‘Markets know best’ and other 20th century economic theories are harming the world

“There is nothing as practical as a good theory,” social psychologist Kurt Lewin wrote in 1951 in his book, Field Theory in Social Science. His point was that a sound theory is not an abstract luxury. A good theory helps understand how things work, predict outcomes and design effective action. It is intensely practical because it guides better decisions.

The corollary of Lewin’s theory is, of course, that there is nothing more impractical than a bad theory.

Recent developments have challenged the validity of economists’ theories that have guided economic policies in the last 30 years. The theory that free trade across borders will make the world a better place for everyone is in a shambles, what with the geopolitical trade war started by the United States started and the collapse of the World Trade Organisation.

Theories that financial markets know best and should not be regulated, and that technological innovation, if left free, will find solutions for all the problems of the world are no longer tenable.

Rapid developments in the field of artificial intelligence, controlled by private, insufficiently regulated US companies, are threatening the security of all nations – including the US.

Economics science is a very young science compared with other sciences. It became a distinct field, separated from...

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