Feed on

The strength of neoclassical economics is built on several pillars:

For years, if not decades, it was promoted against the dominating paradigm of Keynesianism by political interest groups and economic think tanks and achieved a dominant role in the discourse.

Neoclassical economic argumentation is based on three pillars which are the common ground of all its variants:

  • methodological individualism (socio-economic phenomena are to be analysed by focusing on the individuals whose actions brought it about; understanding fully their ‘workings’ at the individual level; it imposes axiomatically a strict separation of structure from agency, insisting that socio-economic explanation, at any point in time, must move from agency to structure, with the latter being understood as the crystallisation of agents’ past acts),
  • methodological instrumentalism, and (all behaviour is to be understood as a means for maximising the satisfaction of preference which is given, current, fully determining, and strictly separate from both belief and from the means employed) and
  • methodological equilibration (first, one discovers an equilibrium; second, one assumes axiomatically that agents or their behaviour will find themselves at that equilibrium; lastly, one demonstrates that, once at that equilibrium, any small perturbations are incapable of creating centrifugal forces able to dislodge self-interested behaviour from the discovered equilibrium).

These methodological axioms appeal to people in the simplified form they – if at all – communicated: human agency is closer to individual experience than abstract structures, egoism is one of the well-known behavioural traits, and a “balanced approach” (equilibrium) sounds sympathetic.

Together these elements permitted delivering an explanation for otherwise not understandable processes in the economy, and were the basis of claiming an ability to predict future developments of the economy. This is the basis of a power position vis-a vis politics and other power institutions.

Taking a closer look, neoclassic is no longer understandable to the non-follower; the mathematical modelling is an effective barrier creating the impression of being scientific and non-ideological, but denying any chance for scrutiny.

The recommendations derived on this basis are presented as value neutral, optimal or the only available option, although they are highly ideological. Neoclassical economics has become a legitimation system for the unequal distribution of power and income, which in turn guarantees the support of those in power.

Currently, neoclassic suffers from the problem that their far-off-reality approach has been exposed to the public eye by their complete failure to foresee the financial crisis and the difficulties of recovery.

Alternatives to the neoclassical approach suffer from the same problem all democrats have in dealing with extremists: they have no simple explanation to offer, but deal with the world and its complexity. Thus they are also not suitable to displace political decisions and responsibilities by claiming knowledge of the optimal solution – they just can provide maximal information as the basis for the democratic process.

There are two more approaches to analyse neoclassic:

As a religious sect, with transcendental “invisible hands”, the market paradise, the primary sin of interfering with it, the need to cross a valley of tears to reach the promised land of eternal growth. It is a closed system and thus cannot be falsified inherently, which strengthens the dedication of the believers. It has its high priests (able to predict the future), lower castes, schools and simple followers, its saints (Nobel price laureates) and villains. All criteria published as characteristics of religious sects fit to neoclassic, and like all sects its believers are intolerant as they hold a truth to be defended. Therefore I do not expect pluralism in economics only once neoclassical beliefs have been overcome.

A paradigm, understood as a monopoly to explanatory power and rule setting: a paradigm is distinguished from (formerly) competing ideologies by the fact that it does not need to justify its position, while all critics must do so. Such a paradigm develops from hegemonial ideology, once all other schools of thought are marginalised, institutionally and intellectually. It maintains its paradigmatic character only as long as it is not forced to explain and argue its position (then the emperor may be recognised as naked). Thus paradigms can be reduced to competing ideologies, and may come back later to become paradigms again. From this angle, forcing neoliberals to justify their view is a way to point to their lack of realism and credibility, and any attempt of justification is a contribution to end the hegemonial position.

Leave a Reply