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Alternative economics 2: Empirical & Logical Fallacies in Neoclassical economics

Summary:
Neoclassical microeconomics is based, not on “simplifying” assumptions that omit insignificant details of reality to focus on the significant issues, but on “counter-factual” assumptions which flatly contradict what we know about significant economic issues. I cover: (1) Friedman’s methodological assertion that “assumptions don’t matter” was actually done to advise economists NOT to read empirical literature ...

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Neoclassical microeconomics is based, not on “simplifying” assumptions that omit insignificant details of reality to focus on the significant issues, but on “counter-factual” assumptions which flatly contradict what we know about significant economic issues. I cover:



(1) Friedman’s methodological assertion that “assumptions don’t matter” was actually done to advise economists NOT to read empirical literature contradicting the idea of rising marginal cost [Minutes 1-5];


(2) The logical reasons why marginal costs are either constant or falling 5-12]

(3) Empirical research, including work by Alan Blinder, finding that marginal costs fall for 90% or more of firms [12-21]

(4) The Neoclassical “Revealed Preference” interpretation of rational utility maximizing [21-23]

(5) Empirical research that contradicted Revealed Preference [23-29]

(6) Why Neoclassical theory can’t derive a downward-sloping market demand curve [29-37]

(7) Why equating marginal revenue and marginal cost doesn’t maximize profits [27-52]

(8) Why the idea that macroeconomics can be derived from microfoundations is a fallacy [52-59]

(9) A more detailed derivation of a simple complex systems macro model from macro definitions [59-62];


(1) Minsky’s Financial Instability Hypothesis [62-End]



Steve Keen
Steve Keen (born 28 March 1953) is an Australian-born, British-based economist and author. He considers himself a post-Keynesian, criticising neoclassical economics as inconsistent, unscientific and empirically unsupported. The major influences on Keen's thinking about economics include John Maynard Keynes, Karl Marx, Hyman Minsky, Piero Sraffa, Augusto Graziani, Joseph Alois Schumpeter, Thorstein Veblen, and François Quesnay.

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