An Introduction to Heterodox Economics.ppt

Heterodox Economics - alternatives to mainstream neoclassical economics

1. Heterodox Economics
Lecture 1 -Outline of
Heterodox Economics
PhuaKai Lit, PhD (Johns Hopkins)
FLMI
Retired public health professor
(Monash University Malaysia School
of Medicine and Health Sciences)

2. Lecture Objectives
Understand what “Heterodox Economics” is
Why are heterodox economists critical of the
currently dominant “neoclassical economics”?
Philosophy of Heterodox Economics
Basic assumptions of HE
Research methods of HE
Forerunners of heterodox economics: Karl Marx,
Thorstein Veblen, John Maynard Keynes etc
Important heterodox economists: John Kenneth
Galbraith, Joan Robinson, Pierro Sraffa, Michal
Kalecki, Paul Davidson, Hyman Minsky, Juliet
Schor, Paul Baran, Paul Sweezy, Ludwig von Mises

3. What is “Heterodox
Economics”?
•Heterodox Economics refers to the schools of
economic thought that range all the way from the
Austrian School, to evolutionary economics, post-
Keynesian institutionalists, feminist economics,
ecological economics, to the radical socialists who
subscribe to Marxian economics.
•Basically what is common to all the schools of HE
is that they reject the main assumptionsand much
of the research methods (e.g. deduction using
mathematics) of mainstream neoclassical
economics. In other words, HE challenges the
ideological hegemony of neoclassical economics in
universities (especially American ones).

4. Why are they critical of
neoclassical economics?
Heterodox economists argue that the models used
by mainstream neoclassical economists lack
realism e.g. the Homo economicus (economic man)
assumption leading to claims that individuals are
utility maximisers and firms are profit maximisers.
An extreme example would be Robert Lucas and
his “rational expectations” school of neoclassical
economics
Conservative economist Milton Friedman even
claimed that unrealistic assumptions and models
are not a problem as long as their predictions are
accurate. (It should be noted that neoclassical
economists did not foresee the economic crises of
the late 1990s and the late 2000s, unlike heterodox
economists such as Hyman Minsky).

5. Why are they critical of
neoclassical economics?
Neoclassical economists ignore the influence of
power in economic behaviour e.g. role of power in
maintaining crony capitalism in Philippines during
the rule of Ferdinand Marcos. State power is often
used in developing countries to create monopolies
that financially benefit supporters of ruling regimes.
Similarly neoliberal “privatisation” schemes in
countries such as Malaysia are used to create
monopolies that extract “economic rent” from
consumers e.g. privatised utility companies.
Neoclassical economists ignore social and cultural
constraints on economic behaviour such as formal
laws and regulations, norms and values e.g.
religious beliefs that discourage unbridled pursuit of
self-interest and profits.

6. Why are they critical of
neoclassical economics?
Neoclassical economists of the Social Choice or
Public Choice school are seen as biased in their
approach i.e. emphasis on government failure,
“regulatory capture” etc. while ignoring market
failure.
Neoclassical economists also argue that there is a
tendency toward equilibrium in markets and the
national economy -these are rejected by most
heterodox economists. Instead, HE argue that the
tendency is toward instability and disequilibrium,
business cycles, or even economic depression as
in the 1930s.
Measurement of GDP is faulty e.g. household (non-
market) production is not taken into consideration
although this is important in developing countries.

7. Philosophy and Basic
Assumptions of HE schools
Opposition to mainstream neoclassical economics
Emphasise the importance of realism in economic
theorising
Encourage pluralism in economic thought and
teaching of economics
Students must be taught the history of economic
thought
Must consider how politics, the larger society,
cultural values, and individual psychology affect
economic behaviour
The Austrian school also takes into consideration
the influence of time. (Austrians believe in free
markets and decry government intervention in
economic activities of individuals and firms).

8. HE deplore the deduction and accompanying formal
mathematical modelingused by many neoclassical
economists. They criticise the lack of data in such
“research” e.g. Wassily Leontief. The counter-
argument of neoclassical economists is that theories
derived from deduction can be tested later on with
real world data.
Econometric model-building using real-world data e.g.
Lawrence Klein
Analytical studies that use secondary data (data
collected by government agencies, UN agencies etc)
Experiments e.g. as in behavioural economics
Surveys to collect real world data
Research Methods

9. 9
Forerunners of HE
Thorstein Veblen, Karl Marx, Rudolf Hilferding,
Max Weber, Karl Polanyi, John Maynard Keynes,
Friedrich von Hayek, Henry George, Joseph
Schumpeter

10. 10
Notable Heterodox Economists
Institutionalists: Joan Robinson, Nicholas
Kaldor, John Kenneth Galbraith, Raul
Prebisch, Hans Singer, Hyman Minsky, Dani
Rodrick, Alice Amsden, Ha-Joon Chang
Feminist economists: Victoria Chick, Juliet
Schor
Marxian economists: Paul Baran, Paul
Sweezy, Samuel Bowles, Oskar Lange,
Richard Wolff, Samir Amin, Maurice Dobb,
Herbert Gintis, David Gordon, Yanis Varoufakis

11. 11
Notable Heterodox Economists
Ecological economists: Ernst Friedrich
Schumacher (“Small is Beautiful”),
Kenneth Boulding, Herman Daly
Evolutionary economists: influenced by
Thorstein Veblen. Richard Nelson, Sydney
Winter.
Austrian economists: Carl Menger, Ludwig
von Mises, Murray Rothbard

12. 12
Challenges faced by Heterodox
Economists
Non-recognition (or even disdain) by
mainstream neoclassical economists (who
are basically ideological defenders of
American capitalism e.g. the “marginal
product of labour” argument)
Difficulty in finding employment in
economics departments dominated by
neoclassical economists (especially
Marxian economists)
Difficulty in publishing research in
mainstream neoclassical economics
journals, thus hindering job promotion

13. Thank You
Additional resources:
https://encyclopedia.pub/entry/37063