The last semester of my undergraduate career, I decided to use some of my excess time writing a concise summary of the consensuses of mainstream economics. My idea had been to approach rigorously and review all the key concepts in a way comprehensible to people unfamiliar with the subject. As it ended up, I ran into problems quite quickly, not insignificant ones, but grave and glaring inconsistencies and oversights that I'm ashamed for not noticing beforehand. As I quickly found out, I obviously wasn't the first person to have noticed them, but it's worth repeating some of them: the more obvious flaws of mainstream economics.
Supply Curves Slope Downward
The supply and demand register is probably the most important graphic in all of economics; it might in fact be the only one, considering other models like the IS-LM are just supply and demand with different labels. Regardless, there's a kind of symmetry in it's X shape: the demand curve falls as quantity increases, owing to the lower amount of money people are willing to spend for a common product, supply is supposed to rise but why? According to the orthodox textbooks, higher prices for good encourage more firms to join the market and produce.
In reality, this is entirely backward. A market that's overcrowded with producers causes a highly competitive and non-profitable price, moreover the supply curve in isolation is supposed to be the curve of an individual firm before competitive pressures. Of course the theory itself is somewhat of a rationalization to fit the specific theory of farm productivity of classical economics to the general case. Supply and demand economics began in the context of analyzing agricultural productivity, and classical economists reasoned that the higher the output, the more inferior land a farmer would have to use. As the market quantity increased, farmers would move to more and more marginal land to boost production, which would over time drastically increase their average cost of production. Therefore, their supply curves must rise.
But the general case could hardly be more disparate; whenever a firm is manufacturing a product, they can reasonable add capital and workers to its production and decrease its average production costs. The larger the firm, the more units it can stretch its fixed cost over and the cheaper it can provide products. In reality economies of scale dominate large-scale production, and they keep prices incredibly low. This is precisely why large industries exist: big box stores can move goods at a larger and more efficient scale than small grocers etc. If neoclassical economics were to be taken at face value, small firms would be hyper-productive and every large-scale corporation would inevitable come crashing down.
Perfectly Competitive Markets Don't (and Shouldn't) Exist
Tied
in with the mythology of the supply curve is the idea that perfectly
competitive markets are somehow more socially efficient than
"imperfectly" competitive ones. I'll be terse here considering I've
already written an entire article
on this very topic. In short, perfect competition is a ridiculous
abstraction which in every sense doesn't exist and is a way of tacitly
smuggling value judgements into economics: see the word "perfect."
The whole idea has brilliantly backfired on mainstream economics; socialists have always used the strawman of perfect competition to attack market structures as they really exist, which obviously fail to measure up. But the ideal of perfect competition has still totally changed the face of consensus economics: when antitrust legislation was first being thought up in the 19th century, economists were consistently critical. Antitrust legislation destroyed profit-motive, economies of scale, violated private property and was a thinly-veiled way to illicit favoritism. But with the rise of perfect competition and the "free market" Chicago School, the standing order became to split up any business that committed the crime of being too successful or productive. No one stopped to think that monopoly profits were the reason for entrepreneurship and technological innovation, and that monopolies are overthrown with every one of said innovations.