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Heterodox Vs. Mainstream
It is apparent that heterodox economists are usually displeased with mainstream economics particularly in the area of macroeconomics. According to Ruccio mainstream economists do not recognize the existence of other techniques apart from the once found in the mainstream while the heterodox economists usually try to strive to understand both the mainstream and heterodox economics (Web). The heterodox economics are usually interested in understanding the working of mainstream economics, its origin and the policies associated with it.
Although the heterodox economists may reject the mainstream ideas, they always know it better than even the mainstream economists do because they always want to teach it and engage it in public debate. They are always worried that the mainstream economics usually dominate the debate in the media as well as in policymaking. According to Ruccio heterodox economists do not always agree with the mainstream economics regardless of the modifications to the mainstream economics and because it is always thought that lack of real world frictions may make the economy run smoothly (Web). Availability of perfect information and many other factors such as flexible wages plays a major role in achieving full employment as well as almost perfect utilisation of resources.
New Keynesians and new Classical at times usually differ on the kind of friction that should exist in the economics. Looking at the original New Classical models, the economies are normally in equilibrium , preferences are constant and competition are normally perfect while New Keynesia theory adds imperfect competition, sticky prices and transaction costs.
At times, real world mechanics inhibits things from moving as smoothly as they should although heterodox economists believe that capitalism is always exposed to crisis, unemployment as well as misallocation. For instance, a mainstream economist would analyse the reasons behind finance unstable focus on irrationalities, imperfect information and other externalities if perhaps had access to information, transactions were costless and the people were rational to stabilise finance. Nevertheless, if the economy may be starts to stabilize, the positive returns on investments may drive the capitalist to take more risk and the process would continue until the economy destabilizes itself. An investor will make more risks with the higher returns until the return is outrun by the risk making the economy to collapse. It is apparent that such kind of system does not need to invoke any particular friction as it may be implied.
Moreover, considering the labour market the economists normally presume that absence of costs such as oversized firms and sticky wages, the economy would definitely attain full employment but heterodox economists are opposed to the argument. The heterodox economists site a number of reasons that asserts that the marginal value product theory is untrue since they believe that higher wages will not automatically led to unemployment rise. The heterodox economists think that wages are vital constituent of aggregate demand and therefore minimizing wages may be counterproductive (Ruccio Web). They posit that sticky wages cannot act as barrier to full employment instead, they stabilize the aggregate demand and therefore there are no severe business cycles involved as generally explained. Heterodox economies just believe that mainstream economics are even considering some nitty-gritty with a lot of modifications and frictions that are questionable.
Works Cited
Ruccio, David. Mainstream versus Heterodox Economics. Real-World Economics Review Blog, 15 July 2012. Web. 4 Dec. 2013. <http://rwer.wordpress.com/2012/07/15/mainstream-versus-heterodox-economics/>.
