Re: [OPE-L] heterodoxy

From: glevy@PRATT.EDU
Date: Thu Dec 01 2005 - 08:32:17 EST

Another statement of interest:

True Cost Economics : Whats Wrong With Neoclassical Economics

Dating back to the days of Adam Smith, economists used to incorporate
ethics, literature and philosophy into their analysis. But these days,
Smith's intellectual offspring have the idea that economics is a physical
rather than a social science that has nothing to learn from other
disciplines. They cling to the notion that their models are not tainted by
the subjectivity that confuses other social sciences. Chicago School
affiliate George Stigler once scornfully remarked that "without
mathematics, we'd be reduced to the caviling of sociologists and the
like." The 1969 introduction of the Nobel prize in economics - which
Stigler won in 1982 - seems to have fueled these delusions of grandeur.

Critics of neoclassical economics chuckle at the the idea that its
precepts can withstand the rigor of the scientific process. They argue
that Homo economicus - the theoretical self-interested 'everyman' that
economists base their analyses on - is a misrepresentation of human
nature. The model does not account for structural factors and altruism,
and assumes rather ambitiously that peoples' choices are guided by perfect

The reliability of this and other neoclassical economic models would be
irrelevant to the wider world if the prescriptions of Stigler and his ilk
were confined to the halls of academia. But the Chicago School had an
enormous influence on governments and helped set the tone for the era of
fervent free-enterprise boosterism, market liberalization and
privatization that swept the globe during the 1980s and 1990s. Their
thinking has also helped shape the International Monetary Fund and World
Bank directives that have only managed to widen the gap between the rich
and poor.

The physical environment has also suffered under neoclassical economic
orthodoxy. Since economists treat land like any other form of capital,
they often see it as expendable and easily substitutable. When land and
resources were plentiful, the environmental implications of this view were
not immediately evident. But with the economy so much bigger than it was
in Smith's day, the failure to measure the impact of economic activity on
the environment is devastating. Meanwhile, economists show their disregard
for nature with comments like those of Nobel laureate Robert Solow who
stated, "if it is very easy to substitute other factors for natural
resources, then there is in principle no 'problem.' The world can, in
effect, get along without natural resources, so exhaustion is just an
event, not a catastrophe."

Solow's outlook epitomizes old-school neoclassical thinking, but the ivory
tower he and his cohort sit in is ripe for demolition. A new paradigm is
waiting in the wings, one that values nature flows and money flows
equally. One that addresses the social and environmental costs of the
current model. One that calls for limits to growth and more comprehensive
ways of measuring progress. A global economic collapse might be needed to
facilitate this paradigm shift, but economics students shouldn't
underestimate their ability to force the change themselves. University
campuses have an enormous capacity for agitation. The time for revolution
is now.

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