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Slide1
Problems of contemporary economics – Need for New Theory
Radmilo V. Pešić
University of Belgrade
SerbiaSlide2
Do we need Economics at all?
To make students` life harder, to make economists more esoteric, to make economic profession more exclusive and better paid, to make politicians more addicted to economists, and to make journalists more ignorant…….???
Contemporary mainstream economics is just made for such purposes.
NO
! WE DO NOT NEED SUCH ECONOMICS.Slide3
What do we need, and why?
We need
economics knowledge in order
to:
to enable mankind to survive, grow and prosper
to protect humanity from its own greed
to make the World a better place
to save the
Planet for generations to come
Current ET is just a small fraction of a rich legacy that some clever scholars left us, and it serves as a scientific justification of current distribution.
New Economic Theory is the right answerSlide4
Why do we need NET?
Discrepancy between theory and reality
(university economics vs. real life economics,
Dept
of
Econs
. vs. MBA)
Diminishing explanatory power of economics
In spite of high-tech methods and techniques less science in it
(more and more abstract suppositions
, assumptions). Unsuccessful attempt to resemble theoretical physics
Impotence of economic policySlide5
What are the problems?
Perfect rationality axiom.
Information problem, (information gathering is costly, time consuming and misleading / information redundancy, selection and analysis problem)
Bounded rationality (Simon H.)
Behavioral economics, prospect theory (
Kahneman
,
Twersky
,
Knetch
, ….
etc
)Slide6
More problems……
Optimization. Do we optimize at all, or we just search for a satisfactory solutions?
Do we now what is optimal?
Consumer choice. How rational it really is? Advertising. Information bias. Transaction costs (transparent and hidden).
Profit maximization. Do entrepreneurs really maximize profits or just search for a satisfactory profit? Big firms, monopolist, may maximize. Small and medium sized only may try, through attempts and falls, but it is very costly and nearly impossible.
Most of economic agents in reality search for: Satisfactory profits, Satisfactory incomes, Satisfactory utility (
Shiozava
, Y. Nelson, R. Foster, J. and other Evolutionary economists)Slide7
More problems……
Illusion of OMNISCIENT and OMNIPPOTENT markets (
Bj
ö
rkman
, T. ; Jacobs, G. ;
Komlos
, J. etc.)
Confusion: free trade=free market ; Smith vs.
Walras
: Hayek vs. Keynes (
Bj
ö
rkman
, T.)
Illusion of Equilibrium (free market powers tend to equilibrium)
Free market=perfect competition=freedom of choice=political freedom=democracySlide8
More problems……
Abstraction is reduction of reality
We still believe that
the
abstraction
is
the
reality
Simplifying world
Model building is a dangerous trivialization
We have substituted philosophy with mathematics, and logics with statisticsSlide9
What are the solutions?
Humanistic Real-world Economics
Humanistic Economics in normative sense
Real-world Economics in positive sense
New Market
or Post-Market
Economy
without myths of the market (markets are man-made institutions)
Finding ways to avoid
Another Road to Serfdom
Avoiding dangerous dominance of corporative sector (instead of countervailing between states and corporations).Slide10
Post-Market Society
Information revolution,
Digital goods, free public goods
Networking (Mason, P)
Strength of networks> minimum bureaucracy, flexibility, quick change, changing leadership, informal character, voluntarism, freedom of choice
Political fear: leaving market economies and substituting market societies with networks freedom will be lost.
New concept of freedom
Another road to Serfdom
(Komlos, J). Slide11
Reference
Björkman
, T. 2016 The Market Myth.
Cadmus
, 2(6), May , 43-59.
Foster, J. 2011 Evolutionary macroeconomics: a research agenda.
Journal of
Evol
.
Econs
.
21 5-28.
Hoffman, R. 2012 On the Need for New Economic
F
oundations: A Critique on Mainstream Macroeconomics.
Cadmus
, 1(5), October, 74-85.
Jacobs, G. 2016 Foundations of Economic Theory: Markets, Money, Social Power and Human Welfare.
Cadmus
2(6), May ,
20-42.
Komlos
, J. 2014
What Every Economics Student Needs to Know and doesn't get in the usual Principles Text.
M.E. Shape, Armonk NY.
Komlos, J. 2016 Another Road to Serfdom.
Chalenge
, 59(6) , 491-518.
Nelson, R. R. 2013 Demand, supply, and their interaction on markets, as seen from the perspective of evolutionary economic theory.
Journal of
Evol
.
Econs
.
23 17-38.
Shiozawa
, Y. 2004 Evolutionary Economics in the 21
st
Century: A Manifesto.
Evol
. Inst. Econ. Rev.
1(1) 5-47.
Simon
,
H. 1991 Bounded
Rationality and Organizational
Organization
Science
.
2(1) 125–134.