1. Introducton

New Economics is a collective term for a body of literature and thought that includes work from many recognized schools, such as Post Keynesianism. Some publications by Trustees, which embody the ideas and principles in the Trust’s objectives in developing new thinking in economics, have been collected as practical examples of such literature. There are two lists: a short selection and a more comprehensive comprehensive bibliography.

2. “New” and “Traditional” economics approaches

Traditional economics has developed an approach, which has persistently ignored the conclusions and insights of other disciplines. The new economics is more pluralistic and respectful of other disciplines. Cost-benefit analysis is formally replaced by a Multi-Criteria Analysis developed in management science and applied to sustainable development (Munda, 2005) in which socio-economic, ecological, and ethical perspectives are taken into account.

3. Uncertainty in economic systems: complexity versus equilibrium

A more flexible “new economics” modelling approach is based on the economic history of institutional structures. It emphasizes the importance of accounting and economies of specialization and allows for increasing returns to scale in the factor demand equations. In critical sectors, technology is modelled to allow for reductions in unit costs as the scale of production increases and the markets develop. Scenarios incorporating system-wide changes in technology can be developed consistently. This approach does not impose costs of policy by assumption, unlike general equilibrium, so that an alternative scenario may be less costly than business as usual, depending on the availability of unemployed resources or induced technological change.

4. Economic ethics, intergenerational equity and the discount rate

Moral philosophers have long debated the relative weighting to be given in utility theory between social groups. The Stern Review commissioned a paper on the ethics of climate change from Broome (2006). He makes uncomfortable reading for economists, partly because he insists, rightly, that economics is not ethics-free, that basing economics on the ethics of individuals assumed to be entirely self interested can go badly wrong, and that “willingness to pay” is invalid as a means of valuation (Broome, 2005). This is in direct contradiction to the analyses of Pearce et al. (1995, p. 196-7) and Nordhaus, when they contrast prescriptive with descriptive valuations of human life. In considering the ethics of climate change, Broome positions justice centre stage, arguing that those who cause climate change should cease to do so because it is unjust, and if they cannot cease, then they should compensate those who suffer.

5. Engineering and history: induced technological change

A more flexible “new economics” modelling approach is based on the economic history of institutional structures. It emphasizes the importance of accounting and economies of specialization and allows for increasing returns to scale in the factor demand equations. In critical sectors, technology is modelled to allow for reductions in unit costs as the scale of production increases and the markets develop. Scenarios incorporating system-wide changes in technology can be developed consistently. This approach does not impose costs of policy by assumption, unlike general equilibrium, so that an alternative scenario may be less costly than business as usual, depending on the availability of unemployed resources or induced technological change.

6. Social choice

Traditional economics approaches the problem of social choice by the use of the social welfare function, which is a mathematical equation, or a set of equations, in an economic model, intended to represent the social good. However, the concept is fundamentally flawed. When national governments act, it is much more likely to be ‘in the national interest’ than in any formal manner capable of being represented as a ‘criterion function’, an ‘objective function’ or a ‘social welfare function’ as some key concepts are known in general equilibrium modelling of the economy and the environment. As Arrow (1967, p. 736) remarks about Samuelson’s neoclassical treatment, ‘Whose behaviour or whose judgement is referred to in the social welfare function is never clarified.’