Neoclassical Economics is Dead. What Comes Next?

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By Steven Klees, an economist, Distinguished Scholar-Teacher and Professor of International Education Policy at the University of Maryland. Originally published at Evonomics.

Much has been written about the failure of neoclassical economic theory (NCT), so I won’t belabor the point, but I do want to highlight what is too rarely said – that the central concept of NCT, economic (Pareto) efficiency is empty in theory and practice. 

The great feat of neoclassical economics has been to convince people that there is a vantage point to view society, separable from concerns with equity and distribution.  This vantage point, defined as economic efficiency, supposedly allows one to see if society as a whole is better off, such that decisions to produce a particular array of goods and services could be made in the interests of everybody, irrespective of how little one had, thus separating efficiency decisions from equity ones.  However, if prices are not defined according to the exact dictates of what economists call “perfect competition,” then private profitability tells us nothing about the comparative social advantages and the consequent “efficiency” of producing, let’s say, more yachts for rich people instead of more rice and beans for poor people.  Similarly, to argue that the allocation of resources can be “efficient” even if half the world is starving to death is ridiculous, but that is exactly what neoclassical economics says.

I find this legerdemain of inventing a concept of efficiency separate from equity, based on a completely unreal, obviously untrue, abstraction, is absurd on the face of it.  If the absurdity of this framework is not obvious, one only has to look at what NCT calls “second best theory.” The “first best” world is that of perfect competition; “second best” refers to a world with at least one “imperfection,” say, one monopoly in a world that was otherwise perfectly competitive.  Second-best theory essentially asks: “If we don’t live in the first-best world of perfect competition but have, let’s say, only one imperfection in an otherwise perfect world, what are the results?”  It turns out, reluctantly admitted by neoclassical economists – second best is their own theory, not a plot by critics – that with just one imperfection, there are ripples so that all market prices become distorted, and Adam Smith’s famous invisible hand is no longer a good guide to the social interest, and the system is no longer efficient — nor is there even any sense of whether it is close to efficiency.  In the real world of multiple imperfections – where none of the assumptions of perfect competition hold – even if the neoclassical concept of efficiency had some meaning in theory, in practice, it is an abysmal failure, a completely empty idea.

Economic Empiricism is a Dead End

Debates within and between economic theories are examined through empirical work.  But how valid and worthwhile are the studies produced, which in the aggregate cost hundreds of millions of dollars and are so influential in policy circles?  Much of the debate is about what are the effects of different programs and policies.  To assess quantitatively the impact of an intervention, there are two ways to rule out confounding variables – statistical controls and experimental controls.  Both are fundamentally problematic in theory and in practice.   To trust in statistical controls via some form of regression analysis, you cannot just include ad hoc a few control variables but need three conditions: include all variables that affect the dependent variable, measure them correctly, and specify the proper functional form.  These conditions never hold, and the result is that different studies come to different conclusions, rather arbitrarily as a result of the idiosyncrasies of the variables, measures, and models used.  In education, for example, hundreds of input-output studies (with student test scores as the dependent variable) offer no consistent findings.

Experimental controls via RCTs have been touted as a better strategy for impact assessment, indeed as the “gold standard” of research methods.  However, they have been strongly critiqued for their lack of generalizability because they do not account for context.  The validity of their findings is also suspect as too often control groups are not comparable to treatment groups, and effect sizes are small. In practice, RCTs very often come to inconsistent and divergent conclusions.  What this all comes down to again is that the evidence supporting the impact of policies and programs is cherry-picked, and “what works” is in the eye of the beholder.

Some Implications

The implications of my methodological critique go way beyond economics.  Fundamentally, it is a social science problem.  The social sciences have long been captured by physics envy.  Some observer once pointed out that physics would fall apart if particles had intentions.  We live on a planet with 7 billion human beings, all with different intentions living in very complex contexts.  Our empirical ability to find regularities is very rudimentary.  We do better in fields that have a base in the physical sciences, and we can generally believe things like wearing masks helps protect against virus transmission or that human activity is causing global warming.  Of course, even these are contested by some.  But agreed upon findings in the social sciences are much rarer – if indeed there are any significant ones.  The promise of the policy sciences – that social science could give us clear facts about causal impact – is belied in theory and in practice, as I have argued above, here, and elsewhere.  We need to recognize that and be much more modest in our claims and much more aggressive in ensuring that our policy choices are made with widespread debate and participation.

