The great political blow Occasional News and Commentary has a great entry about the nature of liberal economics in the political system.
What liberal mainstream economists don’t see is that capitalism, despite its premises and promises, fails to deliver on them. For example, capitalism holds up “just deserts” as an ideal—everybody gets what they deserve—but it actually means that most people are forced to surrender the surplus they create to their employers, who are allowed to either keep it (and do with it what they want) or distribute it to still others (the tiny group at the top that manages the way those enterprises operate). Capitalism also pledges stable growth and full employment but then, precisely because of that private control over the surplus, regularly delivers boom-and-bust cycles and throws millions out of work.
Liberals also don’t see (because they don’t want to or, given their theory, can’t see) that even the policies they endorse to make capitalism work better are frustrated at every turn. Why? Because, even when regulations are imposed (such as they were during the New Deal programs of the 1930s), they leave in place both the interest and means on the part of employers and their allies to first evade and then, eventually, overturn those regulations.
Not only does liberal economic ideology offer a limited view of how capitalism works; it is also serves to keep out of the debate both other theories of capitalism and other ideas of how the economy might be organized. It’s premised on the notion that here are the acceptable terms of discussion—capitalism is characterized by markets that work more or less well, at the microeconomic and macroeconomic levels—and that other conceptions of capitalism—which introduce things like class exploitation into the discussion—are simply wrong or irrelevant. And it limits the discussion to regulating markets and rules out of court the possibility of imagining and creating other economic institutions—ways of organizing the economy that seek, for example, to actually eliminate class exploitation.