Different economic schools of thought

[136or142]

I'm not an actual economist so if anybody wants to counter what I write here, please go ahead.  I've studied economics up to and partially including 3rd level and I've read widely.  Several who are actual economists have told me that my understanding behind non heavily mathematical economic concepts is at the graduate or post graduate level, but that I'm very weak on any economics concepts that have a heavy math component.  A basic explanation for differing economic schools of thought does not require any mathematics.

I'll try and keep my biases here to a minimum.  The fun thing is, and for those who like to believe that 'academic debate is civil' each of the adherents of these economic schools believe they have the correct understanding of economics and that anybody who disagrees with them actually has no understanding of economics.  These are mostly but not all the correct technical terms for each school.

From right to left except for the first one.
1.Mostly left but not inherently left or right: Chartalists.  They believe that all economic activity is determined by the size of the money supply and that economic growth is based on increasing the money supply.  They have been mostly embraced by those on the left because the implication is that government spending irrespective of the size of the deficit boosts economic growth, but those on the right who aren't concerned with deficit spending can also embrace Chartalism.

Chartalism seems to have grown significantly since the rise of analytics and 'deep data.'

2.Austrian School: Libertarianism.  Believes that government should interfere minimally in the economy and should only do so on the basis of  a number of 'correct rules' which, not surprisingly are the rules that libertarians have come up with.  Those who follow the Austrian School do not believe that it is possible to determine how any attempt to influence economic activity might turn out as they say that situations change too much to use the past as a guide. This view on history is known as praxeology and was developed by Ludwig von Mises, which is why Austrian School adherents regard von Mises as some kind of god.

3.'Tax cuts pay for themselves'/trickle down supply-siders.  'Supply side' theory merely means that long run economic growth only comes from increasing productive output, or 'the supply side' so various economic schools of thought are 'supply-side.'  This is a subset of 'supply side' beliefs.  It has, of course, been fully embraced by U.S conservatives and Republicans, but it appears to have not been embraced by conservatives in the rest of the advanced economies, though somewhat more so in other Anglo-Saxon nations.

4.Monetarism.  Monetarism is a reference to, no surprise, monetary policy, and not fiscal policy, but I use the term here (and I believe others do as well) to refer to supply-siders who don't embrace 'tax cuts pay for themselves' or other forms of, de facto, deficit spending.  Monetarists are major adherents of the concept of governments maintaining balanced budgets.  U.S conservatives post Keynesian economics had been largely monetarists (when the term didn't exist) especially Eisenhower, but ironically, since the development of monetarist monetary theory, the only Republican President in the United States who has come close to embracing monetarism was George H W Bush.  In other advanced economies that I'm familiar with, including Canada and the United Kingdom, conservatives still seem to mostly hold on to monetarist views and have largely not embraced the view that 'tax cuts pay for themselves.'


5.Neo-classical economics.  As 'tax cuts pay for themselves' supply-side economics is the dominant view of Republicans, neo-classical economics is the dominant view of establishment liberal Democrats (Bill Clinton, Barack Obama, Hillary Clinton.)  Monetarists and neo-classicists have many agreements over their views on economics, especially their embrace that increasing productive output is the only long run way to grow the economy and their views that both 'tax cuts pay for themselves,' chartalism and further left economics are essentially arguing that you can create 'something from nothing.'  However, neo-classicists also differ from monetarists in many ways.  Neo classicists aren't opposed to all deficit spending, they believe in a greater level of government involvement in the economy and they support much higher social spending by governments.

6.Post-Keynesian economics.  Keynesian economics has come back since the 'great recession' after being largely discredited in the 1970s with the occurrence of 'stagflation' (inflation combined with either a stagnant economy or a recession) which Keynesians believed was impossible.  Bernie Sanders, despite the claim that he is a socialist (he actually refers to himself as a 'democratic socialist' which is not the same thing as a socialist or social democrat) seems to really be a Post-Keynesian.  I regard Post-Keynesians and 'tax cuts pay for themselves' supply-siders as essentially two sides of the same coin in that they both believe that government deficits boost long run economic growth, or in reality, 'government deficits pay for themselves.' It's important to keep in mind that John Maynard Keynes himself died in 1946, so he never actually took part in any post-war economics debate, but that he argued that governments needed to balance budgets over the economic cycle.  In this regard, Keynes himself wasn't actually a Keynesian.

Post Keynesians, like Keynes though, are adherents of demand side economics, that is, the way to achieve long run growth in the economy is by boosting consumer spending.  Neo-classicists and monetarists counter that boosting consumer spending without increasing productive output in the economy leads to inflation.  The most derisive put-down of Keynesian (or Post-Keynesian) economics was probably the line "the long run multiplier is zero."