The implication of my critique of NCT is that if economic efficiency is meaningless, neoclassical economics is useless.  No amount of tinkering will help.  Without economic efficiency as its bulwark, capitalism loses its ideological justification other than one that says markets are practically a better allocation device than a command economy.  But markets can be circumscribed and regulated in any ways we find reasonable.  There need be no justification of externalities or public goods.  Equity can be the reason, and there is no equity-efficiency tradeoff, which is all fiction since efficiency is meaningless.  There is no reason to stubbornly hang on to NCT and its justification for capitalism in the way that even critical neoclassical economists like Krugman, Reich, Rodrik, and Stigltiz do.

Moreover, in practical, real-world terms, capitalism is the most inefficient system ever invented.  Although it produces riches for some, it leaves billions of people at its margins, many fighting to survive, many surviving in precarious positions, environmental destruction built into it, and climate catastrophe almost upon us,

It is very unlikely that there will be a Copernican moment where another grand theory replaces NCT.  NCT is an outlier in the social sciences – there is no one theory like it and especially not one that promises to tell you the right course for public policy (based on the efficiency idea).  Heterodox, left, intersectional political economy perspectives do offer a variety of useful alternative views on economic policies and practices, but empirical studies will never resolve or even enlighten the existing debates between competing economic paradigms.

So What to Do?

To my mind, we don’t need more economic theory and empirics. What we do need is more attention to the many alternative economic practices being written about and being practiced.  Contrary to Margaret Thatcher’s TINA, There is No Alternative, I’m a believer in David Bollier’s TAPAS, There are Plenty of Alternatives!  For 20 years, I have been teaching a course on alternative development.  In the beginning, it was difficult to find works to read; now, there are so many people writing about this, I can’t keep up.  To conclude this essay, I will talk briefly about some of the writing, efforts, and practices I have found most compelling.

Let me start with the wonderful new book, edited by Gus Speth and Kathleen Courrier, The New Systems Reader: Alternatives to a Failed Economy.  Its 28 essays explore a plethora of alternatives ranging from the Nordic experience to economic democracy to eco-socialism.  Pluriverse: A Post-Development Dictionary, edited by Ashish Kothari and colleagues, discusses a dozen or so “reformist solutions” like a green economy and smart cities but spends the most time on literally dozens of “transformative initiatives” like the alter-globalization movement, alternative currencies, buen vivir, the commons, degrowth, ecofeminism, solidarity economies and ubuntu. 

Most of the writing about alternatives to capitalism still see the need to rely on a market system.  One interesting and different approach is embodied in the many decades of work by two political economists, Michael Albert and Robin Hahnel, on participatory economics or parecon.  They and other point out that markets corrode human values and solidarity and propose a series of worker and consumer councils to make production decisions and allocations of goods and services.  While this may be difficult in practice, it is important food for thought.

These are more than academic exercises, and all connect with concrete alternative practices happening on the ground.  There are now many advocacy organizations promoting concrete alternatives.  WEAll, the Well-Being Economy Alliance, seeks to “transform the economic system into one that delivers social justice on a healthy planet” by moving beyond an orientation to GDP and economic growth.  The Next System Project (NSP) “promotes visions, models, and pathways that point to a ‘next system’ radically different in fundamental ways from the failed systems of the past and capable of delivering superior social, economic, and ecological outcomes.”  Especially interesting is the work of one of NSP’s founders, Gar Alperovitz, who argues that, in the U.S., capitalism is already being transformed by democratized ownership through millions of employee owners and thousands of community development corporations and cooperatives.  The Democracy Collaborative, of which the NSP is an offshoot, is collaboratively working to transform local communities and has been very successful in Cleveland, Ohio and Preston, England.  They are also working on promoting “next system studies” at universities.

