Neo-classical economics: A trail of economic destruction since the 1970s
This paper argues that the international financial crisis is just the last in a series of economic calamities produced by a type of theory that converted the economics profession from a study of real world phenomena into what in the end became mathematized ideology. While the crises themselves started by halving real wages in many countries in the economic periphery, in Latin America in the late 1970s, their origins are found in economic theory in the 1950s when empirical reality became academically unfashionable. About half way in the destructive path of this theoretical tsunami – from its origins in the world periphery in the 1970s until today’s financial meltdowns – we find the destruction of the productive capacity of the Second World, the former Soviet Union. Now the chickens are coming home to roost: wealth and welfare destruction is increasingly hitting the First World itself: Europe and the United States. This paper argues that it is necessary to see these developments as one continuous process over more than three decades of applying neoclassical economics and neo-liberal economic policies that destroyed, rather than created, real wages and wealth. A reconstruction of widespread welfare will need to be based on the understanding that what unleashed the juggernaut of welfare destruction was not ‘market failure’; it was ‘theory failure’. Being a résumé of a larger research project, the paper includes references to more detailed studies of these processes of ‘destructive destruction’.
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- Erik S. Reinert & Rainer Kattel, 2009. "The Economics of Failed, Failing, and Fragile States: Productive Structure as the Missing Link," The Other Canon Foundation and Tallinn University of Technology Working Papers in Technology Governance and Economic Dynamics 18, TUT Ragnar Nurkse School of Innovation and Governance.
- Arthur F. Burns, 1954. "The Frontiers of Economic Knowledge," NBER Books, National Bureau of Economic Research, Inc, number burn54-1, 07.
- Erik S. Reinert & Rainer Kattel, 2007. "European Eastern Enlargement as Europe's Attempted Economic Suicide?," The Other Canon Foundation and Tallinn University of Technology Working Papers in Technology Governance and Economic Dynamics 14, TUT Ragnar Nurkse School of Innovation and Governance.
- Rainer Kattel & Erik S. Reinert, 2010. "Modernizing Russia: Round III. Russia and the other BRIC countries: forging ahead, catching up or falling behind?," The Other Canon Foundation and Tallinn University of Technology Working Papers in Technology Governance and Economic Dynamics 32, TUT Ragnar Nurkse School of Innovation and Governance.
- Reinert, Sophus A., 2011. "Translating Empire: Emulation and the Origins of Political Economy," Economics Books, Harvard University Press, number 9780674061514.
- Erik S. Reinert, 2012. "Mechanisms of Financial Crises in Growth and Collapse: Hammurabi, Schumpeter, Perez, and Minsky," The Other Canon Foundation and Tallinn University of Technology Working Papers in Technology Governance and Economic Dynamics 39, TUT Ragnar Nurkse School of Innovation and Governance.
- Erik S. Reinert (ed.), 2004. "Globalization, Economic Development and Inequality," Books, Edward Elgar, number 1570, December.
- Arthur F. Burns, 1954. "Foreword to "The Frontiers of Economic Knowledge"," NBER Chapters, in: The Frontiers of Economic Knowledge, pages -2 National Bureau of Economic Research, Inc.
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