What Skidelsky and other critics of mainstream economics (both in its micro and macro parts) fail to recognise is that no new big idea willappear because mainstream economics is a deliberate result of the need to avoid considering the reality of capitalism. Its theories are ideological justifications of capitalism( its supposed tendency to harmonious growth, equilibrium and equality). When reality does not bear out the mainstream, it is ignored. That’s because ‘mainstream’ means support for the existing dominant ideology.
‘Political economy’ started as an analysis of the nature of capitalism on an ‘objective’ basis by the great classical economists Adam Smith, David Ricardo, James Mill and others. But once capitalism became the dominant mode of production in the major economies and it became clear that capitalism was another form of the exploitation of labour (this time by capital), then economics quickly moved to deny that reality. Instead, mainstream economics became an apologia for capitalism, with general equilibrium replacing real competition; marginal utility replacing the labour theory of value and Say’s law replacing crises.
Even the so-called Keynesian revolution that came out of the experience of the Great Depression was hardly ever applied and was soon dumped when capitalism faced renewed crisis in the 1970s. The Keynesians are now either advocates of theory that is ‘good enough’ or critics with no ‘big new idea’.The new "big idea" needs to be a framework for generating competing theories. Rationality based on microfoundations and general equilibrium assuming full employment isn't it. Now the question is what the next iteration is.
That would require admitting the nature of contemporary financial and managerial capitalism, for one thing, and, more specifically, the role of power in rent extraction, which the "mainstream" is so far unwilling to do.
This would involve integrating economics and finance, rather than treating them as separate and unrelated disciplines owing to the erroneous assumption of money neutrality. As a consequence, this would necessitate operational analysis of monetary regimes based on the difference between currency issuer and currency users.
I would envision the new big idea being a fusion of Post Keynesianism and Institutionalism as MMT has done, along with Marxian economics based on class power.
Michael Roberts Blog
The macro: what’s the big idea?
Michael Roberts
Rethinking macro
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Eighty years ago, Keynes got macro wrong and neither pro-Keynesians nor anti-Keynesians noticed it until this very day.
Keynes has to be credited for realizing that the economics of Jevons/Walras/Menger/ Marshall was false at its core and that nothing less than a paradigm shift was needed: “The [neo-]classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight ― as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.”
After Keynes, an economist who does not see the necessity of a paradigm shift is a scientifically incompetent moron.#1
Keynes, though, messed up the shift from microfoundations to macrofoundations. His methodological blunder can be exactly located in the GT: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)
This two-liner is conceptually and logically defective because Keynes did not come to grips with profit “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)
Because profit and income are ill-defined the whole theoretical superstructure of Keynesianism is false. It was Allais who identified Keynes’ lethal blunder.#2 Obviously, neither orthodox nor heterodox economists got the message.#3
Until this very day economists did not get the foundational concepts of their subject matter ― profit and income ― right. The four main approaches ― Walrasianism, Keynesianism, Marxianism,#4 Austrianism#5 ― are mutually contradictory, axiomatically false, and materially/formally inconsistent. Economic policy guidance NEVER had sound scientific foundations from Adam Smith/Karl Marx onward.
So what is the big idea?
It is pretty obvious that one has to go back before Keynes’ failed General Theory and perform the paradigm shift from false microfoundations to true macrofoundations.#6 This cannot be done by the present generation of orthodox and heterodox economists who have thoroughly proven their utter scientific incompetence.#7
Egmont Kakarot-Handtke
#1 Microfoundations R.I.P.
https://axecorg.blogspot.de/2018/01/microfoundations-rip.html
#2 How Keynes got macro wrong and Allais got it right
https://axecorg.blogspot.de/2016/09/how-keynes-got-macro-wrong-and-allais.html
#3 Economists never understood how the price mechanism works
https://axecorg.blogspot.de/2018/01/economists-never-understood-how-price.html
#4 Profit for Marxists
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2414301
#5 Austrian idiocy ― the case of Hayek
https://axecorg.blogspot.de/2017/12/austrian-idiocy-case-of-hayek.html
#6 If it isn’t macro-axiomatized, it isn’t economics
http://axecorg.blogspot.de/2017/02/if-it-isnt-macro-axiomatized-it-isnt.html
#7 Time to retire political economists
https://axecorg.blogspot.de/2018/01/time-to-retire-political-economists.html