TIME TO RECONSIDER ECONOMICS AS TAUGHT TODAY?
Anna Silim posts (August) in Evonomics HERE http://evonomics.com/new-economic-thinking/
“What is New Economic Thinking?
Three strands of heterodox economics that are leading the way”
“Neoclassical economic theories describe a world in which rational agents act as optimal decision-makers. Guided by possession of a full set of information, self-interested agents maximise utility while firms maximise profits. As a result, the economy is said to behave in a static and linear manner and the system tends towards a state of equilibrium: supply equals demand and an optimal price is set. Macroeconomic patterns are simply the sum of microeconomic properties (Blanchard 2010).
In this model, economies are not necessarily always in equilibrium; exogenous shocks, such as the development of a new technology, can disrupt them. But these disruptions will be temporary and market mechanisms will work to push the economy back to equilibrium. From a neoclassical perspective, economic development occurs through cyclical patterns of equilibrium, shocks, destabilisation and restabilisation. In each cycle the content of the economy such as the goods and services it offers might change, but its very nature essentially remains the same.
This conventional model can be challenged on four fundamental fronts: the tendency to equilibrium, exogenous shocks, individual rationality and systemic consistency. In the real world, economies are not static and geared towards equilibrium; they are dynamic and in constant flux. This dynamism is endogenous; it originates within the system, not from exogenous shocks. Consumer preferences are not formed by individuals acting solely on their own but are the result of a complex process that includes observing and interacting with other consumers. Economic agents do not have a fixed set of preferences based on rational assessment; they are subject to whims and to mimicking the behaviour of other agents. As a result, the nature of the economic system transforms over time.
In reality, the economy is a complex ecology rather than a complicated machine. It does not respond in predictable ways. It is path-dependent, with each phase building on the previous one.”
This and similar articles in EVONOMICS (the next evolution of economics) are rich contributions to the debate. Worth subscribing to by all modern economists.