Taking a worldwide perspective, especially but not exclusively oriented towards rural and indigenous communities, the Global Tapestry of Alternatives, has developed a network of people and organizations changing how people live.  During this pandemic era, they have offered about 15 fascinating webinars documenting and sharing alternative system practices including African ecofeminism, commoning, the Kurdish women’s movement in Rojava, and eco-socialism in Jackson, Mississippi.  Bernie and Jane Sanders and Yanis Varoufakis started another organization, Progressive International, to bring us all together: “to unite, organize and mobilize progressive forces behind a shared vision of a world transformed.”

Much of the work referenced above explicitly talks about the need to move beyond capitalism, to find a new modality of social organization.  But even some that doesn’t can be transformative.  A movement started by French female scholars, called Democratizing Work, has gone global with an op ed published in dozens of newspapers around the world and signed by over 5000 researchers calling for “democratizing firms, decommodifying work, and remediating the environment.”   Noted economists like Thomas Piketty and Dani Rodrik are supporting this.  Rodrik has even made the interesting argument that creating good jobs creates massive externalities.  Within neoclassical economics, this has devastating implications for a capitalist system which fundamentally relies on markets to create jobs.  If Rodrik is correct, neoclassical economics would imply that governments have a significant responsibility to see to good job creation.

I think even within-system alternatives like universal basic income (UBI) and a 4-day work week can have transformative implications.  UBI changes many things: reduces poverty and inequality; lessens workers’ willingness to do poorly paid work; allows for more part-time creative and craft work; allows people to return to school or do care work; and minimizes assistance bureaucracy.  Norway has a form of UBI, and other countries are experimenting with it.  A 4-day work week also changes many things: increases productivity; makes for a happier and more committed worker; improves work-life balance; and reduces our carbon footprint.  Combining UBI and a 4-day work week may have significant synergies, allowing for a much better quality of life.  Scotland is experimenting with both.  I think the slogan, “Share the Wealth, Share the Work,” could be popular politics.

I was fortunate enough to attend the World Social Forum (WSF) twice and march with 100,000 activists from all over the world and meet some of them who were struggling to engage in alternative practices to change the world in areas like education, health, food, water, environment, or development generally. These activists go home from the Forum and interact and network with millions, building a global network. The energy and optimism there was contagious. I am also optimistic because I have been fortunate to work in dozens of countries, and everywhere I found people who believed what is the slogan of the WSF — Another World is Possible — and who were struggling for it. Economics does not have to be the dismal science. A focus on alternative economic practices opens up a world of possibilities. Let me close with a quote from Arundhati Roy: “Another world is not only possible, she is on her way. On a quiet day, I can hear her breathing.”

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. paul

    UBI changes many things: reduces poverty and inequality; lessens workers’ willingness to do poorly paid work

    That’s rather a sweeping statement, especially as UBI has not been tried out at any scale.

    Combining UBI and a 4-day work week may have significant synergies, allowing for a much better quality of life. Scotland is experimenting with both.

    I have to say that this will be news to everyone in Scotland.

    2019 ish the usual suspects were asked to formulate a UBI policy (The three studies we from the Fraser of Allendar, Reform Scotland and one called horizon 3) and all had a rather balanced budget approach which ended up with sky high marginal tax rates and somewhat higher base tax rates.

    The strange thing was that they made universal credit, if it wasn’t so mean, look a half decent approach.

    It has certainly dropped off any current agenda.

    4 day working week? I see this with my mother’s carers, 4 days on, 4 days off but they have to see 20-30 clients a day over 18 hours.

    I doubt very much, they are using their days off to help knit community heat pumps.

      1. paul


        From your source:

        Finland experiment n=2000 people

        How far the low UBI payments will allow the country to embrace the solutions is debatable.

        As Alaska is a quite bizarre outpost of mineral extraction I fail to see the universality.

