Neoclassical economies
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Abstract
In the debate of economic theories, it is prudent to identify positive performing theories and those which are not performing on realism factor. For economists, the task is to identify whether the specified economics objectives prudently meet the expectations of the public on a social perspective. Significantly, the determination of the economic worth of a given jurisdiction is one that aims at maximizing social benefits and not necessarily benefits or utility. In this light, the commencing research will appoint neoclassical economics as vivid case study. The research will attempt to prove that the neoclassical economics are irrelevant and cannot be applied to explain the intrinsic worth of a given society in relation to economics. The research is distributed into two main sections. Firstly, the background of the theory, and secondly, the research will provide a critical analysis of irrelevancies of neoclassical analysis.
Background of the theory
Neoclassical economics can be defined as an economic approach that reinstates that prices are determined by output and income distribution or what is commonly known as a balance of demand and supply. A close factor in the neoclassical economy is mediated through hypothesized maximization of utility and income naturally becomes constrained as individuals attempt to maximize utility as a personal gain – a conflict factor since societies will never arrive at perfection. Backed by Keynesian economics, neoclassical economics endeavors to explain theories affiliated to consumption, utility, demand and supply. In the context, the theory assumes that households maximize utility and firms maximize profits. Secondly, the theory assumes that people have rational preferences when attempting to compare outcomes that can be associated with values. Thirdly, the theory assumes that people act independently on the basis of partial or full information. Previous studies have attempted to assess the rationality factor as applied in neoclassical economics. This study will prove that neoclassical economics is largely irrelevant based on their stipulations.
Lack of clarity
Firstly, it is positive to examine the social impact of neoclassical tabulations in assessing the mental factors in social organization. Dubbink (2003, p. 58) assesses that there is a clear distinction of neoclassical tradition and laissez-faire. In this comparison, it is worthwhile to reaffirm reexamine socio-political thinking and how they impact on the economy. As a result, it is good to assess that this economic model naturally deviates from what is required to the theories –which are inapplicable. A contemporary neoclassical economist will naturally be troubled by less insightful moments that attempt to distinguish the model and the real world. To affirm on irrelevancy of neoclassical economics, this chapter will appoint the natural environment factor and how neoclassical economic approach it.
Hunt (2007, pp. 79) acknowledges that the new classical economics relies on the crude assumptions which cannot be implemented in real economic environment. Firstly, the analysis focuses on equilibrium (demand and supply) and equilibrium naturally forming the central importance. Secondly, economist maximum their own gains through the number of transactions they conduct. For instance, households are assumed to maximize the utility concept and firms, on the other hand, the profitability concept. Thirdly, neoclassical economics assumes that all agents in the economy do have perfect knowledge. Fourthly, the preferences of individuals are inclined to influences of social standard. Lastly, cost on decision making by individuals are limited to rationality concept. The thesis is that; in Neoclassical economics perfection overrides reality.
In this regard, Loannides et al. (2007, p. 200) cites Kapp (1963) demonstration in neoclassical practice as erroneous and misleading in its application. For instance, the neoclassical concept of price is irrelevant and needs correction. Further to this, it is good note that the mainstream economics works in an incomplete system of accounting. In context, the accounting approach which attempts to affiliate cost as a determinant often fails on the account of implementation. Ideally, this assumption will naturally ignore the part of the cost and hardly promote the social efficiency. In addition, the rational economic behavior as a sine qua non of social welfare and economic efficiency is taken adrift as incomplete cost benefit analysis. In contemporary argument, it is prudent to note that neoclassical economics confines the real nature of the economy and the conceptual system fail to assimilate the reasoning and conceptual system.
After a close investigation of Kapp’s approach, one will notice that the neoclassical superiority concept fails to consider the social cost in production. For instance, Americans through product are naturally risked to hazardous economic problems – demoralization or even diseases. As such, neoclassical economics will naturally assume that labor is constantly supplied at all time. In relation to this point, the issue desists to be no longer institutional economics, as well as standard set by neoclassical mainstream, and as a result, putting forward a theory of price that it is rationally prudent to consider as flawed.
Tisdell (2010, p. 24) provides a similar approach in what the extract argues as an economic externality or spillover occurrence that the attempt to influence economic agents. As a consequence of activity; neoclassical provides a benefits economist with economics goods that are not necessarily paid for socially, and to a greater consequence are causing regression to others. For example, while a flower industry is doing great in providing flowers to several consumers, and investors in the flower business industry, gardeners are at a greater risk of chemicals. In an analysis, the economic agents in neoclassical regimes receive less than an economic benefit created in return. This assumption is seconded by neoclassical paradigm that states that individual act personal self-interest and the activity is likely to be undersupplied in a former case.
