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In June 2007, Jean-Philippe Cotis, the chief economist of the Organisation for Economic Cooperation and Development, declared that 2008 was going to be a great year.

The economic situation was 鈥渂etter than what we have experienced in years鈥�, he wrote, and the central forecast of the OECD, representing the world鈥檚 38 wealthiest countries, 鈥渞emains indeed quite benign鈥�. He tipped 鈥渁 soft landing鈥� in the United States and 鈥渟ustained growth鈥� in OECD economies, with 鈥渟trong job creation and falling unemployment鈥�.

That forecast 鈥� relying on the OECD鈥檚 鈥渟tate of the art鈥� economic model 鈥� proved, of course, to be spectacularly wrong. In 2008 the global financial crisis hit, the worst economic shock since the great depression.

Many critics, including myself, were not surprised. These 鈥渄ynamic stochastic general equilibrium鈥� models make assumptions that even died-in-the-wool mainstream economists can鈥檛 stomach. In 2010 the Nobel laureate Robert Solow told the US Congress they 鈥渄id not pass the smell test鈥�.

The OECD鈥檚 then secretary-general, Jos茅 脕ngel Gurr铆a, took this failure of conventional economics to heart. In 2012 he established an internal think tank called New Approaches to Economic Challenges (NAEC) to explore new ways to analyse and manage the economy. He deliberately set it up outside the OECD鈥檚 economics department so it could be free to consider ideas that mainstream economics ignored.

NAEC was a breath of fresh air in the normally stale world of economic policy debate. It heard from all manner of researchers 鈥� anthropologists, neuroscientists, physicists and engineers, as well as mainstream and non-mainstream economists 鈥� who used techniques mainstream economics remained resistant to, even after its obvious failures.

Those of us who worked with NAEC or spoke at its public seminars enjoyed the freedom to think and talk outside the mainstream economic box. I spoke at several seminars, including on climate change and financial crises.

That came to an end with Gurr铆a鈥檚 successor, Australian Mathias Cormann.

Cormann, who took over as OECD secretary-general in June 2021, had been Australia鈥檚 finance minister from 2013 to 2020 under the the centre-right Coalition government. He had a reputation as an 鈥渆conomic dry鈥�, and someone who trusted the advice of economists.

One of his first actions at the OECD was to move the NAEC unit into the economics department. He also terminated the think tank鈥檚 regular public seminars, restricting them to the OECD鈥檚 ambassadors (one from each of its 38 member countries).

I and many other leading academics 鈥� including Nobel prizewinner Joe Stiglitz and Stephanie Kelton, the best-selling author of The Deficit Myth 鈥� felt this was a classic case of 鈥渋f it ain鈥檛 broke, don鈥檛 fix it!鈥�

We need new economic thinking for today鈥檚 many new challenges, because the record of mainstream economists on these issues is frequently terrible.

Take, for example, the work of William Nordhaus, who won the 2018 Nobel economics prize for his work on climate change. He assumed manufacturing, services and finance won鈥檛 be affected by global warming because they happen in 鈥渃arefully controlled environments鈥� 鈥� otherwise known as indoors. (I鈥檝e written about this and the appallingly bad neoclassical economics of climate change in the journal Globalizations.)

We鈥檙e even facing problems that 鈥渃onventional鈥� economics is meant to understand, but which mainstream economists themselves admit they鈥檙e confused by.

For example, Nobel laureate and New York Times columnist Paul Krugman wrote last week that he had underestimated the persistence of inflation, while also suggesting the US Federal Reserve was overreacting with its interest rate rises, which he said 鈥渨ill surely cause a major economic slowdown, quite possibly a recession鈥�.

If economists can鈥檛 work out what to do with conventional economic problems, how likely are they to know what to do with unconventional ones such as climate change or the energy crisis facing Europe?

If ever out-of-the-box economic thinking was needed, it鈥檚 now.

In January we wrote to Cormann asking him to reverse his NAEC decision. Our letter said:

"As academic and professional economists, we know that economic orthodoxy can be wrong. The history of economics and economic policy is one in which certain theoretical frameworks and policy approaches frequently become orthodox, and then are later superseded. This is often because the empirical evidence changes; sometimes because rival theories come to be more convincing; in some cases both. In these circumstances it is important that an organisation providing advice to governments, like the OECD, is at the forefront, not just of the present orthodoxy, but of competing views, theoretical frameworks and policy approaches."

We got no acknowledgement, let alone a reply.

Therefore we decided to publish an an open letter to Cormann on September 27. I鈥檓 happy to report Cormann has already replied to this letter. Noisy diplomacy works.

His response defends moving NAEC inside the OECD鈥檚 economics department (a decision with which we still respectfully disagree), but he also promises to invite past contributors to NAEC鈥檚 public seminars to a discussion on NAEC鈥檚 future work.

I look forward to receiving my invitation.

This article was first published in 听on 4听October 2022.

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