Institutions and Economic Policy

Abstract

This chapter discusses the problems associated to an inadequate theory of economic policy. It begins by presenting the mainstream and heterodox approaches to policy. It contends that, according to the mainstream, policy must guarantee efficiency or, at the very least, consider it a key constraint, whereas according to heterodox economists, it may have a broader variety of goals. The latter's open system perspective implies that changes in the structure of the economy eventually feedback both on how people conceive of the economy and social welfare and on how the economy itself functions. The relevance of this issue, which is understated, emerges from the subsequent discussion of how neoliberal policies have changed the structure of the economy, the way people conceive of the economy, and even their voting behavior.