Salzano (2005, p. 190) joins in this discussion in what text consider as unpopular economic phenomenon. It is an economic fallacy to assume that economic agents in a given economic are equal, while in the real sense households are viewed as simpler molecules. In this regard, it is good to affirm that the social structure does not only have an economic background, but to a greater extent, commemorates a sense of equality that is not achievable in all sense. This is a descriptive assessment that argues without a solidified backing of self-organizing property and dynamics models.
The problem of normative biasness
Neo-classical economics is irrelevant since it does not explain actual economics, and to a larger extent is based on assumptions. The assumption partially argues that individuals act rationally and may be viewed as ignoring an important aspect of naturalness while dealing with the economy. Schoenberger (2002, pp. 83) provide a similar assumption in what the journal explains as absenteeism of normalcy in how the economy operates. Further to this, is an assumption that the economic man envisioned by neo-classic economics is significantly different from the real people and even a lack of neutrality is much evident in how the two relate to each other – a fact?
In a general economy, the firm’s output technically balances with household, and these are part of the Neoclassic and Keynesian economics. However, this approach lacks validity in how it is implemented. In any case, there is no economy in the world that has ever achieved perfection. Pertsova (2007, p. 17) quotes publication from Joan Robinson in which it was clear that, by as early as 1933, Neoclassical theory was already demonstrating imperfection in relation to naturalness. In fact through these arguments, it is considerate to note that neoclassical economies did base their arguments on utopia. As a result, neoclassical theories tend to ignore the problems of scale both in time and space. Based on this, there is a subsequent deficiency in attempting to integrate technological changes to the resources while using neoclassical models of economies.
In the context, individuals play a significant role in the economy. However, judging an individual contribution to the economy on the basis of individualism lacks coherent justifications since to a greater extent, the economy is subject to macroeconomic factors and not microeconomic attributions. Boya (2010, pp. 163) argues that the assumption of an exogenous nature of consumer preferences is subsequently questionable. In fact, Boya provides broader light in relation to the change of subject in relation to advertising, education, social groups and cultural development. Backed by this, the analysis of optimal satisfaction lacks a solidified argument in attempting to justify the significance of material bundle relative to non-material bundle.
Nonetheless, it is coherent to examine the disguise of companies maximizing profits. In this assessment, companies attempt to maximize their profits in guise of addressing the problem of private versus social utility. While this approach is in all respect proactive and responsive to economic conditions, it is good to note that the approach is contestable since it does not address the intrinsic worth of the economy in relation to justifying a given economic situation. In other words, neoclassical economics focuses on the increasing number of material ownership, but to a greater extent the theorems do not address the real value of the economy. Currently, income inequality is significant demise of a desirable economy. However, new classical economics does not address these situations with the intent of finding long-term solutions. In fact to a greater extent, neoclassical economies are chiefly responsible in accelerating these deficiencies.
Assumption of rationality
Further to the discussion of irrelevance, it is good to note that neoclassical theories are largely irrational and not fit for relative economic development. According to the findings conducted by Zafirovski (2008, pp. 789) it is good to note that radical institutionalism is centered on the inequality of income, psycho-cultural implication of the economy as well as, wealth and power. In fact, neoclassical approach to economics abandons the institutional economics pioneered by Marxist analysis. In response to this, it is good to argue that technocratic and meritocratic strategies fostered by neoclassical economies are largely incoherent to restructure the cultural foundations of global capitalism. The irrationality depicted here is that; radical institutionalism insists on the fundamental and comprehensive repositioning of the place of economy with the society.
Subsequently, within the mainstream economics, rationality concept is examined by maximization of resources. To this analysis, there are several effects to the maximization principle. In this case, neoclassical economist attempt to defend an irrespective version that players in the economy attempt to deliberate maximize the economic worth. The inherent problem is that neo-classical economics tends react without performing adopting a calculation. These are assumption conducted on as if the basis and are not necessary performing calculations. Viskovatoff (2012, pp. 216) adds to this discussion in what the journal considers as a prescriptive varies of what people in the economy got to do in a given situation. Bruni (2007, p. 155) joins Viskovatoff (2012) in what text argues as an individual purposive and irrationality lacks the necessary knowledge on his disposal.
Bruni (2007) is structured by the argument that neoclassical economies remain linked to maximization of utility. However, in a contrast, take a close issue in microeconomics; corporate social responsibility. One will notice that the concept of utility remains sidelined and to a greater extent of human good. Companies will naturally be coerced by laws; for instance, Sarblexy Act, to act to a given agenda, and this distance from neoclassical economics. Further to this, the degree of happiness could be measured on an aggregate through cardinal utility functions and this seeks to obtain specific values. Also, the level of utility achieved through consumptions could be compared to different individuals and the society in the course of time.
