we find ourselves in.
The hardships that have been caused due to the pandemic, in all respects, call for reforms in the way our society functions. Bouncing back after the pandemic will be hard, but doing it right is crucial to human civilization. Developing a new normal with better suited policies can be done only if varying standpoints are considered and apt methodologies are adopted. Pluralism is essential, as it will prepare economists and policymakers to combat many more issues relevant today, like climate emergency, human rights, and sustainable development. By reevaluating our goals and procedures, it is possible to devise better strategies to curb environmentally destructive economic growth, focus on equitable and not just efficient allocation of resources, and construct a better world for everyone. Only then will economics progress as a discipline and serve society better, by focusing not on its ideologies or methods, but on its object of study, the economy, a subset of the society.
This article has been written by Shruti Gauba, an undergraduate student of economics at Indraprastha College for Women, University of Delhi. She is keen on behavioural economics, public policy and research and has participated in and won several paper presentation events. An experimental game theory-based research paper of hers is in line for publishing. She actively reads and writes about economic issues, and ardently supports the causes of sustainability and education.