        Both studies are likely to buttress and provide an iota of positivity to the ongoing Finnish experiments though the amount of BI is lower.

        When you offer a suggested iota of improvement, I find it hard to get all excited.

        As I said before, UBI has not been tested, let alone thought about.

        1. Karl Greenall

          I suggest you read the work of Professor Guy Standing of the University of London’s School of Oriental and African Studies ( SOAS).
          He has written extensively on the subject of UBI and explained in great detail its various aspects and issues.
          Neoliberal capitalism is beyond the end of it’s road. Alternatives are needed. Here is a possibility.

          1. paul

            I also remember standing as one of the ‘influencers’ (murphy etc) that could not countenance a corbyn led government.

            They really hate what bill mitchell was asking them to aknowledge

          2. paul

            Here’s a peach from Guy:

            If you had a basic income, it would mean that everybody would have a base on top of which their earned income would be taxed at the standard rate of tax. That would increase the incentive to take low-wage jobs.

            He almost makes it sound like a good thing!

    1. ArvidMartensen

      Universal credit is a mirage while situated in an existing capitalist economy.
      When educated married women in western countries started to join the workforce in larger numbers (from the 1970s) then their families had an economic advantage. Their wage allowed their family to buy a bigger house, purchase more services and goods.
      But once most married women were in the paid workforce, the advantage of having two wage earners in a family evaporated. Because two wage families bid up the price of housing and other goods and services. Families on one wage were the new losers as prices rose beyond their means, with mothers now compelled to join the paid workforce so that the family could afford what they once afforded on one wage.

      So it will be with UBI. While a few are on UBI, prices of housing and other goods and services will remain the same.
      But as soon as the majority are on UBI, the price of housing and everything else will rise because buyers can now pay more on average. The suppliers will increase their prices to siphon off the increase in wealth of the buyers and in the end UBI will provide no advantage or relief to recipients.

      However, UBI has a sting in the tail.
      UBI will be provided by government or corporate interests who will view it as welfare.
      And like any form of welfare, those who dole it out will use it as a way to control the lives of the recipients. There will be an increasing array of penalties, rules and exclusions that box in the lives of recipients, depending on the whims of the UBI funders.
      So if the government is against abortion, say, then any woman who has an abortion might lose the UBI. Or if a child wags school, the parents might lose the UBI. Or if the single parent doesn’t look for X paid jobs a week, she might lose the UBI.
      The second and third examples already are being used to punish welfare recipients in some countries.

      1. lance ringquist

        and a UBI will supercharge the trade deficit and import inflation under free trade. corporations will have a field day bleeding that money off to their free trade utopia communist china.
        china will recycle a lot of that money back into the u.s.a. exploding bubbles like housing and the stock market.
        a jobs guarantee under a GATT style trading system, with a good social safety net would be better.
        actually the article should be is free trade economics dead, and what will we replace it with.
        because if you do not kill free trade, the oligarchs of the world will still have free run of things.

      2. rsm

        as soon as the majority are on UBI, the price of housing and everything else will rise because buyers can now pay more on average. The suppliers will increase their prices to siphon off the increase in wealth of the buyers and in the end UBI will provide no advantage or relief to recipients.

        Why not index the UBI to inflation?

  2. CJH

    Modern Monetary Theory is what should come next. It minimizes debt, creates full employment and everyone gets paid a ‘socially responsible’ wage with benefits. All the various ideas in this article can be accommodated by MMT.

    1. Bellatrix

      Ah yes, MMT, the Magic Money Tree! Why bother with debt when you can just print the stuff? What could possibly go wrong?

      1. Wukchumni

        Every country practices money tree economics, they’re all culpable of not being capable of thinking of anything else, with the main thrust being that its so damned easy to do so, just have the mouse clique press down on assorted numbers on a keyboard and presto!

        Nobody wants to go back to the future of old money, but you can see it will be forced upon them when newfangled ways of conjuring up cash no longer have the desired effect.

