What Is Heterodox Economics?
Let me explain to you what heterodox economics really is. It's the study and analysis of economic principles that sit outside the mainstream or orthodox schools of thought. These heterodox schools vary widely, and they share little in common except for proposing theories, assumptions, or methods that contradict or fall beyond the dominant Keynesian and neoclassical movements.
You'll find heterodox ideas ranging from far-left theories like socialism, Marxism, and post-Keynesian economics to radical free-market views like those from the Austrian school. Heterodox economists frequently borrow research methods and tools from other fields, such as psychology or physics, and apply them directly to economic questions.
Key Takeaways
- Heterodox economics covers all theories and schools outside the mainstream Keynesian and neoclassical approaches.
- Various competing economic schools can be labeled heterodox at any time, though their ideas might later join the mainstream.
- Heterodox economists push theories, assumptions, or methods that radically differ from or contradict mainstream economics.
- Heterodox economics drives new ideas and challenges established economic thought.
- Theories like the Austrian business cycle theory and Minsky's financial instability hypothesis gained prominence during the Great Recession for explanations mainstream theories missed.
Understanding Heterodox Economics
Think of heterodox economics as an umbrella covering many branches or approaches to economics that don't fit the current mainstream. There's no single thread tying them together beyond their disagreement with the orthodox view, and often these approaches oppose each other just as much as they oppose the mainstream in their assumptions, research, and conclusions.
Remember, heterodox is a relative term over time. What we call heterodox today might have been mainstream in the past or could become orthodox in the future. For instance, the classical idea that economies self-correct at the macro level, like micro markets do, was standard until the 1930s, when Keynesian frameworks took over as the new orthodoxy.
From Heterodox to Mainstream
I've seen how once-radical heterodox ideas, like those in behavioral economics, have gained wide acceptance among mainstream economists and policymakers in recent decades. Many Nobel Prizes in economics have gone to work that started as heterodox but grew influential enough for recognition.
Sometimes, heterodox ideas trigger a full paradigm shift, as Thomas Kuhn described, upending the existing mainstream. They start outside the current paradigm until they replace it. The Marginal Revolution of the 1870s is a clear example, establishing marginalism as the basis of today's economic mainstream.
Heterodox economics offers alternatives to mainstream views, explaining phenomena that orthodox theories ignore or fail to address until they're unavoidable.
Examples of Heterodox Economics
Consider how heterodox theories like the Austrian business cycle theory (ABCT) and Minsky's financial instability hypothesis came into the spotlight during the Great Recession. They delivered strong explanations and remedies for the U.S. housing bubble and global financial crisis, where mainstream theories fell short in prediction and response.
Keep in mind that heterodox economics constantly evolves with culture. Popular examples include feminist economic theories, post-Keynesian, and Marxist approaches, among others.
The Influence of Heterodox Economics
Most often, heterodox theories get dismissed or seen as quirky but irrelevant. Their ideas don't align with what economists learn in universities and can directly challenge core mainstream principles.
Despite academic hostility, heterodox economics has nudged mainstream economics toward more integrated approaches by having some ideas adopted over time. Even when heterodox ideas don't stick, they indirectly refine mainstream thinking by forcing economists to question assumptions and prove their models' superiority in practice, not just by tradition.
Other Considerations
Thanks to heterodox approaches, economics enjoys more pluralism through competing theories, leading to multi-disciplinary analyses. Mainstream economics focuses heavily on market-based explanations, which might work for most problems, but many people sense there's more to the world.
Heterodox methods often highlight non-market elements like social identity, collective action, power relations, and psychological biases, drawing from outside economics for deeper insights. These approaches frequently align better with everyday experiences and historical realities than some mainstream theories do.
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