The Limits of Conventional Economics

Chapter

Abstract

The last century has seen the ascendancy, indeed intellectual dominance, of neoclassical economics (NCE, also known as market or Walrasian or University of Chicago or, Washington consensus or, occasionally, neo welfare economics). The basic neoclassical model represents the economy as a self-maintaining circular flow among firms and households, driven by the psychological assumptions that humans act principally in a materialistic, self-regarding, and predictable way. Unfortunately the NCE model violates a number of physical laws and is inconsistent with actual human behavior. Consequently the NCE model is unrealistic and a poor predictor of people’s actions, as an array of experimental and physical evidence and recent theoretical breakthroughs demonstrate. Despite the abundance and validity of these critiques, few economists seriously question the neoclassical paradigm that forms the foundation of their applied work. This is a problem because policy makers, scientists, and others turn to economists for answers to important policy questions. The supposed ­virtues of “privatization,” “free markets,” ­“consumer choice,” and “cost–benefit analysis” are considered to be self-evident by most practicing economists, as well as many in business and government. In fact the evidence that these concepts are correct or do what most people believe they do is rather slim and contradictory. Thus this chapter is a strong critique of economic theory, in this case NCE [1].

Keywords

Entropy Income Assure Gasoline Arena 

References

  1. 1.
    This chapter is derived in part from J. Gowdy, C. Hall, K. Klitgaard and L. Krall 2010. The End of Faith-Based Economics. The Corporate Examiner 37:5–11, and Hall, C., Lindenberger, D., Kummel, R., Kroeger, T. and Eichhorn, W., 2001. The need to reintegrate the natural sciences with economics. BioScience, 51: 663–673.Google Scholar
  2. 2.
    Georgescu-Roegen, N. 1975. Energy and economic myths. Southern Economic Journal, 41: 347–381.CrossRefGoogle Scholar
  3. 3.
    Daly, H., 1977. Steady-State Economics. W. H. Freeman, San Francisco.Google Scholar
  4. 4.
    Cleveland, C., Costanza, R., Hall, C., and Kaufmann, R., 1984. Energy and the U.S. economy: a Biophysical perspective. Science, 225: 890–897.CrossRefGoogle Scholar
  5. 5.
    Hall, C., Cleveland, C. and Kaufmann, R., 1986. Energy and Resource Quality: The Ecology of the Economic Process. Wiley Interscience, New York.Google Scholar
  6. 6.
    Hall, C., Lindenberger, D., Kummel, R., Kroeger, T. and Eichhorn, W., 2001. The need to reintegrate the natural sciences with economics. BioScience, 51: 663–673. Also: Kummel R., J. Henn, D. Lindenberger. 2002. Capital, labor, energy and creativity: modeling. Structural Change and Economic Dynamics. 3 (2002) 415–433Google Scholar
  7. 7.
    Wilson, E., 1998. Consilience: The Unity of Knowledge. Alfred Knopf, New York.Google Scholar
  8. 8.
    Denison, E.F., 1989. Estimates of Productivity Change by Industry, an Evaluation and an Alternative. The Brookings Institution, Washington, DC.Google Scholar
  9. 9.
    Ayres, R. and Warr, D., 2005. Accounting for growth: the role of physical work. Change and Economic Dynamics. 16: 211–220.CrossRefGoogle Scholar
  10. 10.
    Cleveland, C.J., 1991. Natural Resource Scarcity and Economic Growth Revisited: Economic and Biophysical Perspectives. Pages 289–317. in Costanza R., ed. Ecological Economics: The Science and Management of Sustainability. New York: Columbia University Press.Google Scholar
  11. 11.
    Solow, RM. 1974. The economics of resources or the resources of economics. American Economic Review 66: 1–14. Also Solow, R.M., 1994. Perspectives on growth theory. Journal of Economic Perspectives 8, 45–54.Google Scholar