In this regard, there has been an extended discourse attempting to argue that the utility has taken an ordinal concept which in analysis means that there is a possibility of developing interpersonal comparison and thus, the debate of taste and preferences will naturally ensue. In fact, it is good to argue that the taste and preferences are based on inherent heroic simplification and this blurs the direct consumption and well-being of utility. Consequently, Stern (2007, pp. 200) affirms that neoclassical theories are primarily responsible for the creation of insatiability factor. As such, ordinality theorems will naturally imply that consumption does not present subsequent diminishing marginal returns and principle of revealed preferences will naturally interpret that people consumption patterns are influenced by their levels of income.
Further inside the discussion of rationality, it is good to integrate Hempel argument that naturally seems sounding to seconding the cognitive question of ethics. Hartman et al. (2000, pp. 82-86) discusses the epistemological faux pas in relation to the tendency to reify the concept rationality. Accordingly, the journal establishes that rationality behavior neoclassical economics theory provides the theory that postulates rationality. Vanberg (2004, pp. 22) concludes neoclassical economies are irrelevant, inappropriate and infallible to maximize of utility and profits in both macro and microeconomics.
Absurdity in Equilibrium
Neoclassical paradigm in relation to economic balancing is partially answerable to the unreasonable irrationalism view of scientific change. In any case, there are gross irrelevancies of the theories in relation to calculating macroeconomic factors. Espino (2007, pp. 674) supplements to this discussion in what the journal considers as theoretical development in science, that contributes to devotion of efforts geared towards reconciliation. The equilibrium theory seeks to appeal the idea of insulation. Technically, the criteria of prediction, explanation and testability seek to respond to the equilibrium models which are purported scientific model.
In this light, it is good to demise that a scientific research program chiefly deployed by neoclassical economics is both progressive and degenerative and to a greater extent lacks clarity as well as empirical approaches in calculation. According to Gospodarek (2009, pp. 409) assessment of Lakatos, a scientific evaluation can be determined by the experimental tenor of a protective belt. Hence, accordingly, the theory predictive success in neoclassical will fail to reinforce hardcore experiments. Based on this approach, one will naturally find neoclassical theories with satiation or increasing returns to scale do naturally fail on the account implementation.
Therefore in response to economic problems, neoclassical economists will begin with basic laws and the underlying equilibrium theory. However, these laws are mere ubiquitous assumption and they lack a coherent approach in identifying factors of economic need. Neoclassical economics will naturally employee these factors since they believe that this is a relative approach. However, taking to the bank that other factors, for instance, the fair play by government does contribute to the economic, applying some of these theories will naturally be absurd in the equilibrium level.
Alternatively, the scientific models attempt to call for mathematical ability and considerable ingenuity. However, applying this approach is not decisive to answer to challenges prevailing at the time. In fact, application the scientific approach (one based on predictive purpose and specific purpose), neoclassical economies will naturally invite an economic environment and not a real world. For instance, the Russian economy has recently suffered economic problems due to sanctions as a result of Crimea and Ukrainian crises. However, a neoclassic economic in Russia did not affiliate the assumption of the real world. For neoclassical economics to work, then it all depends on the adequacy and nature of law existing in each particular region.
Jennissen (2004, p. 46), cites Keynesian neo-classical economic theory and how it can be applied to derive answers on international migration. In this analysis, Keynesian theory migration is an equilibrium that ensures a recovering mechanism in relation to macroeconomic analysis. In applying this, Jennissen (2004) argues that the theory of international migration mitigates unemployment differences rather than the real wages differences. As a result, the equilibrium theory as applied by neoclassical economics is largely questioned by the outsider should command unquestioning assent from its adherents, strikes and its more appropriate in conducting a metaphysical theory in a greater scientific discipline. Therefore, in response to irrelevancy, there is a close relationship between equilibrium theory and the postulate of rationality. Consequently, the general equilibrium theory is highly formalized prescriptive of a mathematical structure and not necessary a scientific theory with identifiable cognitive content.
Conclusion
The above research has clarified that neoclassical economic are irrelevant if applied in a contemporary economy. The research has assessed that neoclassical economics fails to meet the threshold intrinsic worth of a given society since to a greater extent neoclassical economy are irrational and do not seek to maximize the intrinsic moral worth of a society, but as alternative neoclassical economics pursue the utility concept. In this regard, economist should pursue more decisive theories; for instance, a reproduction and surplus theory which are pragmatic in the sense of implementation.
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