The Reform Agenda of Mainstream Economics: Importance, Relevance, and Obstacles for Islamic Economics

Abstract

Mainstream economics textbooks focus too much on neoclassical models (with perfect competition as reference model) while the mainstream research practice is much more diverse and closer to the real world and political issues. Progress was made in microeconomics by new insights particularly from behavioral and experimental economics and new tools such as simulations and network analysis. In macroeconomics, however, the dominant Dynamic Stochastic General Equilibrium (DSGE) models have structurally failed to predict the global crisis. Their enhancement by the inclusion of an explicit financial sector is on top of the mainstream reform agenda. Islamic economics may benefit from the innovations in microeconomics, while the macroeconomic reform agenda is of limited relevance as long as the market share of Islamic finance remains quite low in most Muslim countries. A dialogue on reform between mainstream and Islamic economics should take into account that Islamic economists underline the importance of the Qur’ān and Sunnah as the primary sources of positive and normative knowledge, while secular mainstream rejects proofs of positive statements by reference to divine sources. This may become a severe methodological obstacle for more pluralism in economics.