Sustainability scientists’ critique of neoclassical economics

Abstract

Abstract Non-technical summary Neoclassical economics (NCE) theory and neoliberal economics practice together form one of the principal driving forces of environmental destruction and social injustice. We critically examine ten key hypotheses that form the foundations of NCE, and four other claims. Each fails to satisfy one or more of the basic requirements of scientific practice. Hence, NCE is fundamentally flawed, is irrational in the common meaning of the word, and should not be used as a guide for government policies. Because NCE is socially constructed, it can be replaced with an interdisciplinary conceptual framework that is compatible with ecological sustainability and social justice. Technical summary Neoclassical economics (NCE) is widely regarded as providing theoretical justification for neoliberal notions such as ‘governments should minimize regulation and spending, and hence leave major socioeconomic and environmental decisions to the market’. A large body of literature finds that NCE is largely responsible for environmental destruction and social inequality. As NCE is claimed to be a science and has appropriated terminology (without the content) from physics, we examine critically its basic hypotheses and four other claims from a viewpoint of natural scientists and an ecological economist, each a sustainability researcher. This paper defines NCE in two ways: as a theoretical structure for economics based on (1) the hypotheses of methodological individualism, methodological instrumentalism and methodological equilibration, and (2) the three hypotheses named above together with seven other common hypotheses of NCE. We find that each hypothesis and claim fails to satisfy one or more basic requirements of scientific practice such as empirical confirmation, underlying credible or empirical assumptions, consistency with Earth system science, and internal consistency. Sensitivity analysis is rare and ability to predict is lacking. Therefore, we recommend that neoclassical microeconomics be reformed and neoclassical macroeconomics be abandoned and replaced with a transdisciplinary field such as social ecological economics. Social media summary Conventional economics, a driver of environmental damage and social inequality, fails examination by sustainability scientists.