The Current Crisis In Neoclassical Economics and the Case for an Economic Analysis Based on Sustainable Development

Abstract

This paper reflects on the current crisis that confronts neo-classical economics in the wake of declining enrolments in academic economics programmes around the world, the emergence of a popular ‘post-autistic’ economics network following the revolt of economics students at a number of leading universities and, most importantly, the apparent inability of the neoclassical paradigm to bridge the gap between theory and reality. There is a saying that ‘the more things change, the more they stay the same’, but in this paper, the authors contend that the economics profession is now on the brink of a scientific revolution, or what Thomas Kuhn referred to as a ‘paradigm shift’. As Herman Daly has observed, if the theory is not good enough, the real world does not stop to wait. Governments everywhere (and international organisations such as the OECD) are engaged in a big effort to develop indicators that focus on the sustainability of industrial activities. Meanwhile, businesses are waking up to the fact that without careful attention to sustainability issues, they face considerable insurance risks. The paper employs the concepts developed by Thomas Kuhn to assist in the analysis of the current crisis. In the process, it assesses the readiness of national and international political economies to embrace sustainable development and reject neoclassical economics. The paper critically examines, and roundly rejects, key postulates of the theory offered by neoclassical economists to support their arguments that production and consumption can be sustained forever and that the natural environment is not an important constraint on growth. The authors conclude that the theoretical work of ecological economics and its counterpart in the business world, ‘natural capitalism’ is a far more sensible paradigm for business.

Keywords: Neoclassical economics, Ecological economics, Sustainable development, Economics, Higher education