The Political Economy Challenge To Mainstream Economics

One critique of mainstream economics is that their “economic science” often fails to be a valid indicator of real world events. For example, an economist does not test his or her hypothesis until it is widely agreed or proven, like that of a physicist would. Another critique is the idea of the “economic man”. The “economic man” thought to be rational and self-interested, for example (with regards to a linear demand curve) if a good’s price is raised he may still want it. The “economic man” may fail to be rational in this sense and defy the notion that with a higher price we can expect a lower demand. Next is the idea that mainstream economics ignores the time and change dimension. For example Adam Smith argued that a trader is self-interested and would trade to seek profit.
However, he ignored the historic ideas of exchange of economies in Greece and Rome where exchange took place for reciprocity or redistribution, he did not acknowledge the rise of capitalism and the exchange differences in time (Sackrey, 2016, p. 13). Lastly, mainstream economics believe that the economy and government are two separate entities that should not interfere with one another. However, from 1959 to 2015 the Fortune 400 accumulated wealth much quicker due to government intervention (Sackrey, 2016, p. 15). While the wealth gap and economic activity may be a direct result of the federal marginal tax rate changes, a mainstream economic view would not associate the two. b. What is political economy and how is it different from mainstream economics? (1 points)
Political economy is a more inclusive approach to understand social and economic problems and change within the system. The political economy emphasizes relationships within the social system and the way it interacts with society and economics. Non-economic factors, like political and social institutions, morality, and ideology, are useful aspects to understanding and determining economic events.
The focus of political economics is more inclusive and comprehensive, whereas a mainstream economic view thinks that supply and demand graphs are a great indicator of economic activity and future patterns. Mainstream economics is more concerned with utilizing the predictable and rational consumer to analyze and predict economic activity. Political economy acknowledges economies of scale, while mainstream economics does not. A political economist believes that universal ideologies should be viewed and applied with skepticism, while a mainstream economist generally applies laws universally. c. When did neoclassical economics become prominent? In one paragraph provide a historical chain of events that leads to the rise of neoclassical economics (1 point)
Neoclassical economics became prominent around the fifteenth and sixteenth century in Europe. At this time there was a change in understanding the world from religious explanations to more scientific ones. Public health and government intervention came about in the eighteenth century as European cities experiences terrible conditions as workers started to flood them. In the nineteenth century, Louis Pasteur agreed with the new practical sciences and policies from the eighteenth century and studied bacteria causing disease. The combination of public health and biological science caused a major increase in life span in industrialization after the nineteenth century. The physical scientists, like Columbus and his voyage to the New World and Pasteur’s efforts to minimize bacteria, led to industrialized countries becoming inspired and joining the new ideologies to understand the world and elongate length of life.
Economist of the eighteenth and nineteenth centuries, like Adam Smith and Karl Marx, included mathematics and statistics in their approaches to understanding and explaining economics. Equilibrium, a term borrowed from physics, began to be used in economics as a way to understand models. Science and math began to merge with economic theories. A notable neoclassical economic theory that resulted from this is that the economy is somewhat stable and influences from outside forces, like social change, will only cause temporary stray from equilibrium. Such notion suggests that economy is self-correcting and therefore requires little-to-no governmental intervention. Smith also believed that people would act based on self-interest, which would ultimately contribute to the best system and world possible.
Alfred Marshall is another important economist figure in the nineteenth century shift from broad and ideologist economic language to a more precise and quantitative one. He argued that how are person behaves, with regards to spending money and investing it, can be analyzed as figures of numbers and applied to economics. Marshall ultimately progressed economic thought to understand how prices for products, labor wages, and money (or interest rates) were established in competitive markets. Supply and demand, Marshall thought, were key aspects in determining market price. Along with Marshall’s findings came other economists who called upon the driving factors in markets- decisions made by producers, consumers, and workers. Marginalists, people who practiced an analysis that capitalist decided revenues and profits and consumers weighed products to marginal costs, grouped all economic marginal decisions into one general quantitative model. Economists experienced a shift to think more narrowly and neglect outside factors like social class, income, and power, as well as the idea that government intervention would benefit the economy in alleviating problems.
By 1890 Marshall’s geometrics models and ideas of supply and demand were published and taught to students, marking the spread of twentieth century economics. Keyes continued the quantification of economics, giving a new way for economists to think about the business cycle, and raising new points such as the systems inability to be self-correcting. In 1948, Paul Samuelson wrote and published the first widely used economics textbook, which was heavy with mathematical expression. Marshall’s microeconomics analysis and Keyes’ macroeconomic were used in conjunction to establish Samuelson’s idea of “neoclassical” economics (Sackrey, 2016, p. 5-8). d. Why is neoclassical economics considered mainstream economics? (1 point)
Neoclassic economics is considered mainstream economics because Samuelson combined Marshallian microeconomics with a mathematized interpretation of Keynes to create “neoclassical synthesis”. This economic foundation fueled the mainstream economics takeover. This template soon became widely read and studied in economic textbooks, education, and gradual programs (Sackrey, 2016, p. 17).