      2. David Swan

        So-called federal “debt” is quite popular, and notwithstanding MMT’s observation that it is an unnecessary convention, it changes nothing. For a sovereign currency issuer that owes “debt” only in its currency of issue and operates on a floating exchange rate, no level of “debt” is unsustainable.

        Current spending levels as a component of aggregate demand are relevant, as spending can be inflationary when AD exceeds the productive capacity of the economy. The outstanding stock of so-called “debt” (or other monetary aggregates) are of no consequence.

      3. Karl Greenall

        When private banks use their Magic Money Trees as they have since the days of Thatcher and Reagan, we often see things go wrong. It takes responsible, state-controlled central banks to clean the mess up.

        1. paul

          All banks are state controlled,as they should be, in the UK we have nursed them with billions of pounds and defended them prosecution of fraud.

          What more do you want Karl?

      4. lance ringquist

        what debt? private, or public? private is the private sector, public is the government sector.
        now which sector went belly up in 2008/2009 due to debt? and which sector got a bailout to the tune of at least 29 trillion dollars?
        which sector came up with 29 trillion dollars at the push of a few computer keys, and where was the disaster that is constantly predicted by public debt scolds?

    2. TimD

      The US has been using it, without calling it MMT, for the past 20 years with the average deficits of $1 trillion per year. They are kinda at full employment, but the jobs aren’t the greatest and people seem unhappy. Plus MMT does not do very much to fix inequality or the environment.

      1. anon y'mouse

        we are nowhere near “full employment”.

        even in the goofy fake “labor market”, that would cause upward pressure on wages and conditions and it ain’t happening.

        how many people have disappeared off the labor rolls?

        1. TimD

          Yes I agree it is fake full employment. Especially when one considers how much money the government and Fed is pumping into the economy. Average real economic growth since 2000 has been about 2% and the average deficit is closer to 5%. Even with all that pumping big sectors of labor market have had stagnant real wages. There is no way this is sustainable.

      2. Rudolf

        MMT for the MIC; austerity for everyone else. Priorities are the major problems. There’s also the issue of competency of “our” leaders.

    3. Basil Pesto

      I think it’s important to be clear that MMT is not a thing that “comes next” (except for those countries that don’t have a floating fiat currency), it is already here. It’s not really a system, it describes how one part of the economy works (what is money, where does it come from). It’s certainly important that people understand this, so that they can then understand what is possible (TAPAS, as the author puts it)

      (Having said that, I recognise that MMT subsequently has a motte-and-bailey problem with its advocacy of a Job Guarantee. Academic MMTers argue that the JG is the rational consequential policy of a modern monetary economy, with particular reference to buffer stock, a concept I haven’t quite wrapped my head around)

      1. paul

        The current buffer stock is unemployment, The JG is to utilise that buffer stock in a socially productive way, rather than letting it painfully return to dust.

  3. TimD

    Neoclassical Economics – Marginalists, came about when a labour theory of value could not explain why Britain was having trouble competing with other countries. They chose value as the change in utility from the last unit consumed. I have a logical problem with a ‘science’ that uses something subjective as a measure of value. Could one imagine how physics would work if the length of a meter depended on the utility gained from measuring?

    By focusing on marginal utility, perfect markets and normalizing assumptions they built a superstructure that legitimated the shift of power from the average person to the wealthy. It is not a surprise that their ideology reappeared as the developed world was deindustrializing. Workers were just making too much in light of competition and companies had to survive to keep the economy strong.

      1. korual

        It is impossible to measure “value”. You can only measure debt. In the US the unit of measurement of debt is the $USD.

      2. TimD

        The price paid for a good or service is the historical record of its value. I can think something is worth $100 but if I cannot sell it at that price then my estimated value is too high. Value show itself in exchange and is recorded in a price. I can think a price paid for something is high or low – but my thinking is subjective. If I want the historical record I use the value at the moment it is exchanged.

