Mainstream, neo-liberal economic theory, which students learn in most American universities, provides basic tools for understanding the underlying mechanics such as supply and demand.
I personally enjoyed my economics classes in college and grad school, but soon realized that the real world, not the hypothetical world of economics case studies, is far more complicated and even more counter intuitive than one would conclude after reading a microeconomics text book. No surprise. Like, if people maximize utility or wealth, how does one explain charity? A cynic would say that donors get some type of benefit, such as prestige, social standing, or other side benefits. No room for altruism. I remember talking to a brilliant French economist in Tokyo a few years ago and I was trying to make sense of some of his ideas by applying rational choice theory. He scoffed and called "rat choice" passe.
Remember, the answer to any economics question is, "It depends."
Seeing Joseph Stiglitz speak in Tokyo several years ago was also an enlightening experience. The Washington consensus of free trade and low budget expenditures was not the final word on development policies? Top economists, such as Stiglitz, Jeff Sachs, Larry Summers, Alan Blinder, and Robert Reich, are drawing attention to the failings of free market economics. Some thinkers, like our friends Sanjay Reddy, Thomas Pogge, and Christian Barry, are even applying ethics to economics, and asking is this policy just... is it fair?
New York Times reporter Patricia Cohen reports on this cadre of emerging heterodox economists in an article last week titled "In Economics Departments, A Growing Will To Debate Fundamental Assumptions." You can read it here. I remember just a year ago the phrase heterodox economist was alien to some. One person asked me what that was; I simply said, "the opposite of orthodox." Oh.
Cohen's point is that "in recent months" economists are feeling less ashamed about questioning the fundamental assumptions, less fearful of being ostracized. I might put the time frame in "recent years," but here are a couple of nice snippets from Cohen's report:
For many economists, questioning free-market orthodoxy is akin to expressing a belief in intelligent design at a Darwin convention: Those who doubt the naturally beneficial workings of the market are considered either deluded or crazy.
But in recent months, economists have engaged in an impassioned debate over the way their specialty is taught in universities around the country, and practiced in Washington, questioning the profession’s most cherished ideas about not interfering in the economy.
“There is much too much ideology,” said Alan S. Blinder, a professor at Princeton and a former vice chairman of the Federal Reserve Board. Economics, he added, is “often a triumph of theory over fact.” Mr. Blinder helped kindle the discussion by publicly warning in speeches and articles this year that as many as 30 million to 40 million Americans could lose their jobs to lower-paid workers abroad. Just by raising doubts about the unmitigated benefits of free trade, he made headlines and had colleagues rubbing their eyes in astonishment.The article ends with this great story on Dani Rodrick:
Most mainstream economists think that voicing any skepticism or doubt provides “ammunition to the barbarians,” he said, and allows narrow-minded people to “hijack any argument to suit their purpose.”
Mr. Rodrik said he used to worry about this until he realized that “on any issue, there are barbarians on both sides,” so there was no point in shading an argument to “suit one set of barbarians over the other.”
“And I’ve slept a lot better since.”