Why Mainstream Economics Keeps Getting Rewarded for Irrelevance

October 13, 2025

The 2025 Nobel Prize in Economic Sciences feels less like a celebration of groundbreaking insight and more like a symptom of a discipline doubling down on its own irrelevance. By awarding the prize to Joel Mokyr, Philippe Aghion, and Peter Howitt for work on "innovation-driven growth," the committee has once again chosen to reward the formalistic dressing-up of old ideas over the urgent, paradigm-shifting work being done on the fringes.

1. The Illusion of Novelty: Schumpeter in a Mathematical Corset

The core idea being celebrated—that capitalism is a dynamic process of "creative destruction" where new innovations displace old industries—is not new. Joseph Schumpeter described this process with brilliant, qualitative richness in the 1940s. He saw it as a turbulent, historical, and deeply social phenomenon driven by the spirit of the entrepreneur.

What Aghion and Howitt did was take Schumpeter's powerful, messy concept and force it into the rigid confines of a mathematical model. This is a hallmark of modern mainstream economics: the belief that an idea isn't "rigorous" until it's expressed in equations. But in this translation, the essence is lost.

Schumpeter’s "perennial gale of creative destruction" is reduced to a predictable, contained system where firms rationally invest in R&D to maximize profits. The chaotic, unpredictable, and path-dependent nature of real-world innovation is smoothed over by simplifying assumptions. It provides the appearance of precision while sacrificing real-world applicability. It's a thin veneer of mathematical sophistication laid over a concept that was far more potent in its original, non-mathematical form.

2. The Hubris of "Policy Implications"

The claim that these models can be used to "calibrate subsidies for research and development and to optimise safety nets" is a perfect example of the disconnect from reality. Real economies are not simple machines that can be fine-tuned with the dials and levers of a mathematical model.

These models largely ignore:

  • The Role of Money, Debt, and Finance: Post-Keynesian economists like Steve Keen have demonstrated that you cannot understand capitalism without understanding the dynamics of private debt. Financial crises, which are a major feature of modern economies, are almost entirely absent from these endogenous growth models.
  • Power and Politics: Innovation doesn't happen in a vacuum. It's shaped by corporate power, lobbying, regulatory capture, and political will. The idea that we can find an "optimal" subsidy level without considering these factors is naive at best.
  • Fundamental Uncertainty: The models assume a world of manageable risk, not the true, unknowable uncertainty that governs innovation and investment.

The policy advice that emerges is therefore generic and bloodless: "invest in R&D," "support displaced workers." These are obvious truisms, not profound insights derived from complex mathematics.

3. The Willful Ignorance of Heterodox Alternatives

This is the most significant failure. For decades, economists from heterodox schools of thought have been building more realistic and relevant frameworks for understanding the modern economy.

  • Modern Monetary Theory (MMT): MMT provides a far more robust and practical framework for how a government can finance the very things this prize touches upon. It explains how a currency-issuing government can fund large-scale R&D (like the internet or green technology), build robust social safety nets, and ensure full employment without the imaginary financial constraints that haunt mainstream models. It offers a direct path to funding the "creative" part of the cycle while mitigating the "destructive" part.
  • Post-Keynesian Economics: Thinkers in this tradition focus on the inherent instability of capitalism, the centrality of financial markets, and the importance of demand in driving the economy. They offer far better explanations for the booms and busts that define our economic reality—a reality that the Nobel-winning models struggle to incorporate.

By ignoring these contributions year after year, the Nobel committee is is acting as a gatekeeper, reinforcing the dominance of a paradigm that has failed to predict or prevent major crises and is ill-equipped to handle the challenges of the 21st century, from climate change to spiraling inequality.

In conclusion, this prize isn't for explaining innovation; it's for fitting a simplified version of innovation into the pre-approved mainstream framework. It's another step away from a pluralist, reality-based economic science and another step towards an insulated, self-referential academic game. It's a prize for polishing the brass on the Titanic while the heterodox economists are in the engine room trying to warn everyone about the iceberg.

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