Now is the time for Economics 2.0.

Economics, the way we know it must change. For 200 years and more after Adam Smith propounded the first theories of Economics, there may be a need to look beyond them. For the last 2 centuries, Economics as a science has been used to describe effort, need, productivity and transactions both at an individual and a national/global scale and this is still gaining relevance. Economic indicators have also often been the benchmark to imply societal development. It is not uncommon that a nation with higher per capita income is more developed and prosperous or the largest GDP states are the most advanced. However, in view of a few more variables today, the meanings of human/social development have become more complex than the economic constructs.

Two most important variables apart from transactional economics are:
· Effect of Climate change
· Holistic societal development

Economics discounts Climate and Environmental Factors
Widespread environmental changes will significantly alter the course of human history going forward. These changes pose clear and present danger in front of the states, citizens and their economies. Emissions and pollutant discharge are a direct function of the level of industrialization of economies. While it isn’t possible switching off the growth engines of the economy, the switch-over to environmentally safe and renewable energy sources will take another 20/30 years to take shape and have an impact. Reducing Carbon footprint is till now a very low scale exercise. Over and above this, is the debate on reduction of emissions in developed versus developing states.

Developmental economics or the present indices do not measure the impact of growth on environmental resources. Thus, the growth today can lead to environmental, climatic or socio economic risks tomorrow. The concept of GDP or economics based measurement is thus a failure in this regard.

Economics discounts parameters of Human and Societal development
Inequities within societies and states have existed forever in history, The current economics do not measure societal development parameters like pure water availability, food security, literacy and education, Infant Mortality rates and Child malnutrition and various other parameters. Economic development has been associated with resource exploitation. The best case in point is Oil, the lifeline of modern day economics.

The point of engaging economics, environment and human developmental issues is to hence build sustainability of progress and spread the fruits of development amongst people and states. There is a need to radically rethink Economics to address these grave issues.

Of Economy, Environment and Human Development: Failure of the GDP concept!

Gross Domestic product (GDP) as a progress indicator/paradigm was a part of the post 1940s era world reconstruction. Over the last 70 years GDP has become a construct for mesauring guman progress and all economic policy making is directed squarely at increasing/maximizing GDP! GDP as a part of national accounts was created by Richard Stone and James Meade with support from John Maynard Keynes as a means to keep track of the economic activity in a state.

However, the challenges faced by the world have now grown from economic/financial to environmental in nature. Then there are challenges on the human development side of things as well. Unfortunately, both the environment and the socio demographic human state is not measured as a indictator of progress. For example, the rich oil producing countries in middle east are the richest in nature and yet most parts of it have people living in the 17th century with no access to basic amenities. Likewise, China is a model for economic growth and yet its Human rights index and environment development index is amongst the poorest!

Interestingly Richard Stone, in his Nobel Memorial Speech in 1984 had himself stated that apart from economic growth, the analysis of a society's progress has to be based on socio demographic as well as the environmental phenoma. To be quoted "...environmental issues, such as poluution, land use and non renewable resources offer plenty of scope for accounting". Unfortunately, the world has continued to pay attention to the economic activity side stepping the environmental and human issues.

Given the socio demographic and environmental issues faced, the world today needs to create additional metrices such as Human Developmental Index and Carbon Footprint. There is a possibility that three metrics may not be preffered, in which case GDP has to be recaliberated to reflect genuine values to things like air and water pollution, deforestation, land degradation, use of alternate energies, health, education, crime etc. The result would be a new GDP number that would truely reflect value generated/consumed by human activities. A striking instance of how the new GDP calliberation would affect the old GDP system is the case of Uttar Pradesh. In just accounting for water quality in rivers in UP, 17.5% of the old GDP would be reduced! Imagine China going from a 11% GDP growth economy to 3% economy GDP growth economy because of the heavy inductrial pollution and bad human development indicators! US would go negative by two digit decimals!

What this would also mean is viability studies that are more rounded. For instance the economic surplus because of a new dam could get negated fully and more by the deficit in the ecological shifts and change in population demographics! That would provide an excellent allround development metric. It is time to move towarsd this sooner!