Odd Lots

Jamee Moudud on the Intellectual Roots of Zohranomics

February 21, 2026

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  • The orthodoxy of modern neoclassical economics, which treats the economy as a separate, eternal, and naturalistic system, emerged in the late 19th and early 20th centuries by eviscerating the older tradition of political economy, which viewed economic questions as inseparable from politics and law. 
  • The shift toward neoclassical economics was accelerated post-WWII by mathematicians and engineers modeling the economy as a rational machine, leading to a discipline that became mathematically sophisticated but divorced from social reality, evidenced by the profession training "idiot savants." 
  • Policies like rent control or taxing billionaires, often labeled heterodox, are better understood not as deviations from a natural economic order, but as political decisions structuring social costs, a perspective rooted in classical political economy thinkers like Adam Smith, who recognized inherent power imbalances between property owners and workers. 

Segments

Defining Economic Orthodoxy
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(00:08:09)
  • Key Takeaway: Neoclassical economics is defined by assumptions of rational individuals and optimal markets, contrasting sharply with classical political economy.
  • Summary: Neoclassical economics is the current orthodoxy, built upon assumptions of rational human behavior and markets achieving full employment equilibrium. Classical political economy, including thinkers like Adam Smith, did not rely on these assumptions and viewed economics as inherently political. The term ‘political economy’ signified that politics and law were inseparable from economic analysis.
Adam Smith and Institutionalism
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  • Key Takeaway: Adam Smith was an institutionalist who understood that laissez-faire capitalism rests upon a foundation of human-created property rights and power relations.
  • Summary: Adam Smith recognized a power difference between property owners and workers, contradicting the modern caricature of him supporting a purely equal market. His work understood that the economy is profoundly a product of history and sits upon a foundation of institutions, including law and cultural norms. The rise of neoclassical economics later stripped the political context from this analysis.
Rise of Neoclassical Rigor
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(00:14:37)
  • Key Takeaway: Neoclassical economics gained dominance in the mid-20th century through mathematization driven by defense-related modeling, eclipsing the inductive, reality-based methods of earlier institutionalists.
  • Summary: The shift to neoclassical dominance occurred in the 1940s as economics became dominated by mathematicians and engineers, often funded by the Department of Defense, modeling input-output systems like weapon systems. This mathematical rigor led to a profession training “idiot savants” who lacked the ability to apply models to social reality, as noted in a 1985 NSF symposium report. This contrasts with the earlier American institutionalists trained in the German historical school, who built theory inductively from social reality.
Revisiting Post-War State Policy
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  • Key Takeaway: Post-WWII European reconstruction demonstrated robust, successful industrial and social policy implemented by democratic states, contradicting the idea that state intervention is inherently monstrous.
  • Summary: European reconstruction after WWII involved significant industrial and social policies, such as the nationalization of the Bank of France and the use of public banks like Germany’s KFW for credit allocation. These examples show that industrial policy can be consistent with social democratic governance, not just authoritarianism. The U.S. Congress studied these European models of central bank mobilization for reconstruction.
Mamdani’s Policies vs. Orthodoxy
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(00:25:07)
  • Key Takeaway: Proposals like taxing billionaires are profoundly opposed to neoclassical orthodoxy because they intervene in the self-contained, pre-political economic black box, but they align with historical precedents of regulating social costs.
  • Summary: The argument that taxing billionaires will tank the economy is historically weak, as high progressive tax rates existed during capitalism’s golden ages in the mid-20th century. Neoclassical theory predicts negative outcomes from any state intervention because it assumes the economy naturally equilibrates. However, policies like this are historically justified by recognizing that politics structures the composition and level of social costs inherent in production.
Reframing Market Failures
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(00:31:52)
  • Key Takeaway: Pollution and waste are not ‘market failures’ but endemic social costs structured by the existing legal design and property rights, necessitating political decisions on cost minimization.
  • Summary: If pollution is ubiquitous, it cannot logically be a market failure; rather, it reflects the legal framework allowing owners to externalize costs, such as dumping waste or taking private data. The social cost inflicted by industry depends on the legal design, as seen when environmental laws were enacted. The debate should shift from ‘market failure’ to political decisions about which social costs to minimize.
Political Constraints on Policy
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  • Key Takeaway: The primary political constraint preventing heterodox policy from becoming the norm is that the neoclassical view—that markets are prime and everything else follows—dominates public discourse and expert commentary.
  • Summary: The prevailing economic lingua franca frames any intervention as ‘state interventionism’ against the ‘free market,’ stifling deeper conversations about the market’s political foundations. This lack of public awareness regarding economic history prevents citizens from understanding that the market is not pre-political. The U.S. Constitution, being a first-generation document lacking explicit economic rights, further constrains the development of a robust welfare state compared to many European constitutions.