There is very little difference between so-called Keynesian and Austrialian economics. The both rest on the same fundamental assumptions. All economists are politicians wrapped in math.
Economists enamored of pure markets begin with the theory, and hang models on assumptions that cannot themselves be challenged. The characteristic grammatical usage is an unusual subjunctive — the verb form ‘must be.’ For example, if wages for manual workers are declining, it must be that their economic value is declining. If a corporate raider walks away from a deal with half a billion dollars, it must be that he added that much value to the economy. If Japan can produce better autos than Detroit, there must be some inherent locational logic, else the market would not dictate that result. If commercial advertising leads consumers to buy shoddy or harmful products, they must be ‘maximizing their utility’ — because we know by assumption that consumers always maximize their utility. How do we know that? Because to do anything else would be irrational. And how do we know that individuals always behave rationally? Because that is the premise from which we begin. The truly interesting institutional questions — the disjunctures between what free-market assumptions would predict and the actual outcomes — are dismissed by the tautological and deductive form of reasoning. The fact that the real world is already far from a perfect market is ignored for the sake of theoretic convenience. The dissenter cannot challenge the theory; he can only describe the real world.”
— Robert Kuttner, EVERYTHING FOR SALE
The neoclassical school is the dominant (and probably the numerically largest) school in contemporary economics. For neoclassical economists, microeconomic theory (i.e., welfare economics) underlies every theoretical subfield of specialization and every theoretical, practical, and policy-oriented conclusion at which they arrive. All of their cost-benefit analyses, their demonstrations of the universal gains from foreign trade, their notions of market efficiency that are encountered in every branch of applied economics, as well as their notion of rational prices, have absolutely no meaning whatsoever other than that manifested in their faith that a free-enterprise, competitive market system will tend toward a Pareto optimal situation. Without a Pareto optimal situation in effect, these phrases and notions cannot be defended. In fact, in the absence of an optimal situation, these phrases have no meaning whatsoever. They are given meaning only when the neoclassical economists first posit the existence of a Pareto optimum; then, by definition, all exchangers are said to gain, resources are said to be ‘efficiently allocated,’ prices are said to be ‘rational’ and therefore conducive to making accurate assessments—on utilitarian grounds—of the social costs and social benefits of various government projects. Utilitarian neoclassical welfare economics pervades and dominates nearly all neoclassical analyses on all theoretical and practical matters.” (Emphasis in original) — HISTORY OF ECONOMIC THOUGHT: A CRITICAL PERSPECTIVE, Third Edition, E. K. Hunt & Mark Lautzenheiser, 2011
