ABSTRACT
In the Neoliberal era, free market economics/ideology and the associated doctrines of free trade and financial liberalization have guided the economic development of an integrated world economy. The resulting development path has been marred by increasing income inequality, financial crises, slow aggregate demand growth, destructive competition and a tendency to global excess capacity and unemployment. These outcomes arise from the anarchy and inherent contradictions of global free markets and the accompanying complement of Neoliberal policies. The benefits of this Neoliberal regime have primarily accrued to financial capitalists and, to a lesser extent, to international industrial capitalists at the expense of other social groups. Despite this poor track record, the economic foundations that underlie this development strategy – neoclassical microeconomics and new classical macroeconomics – have dominated the economics profession for over 25 years. The drawback of this method, based on its unrealistic set of assumptions, is its real world irrelevance for a global economic system far removed from perfect competition and dominated by coercive decisions influenced by an endogenous distribution of income and made under fundamental uncertainty. Despite this fundamental irrelevance, neoclassical practitioners have readily enlisted policymakers and power/class brokers to adopt free market policies purely on ideological and self-interested grounds. The one orthodox alternative, the new Keynesian new neoclassical synthesis (Goodfriend (2004)), attempts to integrate Keynes’ critique of neoclassical economics within the neoclassical general equilibrium framework. This alternative subsumes Keynes within neoclassical economics and thus is disappointing (Davidson (2003), Crotty (1992, 1996)). Besides the derivation of an underemployment equilibrium as an alternative center of gravity for the economy, a strong faith in the effectiveness of policy is all that is needed to bring the new Keynesian alternative equilibrium in line with the new classical full employment solution and thus establish an uncomfortable convergence of the two approaches.1
