9/1/2018 Why neoliberalism is harmful (1)

              Neoliberalism is the most influential ideology in today’s world. It relies theoretically on neoclassical economics, which has the following proposition: If all individuals act from self-interest, the resource allocation of the economy will be efficient. This is called the first proposition of welfare economics. Here I would like to show that it has many theoretical defects. Most people in the world are obsessed with a harmful ideology.
              Each firm in neoclassical economics is simply an exogenously given production function, which relates the amounts of inputs to the amount of output. If something is exogenously given in economics, it does not discuss how that has become the present form. Thus neoclassical economics does not analyze how production efficiency is achieved through innovations in organization structure, human relations, physical capital, and so on.
              This means that neoclassical economics does not have organization theory. It does not consider how production should be managed efficiently. I believe organization efficiency or production efficiency is more important to society than market efficiency because markets do not have sufficient supply without efficient production.
              Ask anyone who studied neoclassical economics how firms should be managed or how ideal firms should be. He cannot answer your question because it does not have an answer, although it has an answer to the question “How should ideal markets be?” This is another proof of the fact that it lacks organization theory.
Each household in neoclassical economics is simply an exogenously given utility function. It does not analyze how each family member behaves or can become happier. It does not show in the first place how the happiness of each member is aggregated into the household utility function. Thus it has actually no family theory that considers household efficiency.
Comments and questions are welcome.
Kazuhiro Arai’s English twitter:        https://twitter.com/araikazuhiroe88
Kazuhiro Arai’s Japanese blog:         https://araikazuhiro.blogspot.jp/
Kazuhiro Arai’s Japanese twitter:      https://twitter.com/araikazuhiro88
Kazuhiro Arai’s Japanese home page:   http://araikazuhiro.world.coocan.jp/




Comments

Post a Comment

Popular posts from this blog

The Nature of Economics (3)

Image
The Nature of Economics (3) A crucial defect of neoclassical economics related to the above discussion is that it analyzes seriously only markets, more specifically organized markets. It does not seriously analyze firms or households. It ignores government, the environment, and international relations. Although the real economy has a variety of market types, it treats all markets as the same type. Can the demand-supply analysis (with auctioneers) be applied to medical markets or education markets? This implies that neoclassical economics analyzes only a limited part of the economy. Although it deals with firms, it does not seriously analyze them in the sense that it fails to explain how a particular set of input levels achieves the level of output given by the production function. In other words, it does not describe the process of production or how production is carried out. Firms in the real economy try hard to improve their technologies. They also try to invent new products
Read more

The Nature of Economics (7)

Image
The Nature of Economics (7) Neoclassical economics does not consider efficiency of the whole economy because the production function and utility function are exogenously given. Since I do not think that this point is made clear in books or papers, I would like to discuss it in some detail. Consider two economies E1 and E2. The workers in E1 are more cooperative and hard-working. Those in E2 are selfish and lazy. Hence, the labor productivity in the firm in E1 is higher for equally given levels of physical inputs. However both economies are efficient in neoclassical economics! Both E1 and E2 are efficient as far as all firms maximize their profits subject to exogenously given (different) production functions! It is obvious that E1 is more affluent than E2. I would like to emphasize that efficiency differs from affluence in neoclassical economics. Next consider two economies E3 and E4. The people in E3 are more harmonious and other-regarding within the household. Those in E4 ar
Read more

The Nature of Economics (5)

Image
The Nature of Economics (5) We see here a good example for the fact that the values researchers possess affect their choice of the topic and method of research generating bias in ‘scientific works.’ 　 Researchers who want to support individualism do not analyze firms or households seriously. They simply introduce exogenously given production functions and utility functions. Economists tend to ignore or distort social aspects that are inconvenient to build models with conclusions they like. It is really hard to establish social sciences that are value-free. Researchers need to recognize this. On the other hand, a unified theoretical model may be formed to explain the cultural difference mentioned in the example given in the above third reason. It may be done by introducing a measure of the degree of cooperativeness as an exogenous variable. In such a model different types of equilibrium may arise for different values of the measure. If we can endogenize the variable for that m
Read more