I have recently seen an increasing number of attacks on “neo-classical” economics from every section of the political spectrum.
Last week, I heard a number of commentators at the sustainable economics conference claim that neo-classical economics was:
- Based on falsified views of the individual,
- Had no supply side.
- It ignores institutions,
- It ignores transaction costs,
- It is static.
I was surprised by these attacks. More than surprised, I felt like the attacks were based on a straw man version of neo-classical economics – one that in many ways never existed, and if it was floating around it was during the 1950’s-1970’s when a lot of the focus was on a narrow neo-classical synthesis in macro theory.
Neo-classical economics is a term for the “core” of economic theory – primarily modern mainstream microeconomics. I have discussed here how we get from scarcity to neo-classical economics, and I have discussed neo-classical economics in more detail here.
This “core” is different to the core in the 1970’s – as many of the fringe elements of theory have now shifted their way inside the core of economics (think game theory, endogenous growth theory, transaction cost economics). However, this is the point, neo-classical economics has evolved and it is this modern version that is taught in universities (at least it is at Victoria) nowadays – contrary to the claims at the sustainability conference that economics hadn’t changed.
The reason I am so defensive about the definition of neo-classical economics is because people see it as the current core – which according to my definition it is. Setting up an alternative definition of neo-classical economics and knocking it down is either equivalent to setting up a straw man to attack, or directly misleading people to make it sound like modern economists are incompetent.