Heterodox Economics

Definition

Heterodox economics refers to approaches or schools of economic thought that are considered outside of mainstream economics, which is primarily neoclassical economics. It includes various schools like institutional economics, evolutionary economics, social economics, and Marxist economics. These approaches often explore economic concepts and issues from different perspectives, challenging mainstream economic theories and assumptions.

Phonetic

The phonetics of the keyword ‘Heterodox Economics’ is: heh-tuh-roh-doks ee-kuh-nom-iks.

Key Takeaways

1. Interdisciplinary Approach: Heterodox economics is not confined to a single economic theory or approach. It incorporates insights from various disciplines such as sociology, history, psychology, and others. This interdisciplinarity makes it capable of providing a holistic view of economic phenomena.
2. Critical of Mainstream Economics: Heterodox economics often criticizes mainstream economics for relying heavily on mathematical models and assumptions about rational behavior. Heterodox economists argue that these models and assumptions do not accurately reflect the real world, therefore limiting their effectiveness.
3. Focus on Real-World Issues: Heterodox economics is particularly concerned with real-world problems such as inequality, unemployment, and ecological sustainability. It aims to develop economic theories and policies that can help address these and other pressing social issues.

Importance

Heterodox Economics is a significant term in business and finance as it refers to the study and analysis of economic theories and methodologies that contrast with mainstream or orthodox economics. This term is used to explore various approaches that challenge the conventional assumptions in the dominant neoclassical economic models. It’s important because it fosters diversity in economic thinking by incorporating ideas from different disciplines and traditions such as Institutional, Post-Keynesian, Marxist, Feminist, and Ecological Economics, among others. It contributes to the robustness of the discipline by providing alternative perspectives to traditional economic theories, making policy recommendations and economic solutions more varied, adaptable, and inclusive.

Explanation

Heterodox Economics refers to a variety of economic theories and approaches that deviate from the dominant or mainstream economics, the Orthodox Economics, known as Neoclassic and Keynesian economics. The major purpose of heterodox economics is to provide diverse, holistic, and inclusive viewpoints regarding the economic phenomena that mainstream economics may fail to comprehend or address appropriately. By veering away from the mainstream, heterodox economics often delve into areas such as social, political, and historical influences on the economy which are typically overlooked by the mainstream economics.The techniques and theories from heterodox economics are utilized by economists, researchers, and policymakers to offer fresh perspectives and innovative solutions for understanding and dealing with economic complexities. Especially in circumstances where the traditional models are ineffective or flawed, economists use heterodox approaches such as Marxist, feminist, institutional, ecological, or evolutionary economics, etc. These methods lend themselves to a better understanding of income disparities, economic development, environment-economy interaction, financial instability and crises, and the social and political constructs around economic matters. In this sense, heterodox economics acts as a powerhouse of diverse ideas and alternatives contributing to the broader understanding of economic reality.

Examples

1. Modern Monetary Theory (MMT): This is a relatively new school of thought in the field of economics. While orthodox economists generally believe that excessive government spending leads to inflation and budget deficits, proponents of MMT argue that countries that print their own money can never run out and can spend freely to stimulate the economy and achieve full employment. MMT has been put into practice in some form in countries like Japan and the United States, where massive government spending has not led to significant inflation.2. Post-Keynesian Economics: This school of economic thought deviates from mainstream Keynesian economics as it emphasizes aspects of economic inequality and unstable capitalist economies. It’s practiced in real-world scenarios that focus on government policies addressing income and wealth disparity. For example, the policies advocated by Bernie Sanders during the 2016 and 2020 U.S. Presidential elections are reflective of post-Keynesian economics.3. Green Economics: This branch of economics strongly emphasizes sustainability, and environmental and social justice. In practical terms, it has influence in shaping policies and business practices. For example, the European Union’s Green Deal, which aims to make Europe carbon neutral by 2050, is a comprehensive application of green economics. Similarly, companies that beyond mere profit seeking, invest funds into sustainable practices are also following the principles of green economics.

Frequently Asked Questions(FAQ)

Related Finance Terms

• Post-Keynesian Economics
• Institutional Economics
• Feminist Economics
• Marxian/Marxist Economics
• Evolutionary Economics

Sources for More Information

• Cambridge University Press
• JSTOR
• Routledge
• Oxford Research Encyclopedias – Economics