Essay on Toward New Pradigim

5080 Words Jun 2nd, 2011 21 Pages
toward new pradigim

Towards A New Paradigm for Economics

Asad Zaman
Director General
International Institute of Islamic Economics
International Islamic University
Islamabad, Pakistan

Abstract. Current economic theory is mainly concerned with the factors which affect the wealth of nations. Issues of income distribution and elimination of poverty and deprivation is secondary. The present paper invites discussion on a new paradigm: hunger and homelessness to make the subject of economics really serve the humankind.

1. Focus of Conventional Economics is Wealth and not Poverty
Current Economic theory is firmly set in the mold structured by Adam Smith 1904). His concern was to look into factors which affect the wealth (and hence
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There is no natural way to define poverty in our microeconomic theory, and our tools shape the way we look at the world. To a much bigger extent than realized, the failure of our theories to recognize the poor affects their fates. Trade theorists insist that free trade generates more global wealth (under ideal conditions) and hence can lead to a Pareto improvement if the wealth is redistributed. At the policy level, economists press hard for free trade but make no attempt to ensure that the redistribution will also take place. The failure of our theories at the macro and micro levels to recognize the existence of the poor leads numerous types of policy failures both at the theoretical and at the practical levels.

Numerous attacks have been mounted on the neoclassical paradigm. On the empirical side, it appears that people rarely behave “rationally,” when rationality is defined in the neoclassical sense. A prominent challenger on this side has been Herbert Simons (1982), who developed the concept of “bounded rationality.” Studies of decision making by psychologists show systematic deviations from neoclassical rationality, as documented by Kahneman, and Tversky (1985), etc. Applied studies of consumer behavior show systematic flaws in the utility model, the main ones being the relative instability of consumer preferences, and the effects of information/misinformation. In econometric studies, systems of demand equations based on utilities can be constructed

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