Please i dont undestand exactly which are the main difference between this two areas in economic.
As a first approximation, "economics" is defined by the broad neoclassical mainstream, which builds both micro and macro analysis on the foundations of individual rational optimising behaviour (defined by axioms of choice). In turn, these assumptions facilitate the characteristic mathematical approach of the mainstream. Most of what economists do outside of this mainstream falls by default into "political economy". Political economy typically rejects neoclassical assumptions as the only acceptable foundations for economic analysis, tends to put less emphasis on mathematical prowess, but is more at ease with history (and not just economic history) and insights from other social sciences. Having said this, there are signs that the mainstream is sufficiently flexible to accommodate some of what in the past might have been more the province of political economy: for example, inclusion of institutional influences and insights from behavioural psychology are now "respectable" within the mainstream (e.g. few economists would now specify a growth model without a nod in the direction of institutional influences). Moreover, the global financial crisis (GFC) administered a shock to mainstream "economics", leading to much talk of the need for new models. To finish with a personal view, after the GFC political economy gained in credibility as the mainstream was found wanting. For example, many leading economists - including the Noel laureate Paul Krugman - acknowledged that the Post-Keynesian theory of endogenous financial instability associated with Hyman Minsky gave - well in advance of the GFC - the basis for understanding the GFC, which could have - had it been given a hearing by mainstream economists - provided the analytic basic for preventative policies.
- Badges
- Science topic
- Similar topics
- Economics