What Is Mainstream Economics?
Mainstream economics is a term used to describe schools of economic thought considered to be orthodox. Many of the underpinning models and beliefs of mainstream economics are based on concepts that involve economic scarcity, the role of governmental regulation or other action that affects an actor's decision, the concept of utility, and the idea that people are rational actors who will make decisions that are based purely on available information and not emotion.
- Mainstream economics refers to the orthodox or neoclassical tradition of economics, in which markets are moved by an invisible hand and all actors are rational.
- The origins of mainstream economics lie in the thinkings of Adam Smith.
- Because they do not take the actual, irrational nature of markets and individuals into consideration, mainstream economics theories are increasingly being replaced by emerging fields of study.
Understanding Mainstream Economics
Mainstream economics is not a branch of economics itself, but is used to describe theories often considered part of the neoclassical economics tradition.
Mainstream economics follows rational choice theory, which assumes that individuals make decisions that will maximize their own utility, and uses statistics and mathematical models to demonstrate theories and evaluate various economic developments. Many of the underlying categories and concepts central to mainstream economics are readily taught at universities.
Criticism of Mainstream Economics
Mainstream economics, the study of rational actors in a world of trade-offs, has faced several challenges. Schools of economic thought outside of mainstream economics—called heterodox economics—are more skeptical of the role of the government and the rationality of actors.
The main criticism of mainstream economics is the absence of considerations relating to external factors. For example, this type of economic thought assumes the complete rationality of actors. It assumes that individuals are selfish and will always act in their own best interests. There is no place for moral concerns or altruism in mainstream economics and the invisible hand is expected to move markets without fear or favor.
But recent economic theorists have become open to the thought that people are not entirely rational. In fact, an entirely new field of study, known as behavioral economics, has emerged for this discipline. Markets are also not entirely efficient, and factors that affect an actor's decision are not always quantifiable. These beliefs seem to have become more commonplace since the Great Recession.
Mainstream economics also does not focus on economic concerns gaining momentum, such as sustainability and pollution. Again, environmental economics is a separate field that studies incentives and policymaking specifically geared toward promoting sustainable practices and businesses.
Example of Mainstream Economics
Early theories relating to the development of economics as a field of study are part of mainstream economics.
For example, the invisible hand theory that is responsible for moving markets is part of mainstream economics. In this theory, individual self-interest and freedom to produce and consume are supposed to collectively maximize the common good.
Governments have little to no role to play in this theory, except for ensuring that the rule of law is followed. However, recent events, especially those relating to the Great Recession, have proved that the common good is not always the end result of individuals pursuing profits.