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Economic teaching desperately needs change

Writer: Chris Edwards  | Editor: Jane Chen  | From:  | Updated: 2018-06-11
Email of the writer: 2045038940@qq.com

Having graduated from university with an Honors degree in economics in 2002 and with a keen interest in politics, I have found that most of the theories that I was taught are almost redundant in the current day.

Conservative politicians across the globe purport to be neoliberalists, arguing that “the market is efficient, so it must be given free reign,” “the state is incompetent, so don’t let it meddle,” and “the commons are tragic, so sell them off.” All these theories from the late 1940s exploded onto the international stage in the 1980s and saw the phenomenal changes to the world economy over the last 40 years. However, the economic crashes that everyone has seen in that period have raised serious questions about the effectiveness of the neoliberal argument.

As part of the neoliberal economic teachings, students have been taught the simplicity of the circular flow model, the demand and supply curves and other such models. It is clear that these models are no longer applicable. Using the example of the model of price elasticity, it is clear that it does not apply to all products — Coca-Cola does not care about the sales of its products of an individual store in an individual city. It cares only about the sales in the city or the region, and on that basis, marketing plans are determined, not price changes subject to people’s willingness to purchase their products.

Further to this, the demand and supply curve for products has changed dramatically based on the provision of free apps in exchange for data. Given that the traditional demand and supply curve represents the number of people that are prepared to pay an amount of money for the product, the entire model fails on the basis that free apps are, under the current model, at infinite or high demand, because they are free. However, that is not the case, so the model fails.

Finally, the circular flow model. I have always had problems with this model, since my earliest days of studying economics. The biggest problem with this model is that it assumes that the flow of money within the economy is perfect — all the money that moves within the economic model keeps flowing, and none of it escapes. Obviously, this is complete rubbish, as money escapes from the economy all the time, in different ways and at different times.

These are just three examples of how economic teachings have failed the world. The models are full of assumptions that make no sense, such as the assumption that people act rationally, and that results in economic models that have no predictive power and explains why Western politicians choose to prioritize the rich over the poor. The economic focus is wrong and needs a new examination to deal with the 21st century.

(The author is an Australian working as the Web editor and publicist at the Southern University of Science and Technology.)