Question

What are the crucial anomalies in mainstream economics today, i.e., what economic behavior does mainstream economics fail to explain well? b. How will your new paradigm do a better job explaining these anomalies? c. What are the central assumptions in your new paradigm and how do they differ from mainstream economics today?

Answer 1

a.

Mainstream economics main principle is rationality. This means to maximize utility (coming from consumption of individuals) and profits of firms.

Externalities (doing something bad for others while moving towards the goal) are addressed only in special studies (like public finance). Morality and altruism are not addressed at all, although in the time of Adam Smith morality was addressed.

There are rights about environment, but there is environmental economics, although different from the mainstream. Indeed the value of natural resources is important, and not all of them have market value because of low accessibility (like Amazon rainforest).

Worse than that, there are some actions for which I cannot see rational explanations. Take as an example killing a lion in zoo and showing it to visitors. Lion probably had a value, it is scarce animal, not all zoos have it and it could have been sold. If not, there was an option to move it back to nature somewhere in Africa. For example, the zoo of Vienna has panda, and all their babies have to be returned to nature in China after they reach 2 years.

Mainstream economics is not capable of accounting for the value of ecosystem services: a forest is valued only if it is logged for timber. Nor does mainstream economics consider the value of voluntary services such as caring for older relatives, persons with disabilities or social services. Crime and sickness can be positive ad they allow for the movement of money.

Because important resources are not accounted for in national accounts, the governments do not allocate sufficient funds and opportunities for their maintenance. When measuring the progress through GDP, preventing crime or controlling smoking might not sound sensible.

To summarize, mainstream economics has limited applicability (invisible hand works only if we have no externalities), while moral issues and interaction with nature are not addressed. But real practice may be sometimes even not rational from the viewpoint of mainstream economics.

b. Scientific paradigms:

it is useful to know a little about the work of Thomas Kuhn and the concept of scientific paradigms. Kuhn wrote about science; he wanted to understand how science changed.

Through detailed historical study, he concluded that the standard account of the scientific method - where scientists formulated hypotheses and then set about trying to falsify them through experiments - was wrong.

An Occupy Wall Street protester. Flickr/ David Shankbone

Instead, Kuhn argued scientific research is governed by “paradigms”.

These are the deep underlying assumptions of a branch of scientific knowledge at any particular time. For example, one could speak of a Darwinian paradigm within evolutionary biology.

Paradigms structure the everyday activities of scientists: what Kuhn called “normal science”. A paradigm determines what counts as legitimate knowledge within a scientific discipline.

Neoclassical thinking

Modern economics is governed by a paradigm: the neoclassical paradigm.

Neoclassical economics begins with the propositions that the economy is comprised of rational self-interested individuals (consumers and firms) who maximise their utility through voluntary exchanges in markets which, when free from external interferences, produce an efficient equilibrium.

While the paradigm has developed in sophistication since the 1870s, these central propositions remain at its core. Most of the winners of the Nobel Prize have come from the neoclassical paradigm.

This dominant neoclassical paradigm defines what counts as economics, and who counts as an economist. Anyone not sharing these assumptions is often deemed not to be an economist.

Because they don’t conform to the principles of the ruling paradigm, they find it difficult to get published in leading economic journals and to get recognised within the academy.

The problem is there are many scholars who study the economy, and who consider themselves economists, yet whose work is not considered legitimate by those working within the neoclassical paradigm.

c)

None of this is to deny that Nobel winners have made useful insights. Rather it is to highlight the narrowness of the criteria for the award itself. It necessarily discounts many valuable insights into the nature and dynamics of capitalist economies.

Does this matter? Only if relevance matters. Consider this – Marxist economists understand crises as inherent, recurring elements of capitalist economies.

Several Marxists argued that the most recent economic boom was based upon unsustainable dynamics and would likely end in crisis. Very few neoclassical economists took this view.

We now know who was right. Yet no Marxist economist has ever been awarded the Nobel Prize in Economics. Nor are they likely to be, so long as the neoclassical paradigm continues to define what counts as economic science.