Bury the Dogma
Neo-classical microeconomic theory, especially in its more recent fundamentalist manifestations, has done immense damage to the real economy while nurturing the parasitic financial sector, as recounted from time to time elsewhere on this site.
Various alternative approaches have identified and addressed problems created by that theory. Welfare economics, the economics of social balance, and what is referred to as behavioural economics, have all sought to modify how the neo-classical maximising model operates. However they have not provided a clear and simple alternative to neo-classical mathematics. So the neo-classical model prevails and will survive all such challenges. Utility maximising economic man and the profit (or shareholder wealth) maximising firm, operating within an assumed to be efficient market, will continue to be accepted as the solution to maximising economic growth and social welfare. The obvious inequity of distribution between rich and poor, both within and between nations, will continue to be regretted as necessary to the utilitarian result. Moreover, it is argued, care for the environment could be more readily financed by a successful economy, rather than by one which is struggling to survive.
Alternative approaches, based on the mathematics of the neo-classical model, can never have much effect. The injection of elements of moral conscience or altruism, are simply incompatible with the maximising model and could never significantly change its basic operation. It is that maximising model itself which has to be displaced. If the damage caused by neo-classical theory is to be reversed, it is the theory itself, in its entirety, which must be buried.
The neo-classical model of the economy, of markets, firms and people is completely unlike any known reality. Yet economics claims to be a science which is both descriptive and predictive. Friedman argued that it mattered little if an economic model was unrealistic, so long as it predicted accurately. But it makes no more accurate predictions than it does descriptions. And when its predictions are really needed, such as when a bubble is beginning to inflate and is going to burst, or when decisions have to be taken on how best, and when, to repay quantitative easing, there is no coherent response, but a multiplicity of conflicting opinions. Microeconomics, if completely erased from man’s consciousness, would not be missed. It would be a liberation.
Though its descriptions and predictions are both worthless, the microeconomic model has a massive impact on behaviour. In terms of enterprise management, as taught in business schools across the world, it has resulted in the ruthless, command and control, shareholder-value obsessed, managerialist behaviour which has come to dominate industries especially in the Anglo-American world. Inaccurate and untestable, but nevertheless still potent, neo-classical theory has become a matter of fervent ideological belief.
The important element in rejecting this malign theory would be for business schools and university departments to stop teaching it, so that future generations of ‘madmen in authority’ would not be immersed in such corrosive beliefs. Microeconomics could be elevated to the ivory tower where its use as training for the academic mind, might be exploited. That would liberate firm managements to pursue legitimate business goals in accord with the law. It would also free government in its role of economic management, to use the macroeconomic tools of national accounting, without their judgement being perverted by false dogma.