Is there a baby in the neoclassical economics bath water?

The World Economics Association is currently holding an online conference: The economics curriculum: towards a radical reformation. I think it’s a great subject that sorely needs some serious discussion. I’ve written in the comments section on one of the papers a reply which briefly sums up my thinking on the subject. I decided to copy it here as a reminder to myself to engage more with the topic. As I say below, it’s a bit of a rant but it’s something that’s been chewing away at my brain ever since I began first year undergraduate economics. Sean Pascoe wrote a comment titled “Don’t throw the baby out with the bath water” which suggested we should keep elements of the neoclassical theoretical framework but teach a more flexible approach to its application. My reply is below.

Hi Sean,
I completely agree with you about economists working with other disciplines and with respect to economists being flexible. However, I’m curious as to which parts of the neoclassical theoretical foundations you think we should be careful not to throw out.

You say that scrapping the neoclassical framework “would leave us in a vacuum where there is nothing solid to start from”. We have the world to start from and I think that’s a lot more solid than the assumptions that underpin neoclassical economics and would be a terrific place to start building a new theoretical framework.

Economic welfare is a deeply flawed concept that more or less underpins the entire neoclassical enterprise. The efficient market hypothesis is in tatters. Even the elegant theory of supply and demand is full of holes in any real world application. Neoclassically derived monetary theory is failing to comprehend, let alone fix, the current financial woes. Trade theories of absolute and comparative advantage are farcical in a rapidly changing world and, if seriously applied, would lead economies into disasterous dead ends – particularly for developing countries.

Don’t get me wrong, I realise that grains of truth lie in many of the above but I don’t think that’s enough to suggest we should keep them as the building blocks of a theoretical framework. I believe that economics needs to become more scientific. We need to openly acknowledge the values that underpin our goals and then use a scientific approach to find the best ways to achieve those goals.

The neoclassical system buries the ideologically driven goals deep inside the theory (as assumptions about economic welfare) and then pretends that what is built on top is scientific. When data from the real world clash with the theory, instead of modifying the theory, neoclassical economists say there is something wrong with the world (ie government interference, not enough competition, too many trade barriers etc etc).

Anyway, that was a bit of a rant framed at the beginning as a question but I am genuinely interested in which parts of the neoclassical framework you think we should keep and why.

If sean posts a reply, I’ll put it here too. As I said, this is a sorely needed conversation.

When I was studying second year microeconomics I wrote a long critique of the course during exam study time and sent it to the entire class email list. It created a brief storm but had the fantastic result of linking me up with other critically thinking students who were in the course and we formed a little rebel economists reading (and support) group. Up until then we’d all thought we were alone in the wilderness. Somebody sent my rant to Steve Keen at UWS who put it on the web and posted a link to it in his blog. To be honest I’m a little embarrassed by some of the naive content now but the curriculum simply didn’t allow time for theoretical questions and discussions so coming to clear informed opinions about the content of the courses relied entirely on work done outside the formal education – a case in point.

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