The first reading was the article What Is Neoclassical Economics? by Christian Arnsperger & Yanis Varoufakis, which tries to identify the defining features of neoclassical or ‘mainstream’ economics so that critics can criticise it accurately.
Varoufakis and Arsnperger (V & A) identify the three leading features of neoclassical economics as:
- Methodological individualism. This means that neoclassical economics relies on the behaviour of individual agents to explain economic phenomena, both micro and macro.
- Methodological instrumentalism. This means that the above agents always have some clear preference or goal that they set out to achieve.
- Methodological equilibriation. This means that the model asumes the agent’s actions will be coordinated in such a way that they will ‘balance’ and have no tendency to change.
V & A note that this process is generally unconscious for economists – rather than seeing the 3 prongs as particular approach, they simply see it as the way to do economic science. The result is that it’s hard to convince them to pay attention to anything that looks different.
A few points were raised in the discussion group. Some criticised the peace for kowtowing too much to the mainstream by ignoring the types of assumptions that are still present in all but the most advanced neoclassical models: rationality, perfect information and so on. While it may be true that after your PHD you drop these assumptions, that still leaves the vast majority of people who learn economics at undergraduate and even post-graduate level thinking they are appropriate. V & A dismiss critics of these assumptions as “unsophisticated”, but this is somewhat unfair as they are still present in many models.
It is also true that although the 3 methods identified are consistent with most mainstream models, they are not consistent with all of them. First, the basic macroeconomic AD/AS and IS/LM diagrams are not build up from the behaviour of individual agents. Second, the use of ‘equilibrium’ in the advanced DSGE models does not mean a steady state but a time path in which key variables can still change, something V & A do not discuss.
Nevertheless, there was general agreement that this paper was important and largely accurate, and that neoclassical economics only represents on particular way of doing things, a method that has its limitations. The limits of the individualist perspective are obvious: it is quite possible to have emergent phenomena when studying complex systems, and just a biologist would not want to reduce their work to chemistry, macroeconomics may not be reducible to microeconomics. The instrumentalist perspective is flawed because sometimes people’s goals and motivations are unclear, even to themselves. Equilibrium is flawed simply because there are so many examples of the economy moving away from any sort of equilibrium for long periods of time – for example, the recent crisis of the Great Depression.
A few alternatives to the mainstream approach were discussed. Marxism and Sraffian economics take key characteristics as a given (labour values, technology and so forth) and then solve the model so that society can ‘reproduce’ itself (outputs in one period are sufficient for inputs in the next period). Evolutionary economics and econophysics, as the names would suggest, borrow a lot from biology and physics respectively. However, this means they are often forced to rely on analogy. Post-Keynesian and Stock-Flow Consistent (SFC) models eschew the idea of individual agents and just focus on simple empirical flows between different sectors of the economy.
The discussion also briefly went into economist’s lack of appreciation of politics. The Solow Growth model was criticised by one attendee on the grounds that it simply assumes a deterministic path for developing economies should the institutions be ‘just right’, which conveniently glosses over a lot of the power relations and sometimes outright looting of less developed countries my more developed ones. However, another member defended the Solow Model, arguing that it became more comprehensive and complex at higher levels of study, and that economists were aware of these things. Nevertheless, it is true that such considerations should probably play a more central role.
It was a good first discussion group and I look forward to more as our ideas and knowledge develop.