7.Socialism.  Unlike most of these other economic schools, there is no seminal work that explains socialist theory, it kind of developed ad-hoc.  For this reason, there is no single definition of socialism.  There is the political science view that embraces the Marxist concept (more likely the Marx/Engels concept since Engels was actually the far more serious theorist) that socialism is the temporary period when a nation is governed by the 'vanguard of the proletariat' before the state 'withers away' and becomes fully communist.  There is the conservative revisionist history view of socialism, that socialism is all about social program spending, and then there is the view that many economists embrace and that was implemented under Clement Atlee in the U.K from 1945-1950 and by Lenin under his 'New Economic Policy' and in a few other nations.

Lenin in announcing his 'New Economic Policy' referred to government ownership of the 'Commanding Heights' the key industrial sectors in an economy that it's believed effectively controls the other sectors.  This can include such things as communications, banking, steel production, energy production and transmission, transportation and a few other things that I can't think of right now.  It does not include such things as  consumer products manufacturing (light industry) or consumer retail and generally not most manufacturing inputs with the obvious exceptions of steel and energy.

In regards to Marx vs. Engels, the historical record is actually quite clear that Engels did most of the thinking.  Marx was the far better promoter of ideas which Engels recognized which is why Engels allowed Marx to take the credit. Marx, in addition to being a shameless self promoter, was also a massive egotist.

8.Marxism/Communism.  Government control over all economic activity (except for the uncontrollable black markets.)

[mvd10]

Since the new classical school is so incredibly broad I'd just put the more moderate Republicans and other Western conservatives in there. The Democrats might be on the left side of new classical economics, as they mainly accepted neoclassical microeconomic ideas but also added things like market failure and Keynesian macroeconomic ideas. Moderate Republicans and other Western conservatives would be more likely to use neoclassical microeconomic framework as the basis of their ideas. But I guess it makes sense that you don't want to put George HW Bush/most UK Tories in the same group as Obama or Hillary even though it's an extremely large group.

Supply-siders probably have a point that very high tax rates on investment and/or income can disturb long-term growth. But they also often completely ignore the fact that government spending on education/R&D can positively impact long-term growth (as they'd rather tear everything to pieces for their tax cuts), and the idea that tax cuts pay for themselves is quite idiotic. It might have made sense with 1960s/1970s tax rates but it definitely doesn't make sense in most instances now. I'm sure tax cuts/tax reform can be great if they're well-targeted and paid for, but just slashing income tax rates and hoping for the best isn't sane economic policy.

I'm not sure whether this also plays a role in other countries but in the Netherlands there is a bit of a debate on the future of economics education. There are some who want to focus more on complex mathematical models while there are other who want to treat economics more as a social science and focus on insights from psychology or sociology. The second group exists mainly out of people who dispute most core microeconomic assumptions.

[PSOL]

Wouldn’t the Democratic Party be neoclassical synthesis (new)Keynesians though? The party applies microeconomics to argue that spending for the long run is good.

[136or142]

Since the new classical school is so incredibly broad I'd just put the more moderate Republicans and other Western conservatives in there. The Democrats might be on the left side of new classical economics, as they mainly accepted neoclassical microeconomic ideas but also added things like market failure and Keynesian macroeconomic ideas. Moderate Republicans and other Western conservatives would be more likely to use neoclassical microeconomic framework as the basis of their ideas. But I guess it makes sense that you don't want to put George HW Bush/most UK Tories in the same group as Obama or Hillary even though it's an extremely large group.

Supply-siders probably have a point that very high tax rates on investment and/or income can disturb long-term growth. But they also often completely ignore the fact that government spending on education/R&D can positively impact long-term growth (as they'd rather tear everything to pieces for their tax cuts), and the idea that tax cuts pay for themselves is quite idiotic. It might have made sense with 1960s/1970s tax rates but it definitely doesn't make sense in most instances now. I'm sure tax cuts/tax reform can be great if they're well-targeted and paid for, but just slashing income tax rates and hoping for the best isn't sane economic policy.

I'm not sure whether this also plays a role in other countries but in the Netherlands there is a bit of a debate on the future of economics education. There are some who want to focus more on complex mathematical models while there are other who want to treat economics more as a social science and focus on insights from psychology or sociology. The second group exists mainly out of people who dispute most core microeconomic assumptions.

1.I agree that neo-classicism is quite broad.  I thought of pointing out that there are, what in Canada anyway, would be termed 'blue neo-classicists (the more conservative) and red neo-classicists, (the more liberal) just as in Canada there are 'blue liberals' and 'red liberals' however, I didn't want to make my post even longer.  

Neoclassical economic theory is largely based on the concept of the 'equimarginal principle, the point where the declining marginal benefit of, in this case, either tax cuts or government spending, meets the increasing marginal cost of financing the tax cuts or government spending (note: this is a marginal analysis, not an aggregate analysis.)  Since, these are obviously future projections, the difference between the more conservative neo-classicists and the more liberal neo-classicists seems to be that the more conservative tend to have more positive assumptions about the marginal benefits of tax cuts and the more liberal neo-classicists tend to have more positive assumptions about the marginal benefits of government spending.

