Whilst attending a conference in the 1990s, I was struck by the fact that almost every presenter used the word ‘paradigm’ and the need to rethink ways of doing things. This was a time of change and there was a perceived threat from the Far East, particularly Japan.

Even though the word paradigm has been around for some time – it can be traced to third century Greece – its more recent use came about because of the publication of The Structure of Scientific Revolution by Thomas Kuhn in 1962.

Kuhn argued that even science needs to alter its thinking from time-to-time and that solutions will only emerge when there is willingness to alter the perceived wisdom; the existing paradigm. He explained that the progress of developing scientific knowledge was one of discontinuities during which normality’ were interspersed with ‘revolution’.

During periods of normality, the community have a shared intellectual framework (paradigm) and knowledge is accumulated in an incremental way. However, periods of revolution, caused by inconsistencies and anomalies, requires the need to alter accepted thinking. Kuhn believed that revolution stimulated new ways of thinking and provided radical opportunities for solutions which were a catalyst for novel research.

What does this tell us about the current world in which we operate; most especially with respect to economic theory? Given the crisis we are currently in maybe, as Kuhn recommended, we need some radical and revolutionary thinking that will create a paradigm shift.

According to the Office for National Statistics there was a £600 million gap between spending and revenue in July compared to a £2.8 billion surplus last year.

Many commentators argue that the economic paradigm this country is pursuing is not doing what is required; the anomaly in increasing employment aside. There is an increasing view that economic policy based on cuts is making matters much worse than and is severely undermining the chances of recovery. There is an increasing belief that we need to reconsider economic theory to ensure that we do not repeat past mistakes.

Take the Latin American debt of the 1980s for instance. Many believe it provides good experience for what may happen in the Eurozone. Then ‘reckless’ lending by banks was the cause, as it was more recently. Many countries need to be ‘bailed out’ by the IMF.

Draconian conditions the IMF imposed were considered necessary to avoid ‘moral hazard’ by which leniency to governments in debt would encourage them to borrow more. However, the consequence of stringent conditions was a lost decade of high employment, reduced output and greatly increased poverty. For example, Mexico’s economy collapsed.

It became apparent that squeezing bankrupt countries was counter-productive and that relaxation through ‘debt amnesties’ should be tried. Contrary to perceived wisdom, these did not cause the predicted problems.

We need a new way to understand finance, with resonance to The Structure of Scientific Revolution, a new paradigm for understanding economic theory.