A moonshot to overthrow neoclassical economics

Tyler Cowen gave me an idea. He described his personal moonshot. He wrote,

My goal is to be the economist who has most successfully used the internet as a platform to foment broad enlightenment.

He elaborates on this, creating a concise statement of his mission as a public intellectual.

So I did something similar. Please read Overthrow Neoclassical Economics: my personal moonshot. It begins,

My personal moonshot is that I wish to be a leader in overthrowing neoclassical economics.

…As I see it, neoclassical economics is characterized by two essential propositions.

1. Production is a process that employs two primary factors — labor and capital.
2. The distribution of returns to labor and capital reflects their respective contributions to the production process.
There are many economists, particularly on the left, who reject (2) in favor of theories of distribution that stress the role of political power. This criticism may have merit. But my criticism is more fundamental than that. I reject (1) as a useful description of the contemporary economy.

In neoclassical economics, individual productivity is inherent in the technology and the amount of capital per worker. In reality, it is way more complicated than that. Indeed, there are power relationships, but it is way more complicated than that. Technology and relative power are not sufficient to determine individual productivity and compensation. Everything depends on who you are teamed up with, how you are organized, the overall culture in which you are embedded, and other factors, including ongoing dynamics and expected future changes.

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6 Responses to A moonshot to overthrow neoclassical economics

  1. Handle says:

    Maybe as an addition to “Patterns of Sustainable Specialization and Trade” = PSST, you could add “Too Complicated to be Modelled Profitably” = TooCoMP.

  2. Tom DeMeo says:

    It might be good to know what economists are trying to accomplish. Your description of neoclassical economics attempts to determine a national measure of labor productivity. Why? What does a number like that tell us? How is it used to inform policy decisions?

  3. Matthew Young says:

    Classical alo uses supply and demand, another two way trade.

    I don’t think we get rid of capital/labor without dumping supply/demand. Capital/labor is derived from the other, badly I am sure, but not fundamentally wrong as long as we accept supply/demand.

    • Roger Sweeny says:

      Dumping all “factors of production” into two boxes “capital” and “labor” is not derived from supply/demand. Just not.

      It is easy to both use supply/demand and have Arnold’s attitude toward capital/labor.

  4. Matthew Gelfand says:

    This approach is in large part the subject matter for which Oliver Williamson won his Nobel Prize, answering questions such as: Why do firms exist? Why are they organized the way they are? Williamsonian socioeconomic rather than neoclassical.

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