Since the 20th century, one school of economic thought has prevailed and dominated the world of economics. That school of thought is known as ‘neoclassical economics’. Neoclassical economics is a branch of economics that focuses on an individual’s rationality and his/her/their ability to maximize utility or profit through mathematically modelling various aspects of the economy. It’s one possible way of thinking about economics … it’s a branch of economics. That means economics does not equal neoclassical economics but rather economics encompasses many different types of economics, one of which is neoclassical. One possible way of trying to understand an economy would be to use a neoclassical model for example. Another, perfectly valid way, would be to use a Minskian approach. So, as you can see neoclassical economics is a branch of economics much like satire is a branch of humour and grammar is a branch (albeit a boring branch) of languages. It’s a branch of economics. Why am I stressing this? Well, the neoclassical school of thought, in the modern-day interpretation, is as much a branch of economics as the big tree in Avatar was a branch of the blue people’s lives. It’s a branch which embodies the trunk, leaves and roots of modern economic thinking. The neoclassical school of economic thought IS economics in the view of mainstream economists. This is not only narrow-minded and hinders economics to progress as a subject, but it is also dangerous. Let me explain what I mean…
Economics is considered by many a science (which is debatable in itself – I mean, surely the rules of science play out 100% of the time, whereas within economics? Well, that’s another story). Anyway, economics is seen as a social science. Sciences, such as physics or biology, are forever changing, adapting and advancing. It was for a long time the belief that the Earth was the centre of the universe and that the sun, moon and stars all orbited it. This belief was held until Galileo, an Italian astronomer, found evidence to the contrary – the Earth orbited the sun, not the other way around. Despite taking some time before this new view was widely adopted and regarded as the new truth (much of the delay of course caused by the unwillingness of the church to change their mind), it was eventually subscribed to and no evidence since has been found to disprove his initial discovery. I mention this for the following reason: scientists adapt their beliefs when evidence arises that disproves theories, even if they were theories that were previously considered fundamental and unwavering truths for centuries. It is, however, only through this method of scrutiny that the subject progresses and is able to answer more questions with greater accuracy.
Economics, however, is not so humble. Try and challenge the neoclassical school of thought and you either are told to adjust a model already based on unrealistic assumptions such as perfect rationality, the existence of an equilibrium and perfect competition, or you get marginalised and are simply told “you just haven’t understood the models”. Offer an alternative way of approaching a problem using non-neoclassical models and you’re ignored. This is much like the attitude of the catholic church in response to Galileo’s heliocentric model of the solar system. Anyone who challenges the orthodoxy is considered a rebel and needs to be treated accordingly. But why is there so much hostility? Why won’t mainstream economists engage in debate with those who hold non-neoclassical views and perhaps most crucially, why is no other school of thought learned about in universities? There are several reasons for this, one of which is to do with a sort of nepotism that runs rampant in university economic departments but instead of favouring family and friends, they favour neoclassical economists who share like-minded views. This is a sweeping statement I realise, but allow me the opportunity to support and elaborate on my claim.
Many mainstream economists today were students of ‘neoclassical’ economists. They were taught by economists who themselves regarded the neoclassical framework as the holy bible of economics – it is simply the best approach to analysing markets. It follows then that these same economists (the students of the ‘neoclassical’ economists) would quite likely have never learnt about other schools of economic thought, such as Austrian, ecological or Marxist. As such, of those students of neoclassical economists who became teachers, none of them (or at least a staggeringly small minority of them) would be teaching anything other than neoclassical economics to their students i.e. the current generation of economic students. As a result, we have ended up with economics departments all over the UK, filled with professors who all teach exactly the same school of thought and structure their economics programmes the same.
“Okay then”, you may be thinking. “But surely universities could just hire academics who’ve researched alternative schools of thought?”. The answer, unfortunately, is no. In order to become a lecturer/professor at a university, you must have done some good research. ‘Good’ research, in the case of economics and many other faculties, largely depends on how much coverage it has received in recognised economics journals where it can be subject to criticism. So, to-be economics professors send their research papers to journals in hope that they get published and they might get ‘head-hunted’ by universities. The problem lies herein: these high-ranking economics journals will often only fund neoclassical research. Why? Because the same panel of economists (known as the Research Excellence Framework, or ‘REF’) who review the research all stem from the same school of neoclassical thought. Further to this, most journals only receive funding for neoclassical research, often from corporations. This means that most Russell group universities (apart from good ole pluralist Leeds) will only research neoclassical, and therefore will only teach neoclassical. This leads to a sort of nepotism whereby economics is kept within a circle of people (albeit a large circle) who all subscribe to the same way of thinking … this is dangerous.
