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 vary widely and have few common characteristics other than propounding theories, assumptions, or methodologies that fall outside of or contradict the mainstream Keynesian and neoclassical movements.
Heterodox schools of thought include far-Left theories such as socialism, Marxism, and post-Keynesian economics, as well as those associated with radical free-market economics such as the Austrian school. Heterodox economists often employ research methods and tools that originate in other disciplines, such as psychology or physics, to economic questions.
- Heterodox economics currently refers to all the various theories and schools of thought that are outside the mainstream Keynesian and neoclassical approaches.
- A wide variety of competing and conflicting economic schools of thought can at any given time be classified as heterodox economics, though their ideas may eventually enter the mainstream.
- Heterodox economists advocate theories, assumptions, or methods that may be radically different from or contradict those used in mainstream economics.
- Heterodox economics plays an important role in developing new ideas and challenging established schools of economic thought to continually prove their worth as a policy framework for the real world.
Understanding Heterodox Economics
Heterodox economics is an umbrella term that refers to many different branches or approaches to studying economics, all of which fall outside of the current mainstream of economic thought. There is no specific commonality between these various approaches beyond their disagreement with the mainstream approach, and they are often directly opposed to one another in their assumptions, research programs, and conclusions, as much or more so than they are opposed to mainstream economics.
Heterodox economics is also a temporally relative term because what is considered heterodox at one point in time may have previously been the mainstream view in the past, or may become adopted and accepted as part of the mainstream orthodoxy in the future. For example, the classical view that economies are largely self-correcting at the macroeconomic level, in the same way that (microeconomic) markets are, was the mainstream theory until the 1930's when it was replaced by the now-orthodox Keynesian macroeconomic framework.
From Heterodox to the Mainstream
On the other hand, previously radical heterodox approaches such as behavioral economics have become widely accepted among mainstream economists and policymakers in recent decades. Indeed, many Nobel Prizes have been awarded over the years for work in economics that at the time of original publication was considered heterodox, but eventually became so influential as to merit recognition by the award committee.
From time to time, heterodox ideas may even completely upset the existing mainstream of economic thought in a process described, by philosopher of science Thomas Kuhn, as a paradigm shift. Heterodox ideas, by definition, fall outside the current scientific paradigm, until they don't, and then they may replace it entirely. The Marginal Revolution of the 1870s would be considered an example of this type of paradigm shift, which actually led to the establishment of marginalism as the foundation of the current economic mainstream.
The existence of heterodox economics provides an alternative approach to mainstream economics that can help explain economic phenomena that cannot be satisfactorily explained, or may be simply ignored, by more orthodox theories until it's too late or until they become too obvious not to ignore any longer. For example, heterodox theories such as Austrian business cycle theory and Minsky's financial instability hypothesis rose to public prominence during the Great Recession because they provided powerful explanations (and remedies) for the U.S. housing bubble and the resulting global financial crisis, which mainstream theories failed to predict and struggled to address.
The Influence of Heterodox Economics
Most of the time, however, heterodox economic theories are ignored or considered to be interesting but irrelevant curiosities by the majority of economists. Their ideas and assumptions simply do not fit into what most economists are taught in university, and may even directly challenge core aspects of mainstream theory and practice. Although heterodox economics has faced a lot of hostility on the academic side, it has actually shifted mainstream economics towards a more integrated approach as some heterodox ideas are eventually adopted into the mainstream.
Heterodox economics can still indirectly improve and extend mainstream economic thinking by challenging it, even when the heterodox ideas themselves fail to become accepted. Having a range of heterodox frameworks with plausible solutions to economic contradictions forces all economists to question the starting assumptions when approaching these questions. Heterodox economics continually challenges the orthodox school to prove that it really is better in practice, not just by tradition.
There is more pluralism in economics thanks to the competing theories from heterodox approaches and this has also led to more multi-disciplinary analyses of economic problems. Economics has been very focused on market-based explanations. It may be that the best approach for the majority of problems, but most people tend to think there is more to the world than market-based economics.
Heterodox approaches often emphasize non-market aspects of economic phenomena, such as social identity, co-operative collective action, power relations, and psychological biases, which look outside the field of economics for a deeper understanding. These also often 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.