Mainstream economics

Source: Wikipedia, the free encyclopedia.

Part of the
behavioral sciences
Economics
Principles of Economics
Tools and
Economic theory

Empirical methods

Prescriptive
and policy

Branches and subfields
Applications

Mainstream economics is the body of knowledge, theories, and models of

economists as a basis for discussion. Also known as orthodox economics, it can be contrasted to heterodox economics, which encompasses various schools or approaches
that are only accepted by a small minority of economists.

The economics profession has traditionally been associated with neoclassical economics.[1] However, this association has been challenged by prominent historians of economic thought including David Colander.[2] They argue the current economic mainstream theories, such as game theory, behavioral economics, industrial organization, information economics, and the like, share very little common ground with the initial axioms of neoclassical economics.

History

Economics has historically featured multiple schools of economic thought, with different schools having different prominence across countries and over time.[3]

Prior to the development and prevalence of classical economics, the dominant school in Europe was

underconsumptionist
school.

During the Great Depression, the school of Keynesian economics gained attention as older models were neither able to explain the causes of the Depression nor provide solutions.[4] It built on the work of the underconsumptionist school, and gained prominence as part of the neoclassical synthesis, which was the post–World War II merger of Keynesian macroeconomics and neoclassical microeconomics that prevailed from the 1950s until the 1970s.[5]

In the 1970s, the consensus in macroeconomics collapsed as a result of the failure of the neoclassical synthesis to explain the phenomenon of

New Keynesianism and New classical macroeconomics. Both sought to rebuild macroeconomics using microfoundations to explain macroeconomic phenomena using microeconomics.[7]

Over the course of the 1980s and the 1990s, macroeconomists coalesced around a paradigm known as the

which?][9][10] The consensus built around this synthesis is characterised by an unprecedented agreement on methodological questions (such as the need to validate models econometrically); such agreement had, until the new synthesis, historically eluded macroeconomics, even during the neoclassical synthesis.[11]

The 2008 financial crisis and the ensuing Great Recession exposed modelling failures in the field of short-term macroeconomics.[12] While most macroeconomists had predicted the burst of the housing bubble, according to The Economist "they did not expect the financial system to break."[13]

Term

The term "mainstream economics" came into use in the late 20th century. It appeared in 2001 edition of the textbook

Keynes (1936) and neoclassical economics (1860–1910).[14] The term "neoclassical synthesis" itself also first appears in the 1955 edition of Samuelson's textbook.[15]

Scope

Mainstream economics can be defined, as distinct from other schools of economics, by various criteria, notably by its assumptions, its methods and its topics.

Assumptions

While being long rejected by many heterodox schools, several assumptions used to underpin many mainstream economic models. These include the neoclassical assumptions of

rational choice theory, a representative agent, and, often, rational expectations. However, much of modern economic mainstream modeling consists of exploring the effects that complicating factors have on models, such as imperfect and asymmetric information, bounded rationality, incomplete markets, imperfect competition, heterogeneous agents[16] and transaction costs.[17]

Originally, the starting point of orthodox economic analysis was the individual. Individuals and firms were generally defined as units with a common goal: maximisation through rational behaviour. The only differences consisted of:

From this (descriptive) theoretical framework, neoclassical economists like

public goods. These developments suggest a range of views on the desirability or otherwise of government intervention, from a more normative perspective.[citation needed
]

Methods

Some economic fields include elements of both mainstream economics and heterodox economics: for example, institutional economics, neuroeconomics, and non-linear complexity theory.[20] They may use neoclassical economics as a point of departure. At least one institutionalist, John Davis, has argued that "neoclassical economics no longer dominates mainstream economics."[21]

Topics

Economics has been initially shaped as a discipline concerned with a range of issues revolving around money and wealth. However, in the 1930s, mainstream economics began to mutate into a science of human decision. In 1931, Lionel Robbins famously wrote "Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses". This drew a line of demarcation between mainstream economics and other disciplines and schools studying the economy.[22]

The mainstream approach of economics as a science of decision-making contributed to enlarge the scope of the discipline. Economists like

economic imperialism.[27]

Notes

  1. ^ The precise distinction and relationship between classical economics and neoclassical economics is a debated point. Suffice to say that these are the ex post facto terms used to refer to successive chronological periods of an interrelated group of theories.

References

Footnotes

  1. ^ Colander 2000a, p. 35.
  2. ^ Colander 2000b, p. 130.
  3. ^ Dequech 2007, p. 279.
  4. ^ Jahan, Mahmud & Papageorgiou 2014, p. 53.
  5. ^ Blanchard 2016, p. 4.
  6. ^ Snowdon & Vane 2006, p. 23.
  7. ^ Snowdon & Vane 2006, p. 72.
  8. ^ Kocherlakota 2010, pp. 11–12.
  9. ^ Mankiw 2006, pp. 38–39.
  10. ^ Goodfriend & King 1997, pp. 231–232.
  11. ^ Woodford 2009, pp. 2–3.
  12. ^ Krugman 2009.
  13. ^ The Economist 2009.
  14. ^ Samuelson & Nordhaus 2001.
  15. ^ Blanchard 2016, p. 1.
  16. ^ Kaplan, Moll & Violante 2018, p. 699.
  17. ^ Kaplan, Moll & Violante 2018, p. 709.
  18. ^ a b Himmelweit 1997, p. 22.
  19. ^ Himmelweit 1997, p. 23.
  20. ^ Colander, Holt & Rosser 2003, p. 11.
  21. ^ Davis 2006, pp. 1, 4.
  22. ^ Schäfer & Schuster 2022, p. 11f.
  23. ^ Lazear 1999, p. 19.
  24. ^ Lazear 1999, p. 14.
  25. ^ a b Lazear 1999, p. 39.
  26. ^ Lazear 1999, p. 20.
  27. ^ Lazear 1999, p. 6.

Works cited

Retrieved from "https://en.wikipedia.org/w/index.php?title=Mainstream_economics&oldid=1285188637"