2.Neo-classicists embrace economic ideas of market failures and Keynesian macroeconomics during recessions or periods of slow growth.  That is a large part of what distinguishes neo-classicists from adherents of classical economics.  Those closest to classical economics are probably those who I call the monetarists here in that they believe that the government should always strive to achieve balanced budgets.

3.This debate over economics education is occurring all over the world.  Those who believe that economics has embraced mathematics over the more qualitative concepts in economics refer to those who believe that economics should be based on mathematics as suffering from 'physics envy.'

The embrace of behavioral economics in microeconomics for those who prefer the more qualitative economics is one part, but those who complain about the decline in the teaching of qualitative concepts in place of the heavy mathematics in macroeconomics precedes the growth of behavioral economics.

[136or142]

Wouldn’t the Democratic Party be neoclassical synthesis (new)Keynesians though? The party applies microeconomics to argue that spending for the long run is good.

I think you mean macroeconomics.

I don't think so.  I can understand where this comes from because many of the more conservative leaning Democrats believe that President Obama didn't do enough to cut the deficit after the resumption of more or less steady growth for 2015-2016.  President Obama was proud that he had 'halved the deficit' but, given the state of the economy and the low interest rates, he really should have achieved a balanced budget.

What makes the distinction is that, as I wrote in my previous reply, Post-Keynesian liberals believe that 'government spending pays for itself' (Keynes referred to this as something like 'the government needs to shovel money off the back of a truck' - but he was referring to how to deal with the Great Depression) because the government spending increases economic activity which creates additional consumer spending (the demand side) - that is the concept of 'the multiplier' that I referred to in my initial post.

Neo-classical adherents believe in the concept of the 'equimarginal principle.'  They believe in government spending that increases productive output in the economy - (the supply side) to the point where the declining marginal benefit of increased government spending matches the point of the increasing marginal cost of financing the government spending (this is essentially the same as the cost/benefit analysis that private businesses use, but cost/benefit analysis is an aggregate analysis.)  This government spending can be on infrastructure but it can also be on education and other things that increase human potential.

Democrats have largely papered over the differences between the establishment liberal neo-classicists and the Bernie Sanders type post Keynesians in an effort to remain united, and Hillary Clinton treated Bernie Sanders with kid gloves in the 2016 primary, but if the Bernie Sanders types (or Bernie Sanders himself) makes a serious bid for the Democratic Presidential nomination in 2020, I predict a vicious fight between the two sides that will leave nobody believing that the neo-classicists and the post-Keynesians are all that close to each other in their views.

Edit to add: if you check at some of the threads here or on twitter, you can already see the fights starting between the establishment liberals and the Bernie Sanders types and, maybe they're especially nasty on twitter because it's twitter, but these arguments are already nasty.

As long as both sides remain as intellectually honest as their fundamental positions allow, I say 'let's get ready to rumble!'

[buritobr]

Brief description of 9 schools: keynesian neoclassical synthesis, monetarism, new classical, new keynesian, austrian, post keynesian, latin american structuralist, marxist and feminist

Unfortunately, it is not in English https://voyager1.net/economia/pequeno-guia-das-tribos-do-pensamento-economico/

[RFayette 🇻🇦]

I'm not sure whether this also plays a role in other countries but in the Netherlands there is a bit of a debate on the future of economics education. There are some who want to focus more on complex mathematical models while there are other who want to treat economics more as a social science and focus on insights from psychology or sociology. The second group exists mainly out of people who dispute most core microeconomic assumptions.

Does this describe most behavioral economists, or simply those in the educational community in the second camp?

[mvd10]

I'm not sure whether this also plays a role in other countries but in the Netherlands there is a bit of a debate on the future of economics education. There are some who want to focus more on complex mathematical models while there are other who want to treat economics more as a social science and focus on insights from psychology or sociology. The second group exists mainly out of people who dispute most core microeconomic assumptions.

Does this describe most behavioral economists, or simply those in the educational community in the second camp?

I believe behavioral economics is mainly focused on incorporating psychological things in economics (eg: psychological research showing we're not fully rational beings). You also have feminist economics (lolkek) which sees some microeconomic principles as inherently patriarchal concepts which doesn't apply to a modern workforce with high female participation because women are more social or so (atleast that's my crappy understanding of it). You have institutional economics who focus on the effect of institutions and social norms on people's economic choices. But most of these schools aren't really mainstream. Besides, mathematical/econometric skills are about the only advantages we have over finance/marketing/business grads. Pls don't take away our comparative advantages . Things like behavioral economics or behavioral finance became bigger after the financial crisis and the apparent failure of concepts from financial economics (which is different from monetary economics) that assumed market efficiency/rational expectations and things like that.