May 28 2007

More on Heterodox Economics

NCEE | EconomicsAmerica® | National Standards

A CRITIQUE OF “STANDARDS OF ECONOMICS” from the URPE

What is Heterodox Economics? Perhaps it’s easier to start by saying what it is NOT. Heterodox Economics is NOT what we teach in Advanced Placement Economics. It is not what most major universities and colleges teach in their undergraduate and graduate economics courses. It is not widely accepted as a mainstream view in the field of professional economics. Its economists are not widely published in the top five economic journals. It is not neo-classical in its views that “humans are rational, utility-maximizing agents with fixed preferences, that they make decisions “at the margins” and that the mechanisms of supply and demand (operating free of government interference) will lead to a general equilibrium whereby resources are allocated efficiently.” In other words, heterodox economics challenges the widely accepted view that free markets and free individuals acting in their own self interest will perfectly allocate resources and achieve a general equilibrium where resources are put to their most efficient uses and goods and services are distributed efficiently among individuals in society. Markets are imperfect, and human institutions should offer Adam Smith’s “invisible hand” a helping hand when it comes to allocation of resources and output.

The National Council for Economics Education (NCEE, which publishes the widely used workbook “Advanced Placement Economics”) released in 2000 its National Standards on Economic Education, based on the “essential principles of economics”. High school economics courses, including AP, are rooted in these standards, which themselves are rooted in neo-classical theory originating with Adam Smith and carrying on to Milton Friedman and today’s mainstream economists whose work receives the most acclaim in top economic journals.

On the other end of the spectrum from the NCEE is the Union for Radical Political Economics (URPE), originally founded in the 1960’s by heterodox economics with the following goals:

First, to promote a new interdisciplinary approach to political economy which
includes also relevant themes from political science, sociology and social psychology.
Secondly, to develop new courses and research areas which reflect the urgencies of the day
and a new value premise. Such areas include the economics of the ghetto, poverty,
imperialism, interest groups, and the military-industry complex. And thirdly, political
economics should be sensitive to the needs of the social movements of our day, and have
more group research, with an approach that links all issues to a broad framework of
analysis.

To better understand the differences between heterodox economics and mainstream, neo-classical economics, it may help to examine the heterodox critique of the NCEE’s 20 Standards on Economic Education. The links above will take you to the full critique, but here’s a short excerpt that I think illustrates rather clearly the differing philosophies of these two modern schools of economic thought. The NCEE standards are in bold, the URPE’s critique is italicized:

1 and 2. Resources are limited so people cannot have all they want.
This is the traditional “starting point”
of neo-classical economics which focuses our attention on how to allocate scare resources. The focus is on efficiency, which is understood to mean maximizing total production. Thus the central question is how to CHOOSE – how to trade-off one thing for another. Classical economists, such as Adam Smith, looked not only at total production but at how it was distributed between classes (landlords, capitalists and workers), and Marx viewed the appropriation of surplus production (over and above what was necessary for working people) as “theft” by the ruling classes. A total “disinterest” in distribution is one of the defining characteristics of neoclassical economics. An alternative focus for economics would be how to insure a decent standard of living for the people of the world..

3. People choose different methods of allocation of goods and services.
Note throughout the use of terms
such as “people” and “individuals” with no distinction between capitalists and workers. Thus “people” choose their economic systems. The assumption here is that the “choice” is merely a matter of the level at which government decisions are made rather than any disagreement about a system which relies on profit-making as the motive force behind the private provision of goods and services, Thus the “command economy” (which is implicitly identified with communism) is presented as one in which the market plays no role, and there is absolutely no mention of the communists’ abolition of the capitalism class, and subsequent end to distribution on the basis of ownership of property.

4 and 5. People respond to incentives and voluntary exchange is beneficial.
There is not reference here to
the starting point of this “voluntary exchange. The poverty-stricken will take starvation wages and even sell themselves or their children into slavery – this is, of course, “voluntary” in one sense but a more comprehensive approach recognizes that “they have no choice.”

The list goes on. It’s very interesting to compare the reasonable critique offered by heterodox economists to the “truths” of economics that we teach in our principles courses. It also frustrates me that in our limited time in the AP course we are unable to further explore these alternative, yet very valid and important approaches to understanding economic behavior and policy. I will encourage my students to seek courses in university that challenge the neo-classical view taught in AP Economics. The field of heterodox economic, while it has not yet achieved mainstream status, surely will play a crucial role in the evolution of this science in the decades to come, as social unrest, political turmoil, conflict, scarcity, environmental and social ills continue to plague our ever-changing world.

While adherents of heterodoxy may not yet be widely accepted in the mainstream field, their “human” approach to the “economic problem” will surely gain appeal as growth continues to broaden the divide between rich and poor, haves and have nots, urban and rural. Bright young students who have been exposed first hand to the challenges and downsides of economic growth (such as those faced by the millions o poor migrant workers here in Shanghai) are just the kind of students who can go on to make valuable contributions to heterodox economics.

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About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

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