Those students who graduate from universities that teach nothing but neoclassical economics, leave university with very few skills that economics degrees promise to provide their students. Think about it. Look at any university description of their economics degree programme the vast majority will claim that their students will leave university having acquired critical thinking and analytical abilities … have they though? Critical thinking requires you to come up with your own thoughts and ideas on a certain topic. When are economics students ever asked to give their own thoughts on something? They are taught neoclassical models as the gospel truth and are then tested on it by using those same models to explain certain hypothetical situations rather than trying to offer their own thoughts on how those situations could be explained in reality. This isn’t testing their critical thinking … it’s a memory exercise. This is testing the students’ ability to learn a model and its properties and apply it to various questions. Here’s a set of numbers, now use these numbers and your knowledge of this model to explain, using the model, what the effect or impact is on X,Y and Z. Whether or not this model is in fact the best way of explaining a given economic situation is never asked. Students of alternative schools of thought on the other hand, are able to offer different approaches to dealing with a question and evaluate how well it explains it etc.
So what’s wrong with the neoclassical model and why should we bother learning about other schools of thought? Because, like most theories, it’s not perfect. For one, and as mentioned earlier, it makes a number of unrealistic assumptions – this will be something all too familiar for those who study economics. Another, and perhaps a more significant (and definitely topical) reason is because of a recent economic event … the financial crisis of 2007/2008. The financial crisis is perhaps one of the greatest indicators that the skills our economists currently possess require upgrading. It is fair to say that the overwhelming majority of economists could not, and did not, predict what happened in 2007-2008. If they did predict it, then why wouldn’t they have done something about it? Especially when you consider that many of those economists had vested interests in avoiding such an event (many of them working in “the city”). So why couldn’t they predict it? Because the models they relied on couldn’t predict it. Neoclassical models. The models they had learned whilst they were studying at university had become outdated in the time it took for them to graduate, get jobs and become economic advisors. This all makes sense! Economics, as mentioned before, is based on empirical evidence and looks to describe how societies operate today. Instead of clinging on to outdated models, let’s advance economic thinking. Don’t marginalise people for having a different opinion. Listen to their argument, their evidence for it and their line of reasoning and engage in a debate. How can anyone ever expect to improve upon something, if they never listen to anyone who offers critique on their point of view? (This is like someone who considers themselves a socialist or part of the ‘left’, labelling anyone else who thinks differently as a bigot, xenophobic and racist. How is this helpful? What’s gained by not listening to others views and shunning them out? This is a problem prevalent across Europe and America in society today, but let’s not digress).
So, what can be done about this? How can we challenge the ‘status-quo’? A student movement, which began at the university of Manchester, could well be the trigger that sees an overhaul of economics, both in and outside of university. It has swept the UK and has already found roots around the world (see the map on the homepage of this website). This student movement has two main aims: pluralist and critiqued economics to be taught, and to democratise economics. To focus on the former, they campaign to teach economics outside of the neoclassical school of thought by inviting students to test their evaluative skills in examinable pieces of work. The economics students at the university of Manchester who founded the ‘Post Crash Economics Society’ are particularly keen on this one, and for good reason. For the first two years of their academic study, these students were examined on their economics knowledge with use of multiple choice papers. They weren’t asked to write an essay and they weren’t even asked to describe a model. They were simply asked to circle the correct answer given what they had been taught about the functions and uses of, say, the Solow-Swan growth model. It’s of little wonder that students began asking questions, and when professors responded with “how else do you expect us to mark X number of students”, the Post-Crash Economics Society was founded.
It is important to point out that it is not the intention of these students, professors and involved persons of the Rethinking (or similar) movement to utterly abolish the current syllabuses taught at most universities i.e. neoclassical economics. It deserves to, and indeed must, be taught at universities in order to be critiqued (like all other schools of thought). Neoclassical economics is a legitimate, well established school that can be used as a tool to explain many mechanisms of the economy. However, there are also many things that the neoclassical models do not explain well and that do not hold up well to too much scrutiny. The aim for these students (and us here at Real World Economics Bristol) is for neoclassical economics to be one of many schools of thought to be considered in the academic debate, not the only one. In sum, neoclassical economics is a good tool for modelling, but it also needs to be critiqued. We should abolish the stigma of believing in “alternative” economics and welcome those who approach economic issues differently.
Disclaimer – for a much better written narrative of the above, and a more in depth debunking of neoclassical economics, I recommend you read ‘The Econcracy’. This is a book written by three active Rethinkers, who also founded the Post-Crash Economics Society. It has been reviewed (and reviewed rather well) by the Financial Times and the Guardian.
ABOUT THE AUTHOR
Bruno Roberts-Dear is a member of Rethinking Economics, an international network of students, thinkers and citizens, coming together to demystify, diversify, and invigorate economics.