A dismal "science"

Recently, Steve Keen added his voice to a growing list of objectors to neo-classical economics as we know it in view of the current financial trust crisis. The common thread in these comments is that what is taught as principles of economics in class rooms around the world is plainly wrong and even misleading about the functioning of our globalized economy. Some argue that economics, in fact, still functions as physics did in the days before Copernicus; the "dismal science" is essentially not scientific at all yet.

The consequences of this misunderstanding of our economic world are severe. Neo-classical principles such as the efficient market hypothesis are plainly untrue and dangerous, since these simplified views of the world allow greed and fraudulent behavior to undermine the required trust to sustain the gains generated through economic networks. The consequences of the collapse of trust have been shown to be extremely severe in our globalized network economy. Credit markets have frozen and people responded by reducing spending, thus creating a severe recession that might still turn into a worldwide depression.

Therefore, a new set of economic principles has to be proposed and should replace the currently outdated 19th century Marshallian principles that economists teach in introductory economics courses. This new set of 21st century principles should be founded on a network or relational perspective of the globalized economy and contain such principles as the tragedy of the commons, principal-agent theory, information economics, in particular Akerlof's lemons market, and Adam Smith's theory of economic development through the deepening of the social division of labor. The common thread is that we depend on each other in our contemporary economy and that our economic plight is acollective one. Competition is just icing on the cake, but the foundation is and remains interdependency of the economic actors.