Alejandro Nadal

Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. See all of the questions and answers here. A reader asked:

Q: Do economists have a successor paradigm to the “invisible hand” theory, in which it is NOT expected that everyone should need to be employed? Perhaps something like Random Welfare, coupled with more environmental respect.

Nadal: First, the invisible hand paradigm should have been abandoned since 1974, when the Sonnenschein-Mantel-Debreu theorem was first published. This result showed that after 200 years, the invisible hand metaphor remained just that, a metaphor. There was never an invisible hand “theory” showing how, in the general case, equilibrium prices were formed. If this was a paradigm, it was more for ideological reasons than “scientific” superiority.

Second, in general equilibrium theory, and in mainstream macroeconomics, it is not expected that everyone needs to be employed. The initial endowment of resources may permit some agents not to seek a job.

Third, there are several alternative theoretical options vying for attention. Perhaps the important question is how to reconcile equity with environmental responsibility in monetary economies where uncertainty is important. Although the environment has not received adequate attention in post-Keynesian economic theory, I still think this is the best bet.