  4. Henry Moon Pie

    I’d add Kate Raworth’s Doughnut Economics and Tim Jackson’s Post Growth: Life After Capitalism. Both these books are focused on the essential question of our times: how do we “land the plane” of capitalistic society so that we don’t crash. Raworth’s chapter is the best I’ve seen dealing with the myths around growth and the addictions to growth suffered by finance, the neoliberal State and us individually. Jackson is the fellow who describes our consumerist society as a place where we spend money (especially this season) we don’t have on things we don’t want to give to people we don’t care about.

  5. Starry Gordon

    November 8, 2021 at 8:46 am:

    ‘… I have a logical problem with a ‘science’ that uses something subjective as a measure of value. …’

    How would you construct and employ an objective theory of value? It seems to me that value implies a sentient evaluator or evaluators.

    1. TimD

      Hi Starry,

      Value happens in exchange, when a good or service is sold – we have an objective measure of a value. Otherwise it’s just an estimate. Who could ever measure the change in utility derived by an individual from the last unit consumed? I can, however, tell what that person paid.

      This lets me use documents like balance sheets and income statements.

      1. anon y'mouse

        price and value are not the same thing.

        price only has a relationship with value, and not a clearly directly proportional or related one, either.

        1. TimD

          I would agree with Karl Marx that everything exchanges at its value – except labour. The value a good or service exchanges at is equivalent to its price.

            1. TimD

              No, NCT relies on normalizing assumptions and particular situations and then generalizes them. They are also selling capitalism, along with deregulation and weakening labor; apparently to make the real world more like their perfect one.

              Adam Smith used a real cost theory of value – often called a labour theory of value, the NCT used a marginal theory of value. I would say that using the value of something when it is exchanged helps one get closer to what is happening in the economy.

            2. TimD

              NCT relies on normalizing assumptions and specific situations that fit the theory; then they generalize what they have “proven.” NCT also ignores any occurrences that don’t fit.

              The classical theorists relied on a real cost theory of value – often called a labour theory of value. Neo classicals, which came about almost 100 years after Smith, used a marginal theory of value. I think one can get more accurate results using an exchange value – it is measurable and observable.

      2. Starry Gordon

        A given exchange does not produce an objective value, it records transitory perceptions of value or ‘utility’ on the part of evaluators. When we examine collections of such exchanges (markets) we observe that they vary widely from place to place and time to time without firm connection to observable material facts in the exchanged objects (or services, etc.) It seems to me, if one were going to create economics as an actual science, the first task would be to figure out what material observation(s) to base it on. That is, to figure out what it’s about. I think we’re in agreement as to the purpose of the game as presently played.

        1. TimD

          Yes, a historical record of the price (value) it was exchanged at. We are splitting hairs if price and value are not the same. Prices do fluctuate, and every time the sales register rings we have an observation. I am not judging if the price (value) someone puts on a good or service is right or wrong, good or bad – just recording an observation. Just like scientists do.

          When WS Jevons and Co. decided that value was the change in utility of the last unit consumed, they could easily devalue domestic labor when lower-priced foreign goods came into the British economy. A ‘scientific’ reason to start a race to the bottom.

          1. anon y'mouse

            price is not determined by magical supply/demand curves.
            the price is “whatever the owner can get away with crossed by how much the buyer can afford in a given amount of time”.
            it’s the result of many, many power relations. nowhere near a “science”.
            that it allows accounting to go on is not what we’re talking about.

            and to use something else as the external ruler against which all other things shall be measured as to their price or value does what, again? it would be some arbitrary series of abstractions or fictions we decided upon that have little to do with much of anything except someone’s preference.

            what ruler do you use to measure a ruler, and why?

            1. TimD

              Yes buyer and seller exchange and we have something we can measure – no matter how we feel about the power relations. I can use that number, along with the rest of the accounting information that businesses generate to observe the economy. I can do so much more accurately than the neoclassicals can and with less need for normalizing assumptions.

              I can measure, GDP, the rate of growth, the generation of surplus value, trade surpluses, rate of change in inequality – the list goes on and on.

