The fundamental distinction between mainstream economics and the political economy approach to economics is how we define and measure the economy. More importantly, how do we equate the performance of our economy to the overall quality of life experienced within the economy. The differences between the two approaches are uncanny. They range from topical calculus to philosophy. Another vast difference is the focus on individual behavior compared to society as a whole. What both mainstream and political economics do have in common, however, is that they are both, in essence, a study of human behavior. This creates an even greater distinction between the two, as political economists argue that human behavior cannot be quantified, while mainstream beliefs hold that we all follow rational behavior. The enormous difference in views of human nature and the separate methodological approaches are what fundamentally distinguishes mainstream and political economics.
Mainstream economics begins with the individual. Micro and macroeconomics courses teach us that we all, always behave rationally and always in our best self-interest. We are driven to maximize the utility of the goods and services produced and sold in markets. Also, it is the economic gain that motivates us all to buy, sell and work. In mainstream economics, we are all termed, “economic man.” This implies that it is our inherent human nature to behave in ways that will offer us personal gain. Do we not have any other motivating forces in our nature? Can anyone validly deduce that this is in fact a universal human trait? Political economists would disagree. Fundamentally, the individual is a part of a larger group. Furthermore, the group, part of a particular place and time. This has separate implications altogether. What’s more, is that human behavior is not readily predictable by any means. In fact in many cases, especially with consumers, it is completely irrational.
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The emotional attachment between advertisements and products we experience is a great example of irrational behavior in economics. The fact that humans are social beings is a natural tendency that political economists look at. We behave in context to the various relationships among us. This is why we are all interdependent and how we all fit into society. In the political economy approach, the social institutions and their implications form the basis of the methodology. These involve the lenses of politics, psychology, sociology, and history. Mainstream economics is rooted in the scientific method. Mainstream models find ways to explain behavior through algebra, statistics, and graphs. This method is purely deductive. Mainstream economics makes assumptions as to why things occur whereas political economics tries to determine the best ways to solve problems that arise.
An integral part of the political economist’s methodology is humility. Because a large focus is placed on historic occurrences, we assume that we are susceptible to the same mistakes of the past. In mainstream economics, market power is the ruling factor. To make the mainstream models run smoothly, other factors are set aside. In actuality, many of the models do not hold in the real world when “all other things” aren’t held equal. Markets are not purely a mainstream ideology either. Political economists study markets too but observe them in their context to power relationships and various classes in culture. To the political economist, the problem with mainstream economics is that quantifying everything distorts reality and leaves out the factors that cannot accurately be measured in judging a strong economy.
John F. Kennedy once said something to the effect of, GDP fails to measure all of the things that actually make us proud to be Americans. This is precisely the problem political economists have with mainstream economics. It does not account for externalities. We value, among other things, the environment, our leisure time, our families and friends, clean neighborhoods, education, and our overall quality of life. It is impossible to place numbers on these types of values, yet they are still crucial to how we view the economy. In this regard, many political economists see mainstream economics as, at best, an incomplete analysis of the economy and, at worst, completely inaccurate. It is incomplete because the most important factors that people want in society go unaccounted for in mainstream economics.
Another discrepancy comes from mainstream economics’ classification as a “science.” Mainstream economics does not offer any concrete principles as to why things actually occur. In another sense, it is faulty because, some argue, underlying class structures of society determine all economics regardless of any market activity. Capitalists are the ones who dictate the markets. Mainstream economists also handle the economy passively. More often than not, it is a society that is forced to adapt to the changes of the economy and not the other way around. This doesn’t necessarily benefit society as a whole. Moreover, the working-class people are the ones who experience these fluctuations the worst. Mainstream economics doesn’t seem to take into account how specific groups like these are affected differently. Failing to see this inequality paints an inaccurate picture of the overall economy. And it is the overall well-being of the economy and society that completes the political economist’s analysis.