  12. 12.
    LeClerc, G. and Charles, H., (Eds.) 2008. Making development work: A new Role for science. University of New Mexico Press. AlbuquerqueGoogle Scholar
  13. 13.
    McCauley, J.L. and C. M. Kuffner. 2004. Economic System Dynamics. Discrete Dynamics in Nature and Society 1 (2004): pp. 213–220CrossRefGoogle Scholar
  14. 14.
    Leontief W. 1982. Academic economics. Science 217: 104.CrossRefGoogle Scholar
  15. 15.
    Mirowski, P. 1989. More Heat than Light. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  16. 16.
    Gintis, H., 2000. Beyond Homo economicus: evidence from experimental economics. Ecological Economics. 35: 311–322.CrossRefGoogle Scholar
  17. 17.
    Camerer, C., and Loewenstein, G., 2004. Behavioral economics: past present and future. In: Camerer, C, Loewenstein, G. and Rabin, M (Editors), Advances in Behavioral Economics. Princeton U. Press, Princeton, NJ and Oxford UK 3–52.Google Scholar
  18. 18.
    Henrich, J. et al., 2001. Cooperation, reciprocity and punishment in fifteen small-scale societies. American Economics Review, 91: 73–78.CrossRefGoogle Scholar
  19. 19.
  20. 20.
    Ackerman, F. and Heinzerling, L., 2004. Priceless: On Knowing the Price of Everything and the Value of Nothing. The New Press, New York and London.Google Scholar
  21. 21.
    Frey, B. and Stutzer, A., 2002. Happiness and Economics: How the Economy and Institutions Affect Well-Being. Princeton University Press, Princeton, NJ.Google Scholar
  22. 22.
    Diener, ES., Diener, M. and Diener, C., 1995. Factors predicting the well-being of nations. Journal of Social Psychology, 69: 851–864.CrossRefGoogle Scholar
  23. 23.
    Brickman, P., Coates, D. and Janoff-Bulman, R., 1978. Lottery winners and accident victims: Is happiness ­relative? Journal of Personality and Social Psychology 36: 917–927.CrossRefGoogle Scholar
  24. 24.
    Blanchflower, D. and Oswald, D. 2000. Well-Being over Time in Britain and the U.S.A. NBER Working Paper No.7481, National Bureau of Economic Analysis. Cambridge, MA.Google Scholar
  25. 25.
    Lane, R., 2000. The Loss of Happiness in Market Economies. Yale University Press, New Haven and London.Google Scholar
  26. 26.
    Meyers, D., 2000. The funds, friends, and faith of happy people. American Psychologist. 55: 56–6.CrossRefGoogle Scholar
  27. 27.
    Arrow, K., Dasgupta, P., Goulder, L., Daily, G., Ehrlich, P., Heal, G., Levin, S., Goran-Maler, K., Schneider, S., Starrett, D., Walker, B., 2004. Are we consuming too much? Journal of Economic Perspectives. 18: 147172.CrossRefGoogle Scholar
  28. 28.
    Gowdy, J., 2004. The revolution in welfare economics and its implications for environmental valuation. Land Economics. 80: 239–257.CrossRefGoogle Scholar
  29. 29.
    Gowdy, J. and J. Erickson. 2005. The approach of ecological economics. Cambridge Journal of Economics. 29 (2): 207–222.CrossRefGoogle Scholar
  30. 30.
    Makgetla, N. and Sideman, R., 1989. The applicability of law and economics to policymaking in the third world. Jour. of Econ. Issues, 23: 35–78.Google Scholar
  31. 31.
    Hall, C., 2000. Quantifying Sustainable Development: the Future of Tropical Economies. Academic Press, San Diego.Google Scholar
  32. 32.
    Hall, C.A. S., Pontius, R.G. Coleman L. and Ko J-Y. 1994. The environmental consequences of having a baby in the United State. Population and the Environment. 15: 505–523.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  1. 1.Faculty of Environmental & Forest Biology and Graduate Program in Environmental Science College of Environmental Science & ForestryState University of New YorkSyracuseUSA
  2. 2.Social SciencesWells CollegeAuroraUSA

Personalised recommendations