              1. rsm

                What makes you think you can get real prices with any accuracy?

                Isn’t GDP based on surveys which have a standard error that is never reported?

                1. TimD

                  What do you mean by a real price? Someone goes to the store and pays $99 for something – the money is pretty real.

                  1. David May

                    I passed two stores side-by-side today where one store was selling coke for 100 cents and the other store was selling it for 50c. No one gives a sh|t about economic models and theories except 40 year-old virgin autists.

                    1. TimD

                      I am not big on models myself and was always frustrated with the models they taught us in school. There are so many restrictions and assumptions built in that they basically create their own answers. One of my profs said, “Your tell me who wrote the paper and I will tell you their conclusion.” NCT has been a blight for decades.

  6. chuck roast

    Here is another: Recasting Egalitarianism; New Rules for Communities, States and Markets by Sam Bowles and Herb Gintis. The argument is that if institutions were properly designed markets can actually enhance the achievement of certain core values of the left, especially equality, while at the same time preserving and improving various forms of efficiency. From 1998.

  7. David

    I don’t know quite how the author defines “neoclassical economics” in this context, or who (apart from Thatcher) he has in mind, but the argument that it’s about separating “efficiency” from “equity” seems to ignore where this school of economics ultimately came from.

    And where was that? Well, the Deists of the 18th Century conceived of a universe designed and made by a thoughtful, compassionate God who then pressed the button and let humans get on with it, retiring to write His memoirs. This world was not perfect, but it was the best that could be achieved within the constraints that God was working with. This, of course, was behind Leibniz’s famous and much-mocked argument that humans lived in the “best of all possible worlds”. He didn’t mean the world was perfect, just that it was the best that could be achieved under the circumstances. It’s not an accident that Leibniz was a mathematician, and he clearly had some idea of maximising total human utility in mind.

    The market was one aspect of this perfect-as-possible world, and one had to assume that, like everything else, it already functioned as well as was reasonably possible. To introduce questions of equity into economic management (or for that matter to seek to manage an economy at all) was to disrupt the painstakingly-organised natural order. More than that, since the natural order had been optimised for the greatest practicable equity already, any attempt to artificially increase “equity” would actually wind up reducing it overall.

    Even when religious belief faded, the argument remained that the maximum feasible equity was already baked into the system, and fiddling with it would only make things worse. The idea of an opposition between the two, or that “efficiency” is something to be pursued for its own sake regardless of equity, has only become dominant quite recently. Perhaps that’s what the author is referring to, but it’s hard to be sure. In any event, the whole school of thought has been so discredited by pragmatic evidence for so long, that the answer to what might replace is is “almost anything.”

    1. ChrisPacific

      I think religion is a better basis for assessing NCT than science. It’s been clear for some time that it doesn’t stack up as a science. Its continued high level of funding combined with extreme aversion to empirical evidence or success metrics of any kind should tell us all we need to know on that front.

      As a religion, on the other hand, it’s arguably been very successful, in the USA at least. Like other religions, it attempts to take a value system (namely, that virtue is exactly proportionate to net worth) and give it the force of natural law. Historically most Americans have internalized this to the point where they hardly even question it any more. It’s only relatively recently that people have started to question the idea, and the resulting social upheaval arguably has more in common with the Reformation than any crisis of scientific theory.

      Unfortunately if we take the view that NCT is a successful religion masquerading as an unsuccessful science, the assertion that it’s dead isn’t supported at all. It has vulnerabilities, and we could theoretically kill it using some of the techniques described in this article, but I wouldn’t expect it to happen easily or quickly. Too many powerful interests stand to gain too much by its continuation.

  8. Mikel

    Any theory that treats a life and death issue like health care as a “product”, indistinguishable from widgets, can’t die soon enough.

  9. marku52

    I can’t see how capitalism is compatible with a finite planet, since one of the main things capitalism does is it rewards finding externalities, ie, cheating.

    In capitalism, cheaters win. And it has no inherent feedback mechanism to correct for this.

    And nature is one of the big losers.

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