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 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 rationality. 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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