Economics was once viewed as the most valuable intellectual training for determining the health of the world’s financial system, now those truths are being challenged by hard to predict leaders and nations. After the Cold War, economics rose to the top of the sciences and was seen as a powerful force “that could make and unmake nations,” according to Fareed Zakaria in his essay, The End of Economics? So, what’s changed?
Fareed said, “modern-day economics had been built on certain assumptions: that countries, companies, and people seek to maximize their income above all else, that human beings are rational actors, and that the system works efficiently.” However, he concludes behavioral economics showed that markets, people, and even nations don’t always behave rationally, he says, “As we try to understand the world of the next three decades, we will desperately need economics but also political science, sociology, psychology, and perhaps even literature and philosophy.”
Fast Moving Example
The recent crisis in Syria is showing the world’s economist how a vacuum can be filled and thus change the dynamics of an entire economic region. The race for control of northeast Syria is now a struggle between Turkey and Russia, writes Aaron Stein in Foreign Affairs. Turkey wants to contain Kurdish militias; Russia wants them to submit to Assad-regime control. Stein argues that Washington is also playing a part in the shift. President Trump’s call for a 20-mile “safe zone” came of pressure from Turkish President Recep Tayyip Erdogan. He concludes this implies a weakened hand by the US and a pullout in the region.
A war in Syria has effectively destabilized parts of the interconnected global economy and may have exposed a weak spot in the United States on an international scale. This could not have easily been foreseen even just a decade or so ago.
The Future of Economics
Even a decade removed from the 2008 crash troubling trends are emerging once again. A day after the IMF modestly downgraded global growth forecasts, IMF Managing Director Christine Lagarde writes in Foreign Policy that post-crash banking reforms remain “untested” and warns against “pressure” to roll them back. That pressure has been steady in the US, where Republicans have lambasted Dodd-Frank. However, she also wrote that global risk doesn’t just depend on banking reforms, but on political cooperation. She also highlighted “public-good problems, including the environment and refugees” as factors.
Chinese President Xi Jinping recently said the “unpredictable international developments and a complicated and sensitive external environment,” are putting global economic powers at risk. China is facing a specific threat right now in light of President Trump’s trade war. The trade war could not have been predicted just 3 or 4 years ago but has hit Chinese high-tech production, all the same.
In Europe, Brexit and US isolationism are causing uncertainty. France and Germany have renewed their vows as Europe’s so-called “engine” with a treaty to cooperate on EU and UN issues and deepen ties with an “economic zone.” But both leaders, French President Emmanuel Macron and German Chancellor Angela Merkel, have been weakened by domestic populism.
Africa is moving closer to Russia. The continent had leaned on Chinese economic expansion, but Russia is making strides according to the Financial Times reports. How is it getting in the door? By selling arms and offering a potential military presence.
While economics remains a vital discipline and one of the most powerful ways we have to understand the world, it’s clear the universal science can be thrown off kilter by events that are hard or even impossible to predict.
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