Questions on Economics - Essay Example

The prevailing trend, however, is that the traditional or mainstream approach in economics could be considered outdated. Though it still should remain in the toolset of an economist, the emphasis on rationality as a means to solve modern market debacles may produce variable results. Herein, some of the strengths and weaknesses of the mainstream approach will be suggested. Likewise, the origin of the mainstream approach, and the knowledge that could be reaped from the utilization of some alternative approaches will also be pondered.

If we are to offer a definition for what is meant by the mainstream approach in “economics [we mean] microeconomics” (Coase, 1998, 72). In other words, the mainstream approach is that ideology that was derived from the teachings of Adam Smith. In general, it is a viewpoint that favours limited government involvement, and the notion that market conditions fluctuate naturally and that rationality will balance the said. A few weaknesses of the laissez-faire view though include the fact that an extreme condition of “decentralization” would be required in its pure form, and also that it simply analyzes the price points of supply and demand, as opposed to evaluating the “factors” which influence these (Coase, 1998, 72). . A more proper manner of discerning the status of microeconomics is that the “evidence/theory ratio… is currently very low in this field” (Holmstrom & Tirole, 1989, 126).

Thus, the ideal world is in discord with how real world reactions unfold, according to measurable economic aspects. Williamson (1994) calls out some additional weaknesses of the mainstream approach as he condemns “exclusive reliance on local or specific knowledge” (Williamson, 1994, 324). Rather than calling for an abolition of the limited micro-focus and following a broader approach, he recommends “appealing to both invisible- and visible-hand explanations,” thus this scholar could be classified as a moderate economist (Williamson, 1994, 323).

Henry & Miller (2009) conducted an interesting analysis, wherein they present the platform that the “rich countries” are home to more stable economics since they “have incentives to engaged in productive economic activity” (Henry & Miller, 2009, 261). Easterly (2008) likewise supports the notion that rich countries will tend to outperform the poor who lack much of the foundational structure needed for economic success. Some of these so-called “incentives” refer to the heightened protection offered to would-be investors from the framework of “English common-law,” not to mention that such economies are “less prone to government ownership” (Henry & Miller, 2009, 261).

As compared to the mainstream economic view, of Adam Smiths’ ideals, these pair would be quite opposite and perhaps in possession of a radical view that “macroeconomic policies” can exert a massive influence on the economy, especially when carried out at the institution level (Henry & Miller,