“There is a great difference between studying how people actually behave and positing how they should behave. When we wish to know how and why people behave as they do, we turn to behavioral economics, anthropology, sociology, political science, neurobiology, business studies and evolutionary theory. We discover that evolutionary roots, cultural heritages, hierarchical structures, and personal histories all influence our behavior: we are socially constructed beings, within the limits of our evolutionary heritage. There is a large body of evidence which shows that we do not consistently order preferences, we are poor judges of probabilities, we do not address risk in a “rational” manner, we regularly commit a wide variety of reasoning errors, and we generally base our behavior on habits and rules of thumb. In the end, we are not “noble in reason, not infinite in faculty.” On the contrary, we are “rather weak in apprehension…[and subject to] forces we largely fail to comprehend”. And as any advertiser could tell us, our preferences are easily manipulated, our responses quite predictable.
Despite all of this evidence, neoclassical economics stubbornly insists on portraying individuals as egoistic calculating machines, noble in reason, infinite in faculty, and largely immune to outside influences. The introduction of risk, uncertainty and information costs changes the constraints faced but not the basic model of behavior. I will call this the doctrine of “hyper-rationality” so as to distinguish it from a more general notion of “rationality”, which refers to the belief or principle that actions or opinions should be based on reason. The point here is to avoid the neoclassical habit of portraying hyper-rationality as perfect and actual behavior as imperfect. It is a topsy-turvy world indeed when all that is real is deemed irrational.
The question is not whether economic incentives matter, but rather how they matter.”
Anwar Shaikh (2016), Capitalism – Competition, Conflict, Crises, Oxford University Press, p.78-9.
Development economist Ha-Joon Chang here discusses a range of issues, including the nature of development, industrial policy, the role of government, political economy, and the teaching of economics.
“…[I]t is tempting to leave economics to the experts, particularly as this is part of the dominant political culture of the twentieth century, but in this case we cannot afford to. We are being sold short because the very knowledge and skills we need to address the great challenges humanity faces in the twenty-first century have been systematically left out of the education of those who go on to run our economy…as a society this binds us in a mental straightjacket that prevents us imagining the economy in any other way. This is turn precludes any real discussions about what our collective values are, how we wish to organise the economy and how we should address the challenges we face. We must reform economics so that the next generation of economic experts have the skills needed to reinvigorate economics and to build a society in which economics is a dialogue people actively take part in.
The aim…is to create spaces in which we can individually and collectively begin to rethink economics. In time we hope these spaces will become concrete institutions which enable mass participation in economic decision making. Ultimately we believe that economics must become a public dialogue and never again be left only to the experts.”
Joe Earle, Cahal Moran and Zach Ward-Perkins (2017), The Econocracy: The perils of leaving economics to the experts, p.169-170
I am often critical of neoclassical economics on this blog, but I don’t think I have ever offered a definition of it. This school of thought and its modern developments dominate the mainstream, so here are some typically iconoclastic thoughts from Professor Michael Hudson, an economist whose work is very much in the non-mainstream or heterodox tradition. The extract is taken from his new book J is for Junk Economics – A Guide to Reality in an Age of Deception (2017):
“Neoclassical Economics: A term coined by Thorstein Veblen for the conservative reaction in the last quarter of the 19th century opposing the socialist tendencies toward which the classical economics was leading. The main aims of this post-classical economics were to strip away the characterization of ground rent and other economic rent as unearned income, and to ward off any analysis showing how governments played a productive role as investors in public infrastructure, money creators or regulators. And by taking the existing institutional and property environment for granted, the marginalist approach avoided discussion of the structural reforms needed to cope with economic polarization, the economy-wide expansion of debt, and the finance, insurance and real estate sector mode of rent-seeking and “virtual wealth”. So a more apt term would have been post-classical economics, because it rejected the political dimension of political economy.”