What is Heterodox Economics?
Heterodox economics is the analysis and study of economic principles considered outside of mainstream or orthodox schools of economic thought. Schools of heterodox economics include socialism, Marxism, post-Keynesian and others. These schools of thought often combine the macroeconomic outlook found in Keynesian economics with approaches critical of neoclassical economics.
- Heterodox economics refers to all the theories and schools of thought that are outside the mainstream, market-based approaches.
- Heterodox economists are interested in power dynamics and historical context when approaching economic problems.
- Heterodox economics plays an important role in challenging established schools of economic thought to continually prove their worth as a policy framework for the real world.
Understanding Heterodox Economics
Heterodox economics provides an alternative approach to mainstream economics that can help explain economic phenomenon that is ignored or unaddressed by more orthodox theories. For example, heterodox economics can plausibly explain why some groups of people have been unable to make progress on their standard of living in comparison to peers by incorporating history and power into the hypothesis. Heterodox economics often seeks to embed social and historical factors into analysis, as well as evaluate the way in which the behavior of both individuals and societies alters the development of market equilibriums.
Heterodox economists remain dissatisfied with mainstream economics. This is because, no matter how many modifications the latter adds to its core framework, there is always an implication that the economy would function smoothly in the absence of various real world conflicts. Mainstream economists ruling the world would presumably achieve full employment with near perfect utilization of resources, and stay there - perhaps buffeted by mild external shocks. In reality, however, human failings and group dynamics would likely prevent this, so heterodox economists are looking for more flexible models that come closer to the real world by some measures.
The Value of Heterodox Economics
Although heterodox economics has faced a lot of hostility on the academic side, it has actually shifted mainstream economics towards a more integrated approach. Looking solely at market fundamentals ignores many useful frameworks like behavioral economics and complexity economics that have since been adopted by mainstream economists. More importantly, having a range of heterodox frameworks with plausible solutions to economic contradictions forces all economists to question the starting assumptions when approaching these questions.
There is also more pluralism in economics thanks to the competing theories from heterodox approaches and this has also led to more multi-disciplinary analysis of economic problems. Economics has been very focused on market-based explanations. It is possible that this is the best approach for the majority of problems. However, the heterodox approaches to power—social, financial and political—do seem to fit a regular person's experience in the world and the history of this world better than some of the widely accepted mainstream theories.
Unfortunately, the track record of non-orthodox economic approaches in informing actual policy is a spotty one, particularly those frameworks flowing from Marxism. Heterodox economists would counter that these were not pure applications. In reality, there is never a pure application of any school of economic thought. We tend to stick to our orthodox approach because, even imperfectly done, it has worked out better for us on the balance. That said, heterodox economics is playing an important role by continually challenging the orthodox school to prove that it really is better in practice, not just by tradition.