The global economy: a framework for teachers of microeconomics

Abstract

Economics instructors who take a pluralistic view may find useful a framework to show the relationship among the different schools of thought in economics. I construct a taxonomy based on Gassler's notion of political and social economics. It consists of non-market activities that either set up the market for success or correct for market failure. This framework illustrates how both neoclassical, and other approaches, can contribute to our understanding of the complexities of international political economy. First, I review the argument for free trade in the form of the first fundamental theorem of welfare economics, stressing the underlying assumptions. Second, using the same framework, I construct the neoclassical argument against free trade and show that it is much stronger than the argument in favour. I do this by simply describing the cases of market failure which are not difficult to find at the global level. Third, I argue that heterodox economics can help construct an alternative view of globalisation that is better both positively and normatively; and the neoclassical theory does not stand in its way.