"Hip Heterodoxy" and the History of Economics
Perhaps the Brazil-savvy Ruccio or his anthropologist wife will correct me, but I remember reading somewhere that the indigenous tribes of the Amazon were not primitive isolates as many believed, but the remnants of mighty nations, which once ruled over vast empires.
So it is with heterodox economists. To the sharp contemporary eye, we seem a handful of misfits, who somehow stumbled past the comprehensive exams and the tenure reviews, laid like land-mines across our paths. But that is not quite how we see ourselves.
Did John Kenneth Galbraith spend "his whole life as an economic dissident"? Absolutely not. My father's early Institutionalism was the mainstream at the time. The child of philosophical pragmatism and scientific Darwinism, Institutionalism linked Veblen, Commons at Wisconsin and Ayres in Texas; it gave us the New Deal and, in particular, Social Security. It was allied to a German-influenced historical economics, which controlled the American Economic Association. The AEA, now a free-trade sect, was formed in the 1890s largely to oppose the free-trade doctrines of 19th century British economics.
At that time, the main dissident force in economics was Marxism. Neoclassical economics barely existed; there are no significant Americans in those ranks before 1950. (John Bates Clark? Please. A minor post-Walrasian, whose son caught the drift and became an Institutionalist.)
In 1936 my father encountered Keynes and joined him, to become a leader in the ascendant Keynesian school. By 1942, as chief of wartime price control, he was for a year the most powerful economist in history. In the 1950s and 1960s, he became the most widely-read economist ever; The New Industrial State was on the Times bestseller list for over a year. And so it went into the 1970s: Milton Friedman's Free to Choose was a reaction to The Age of Uncertainty, a 13-part BBC series and worldwide sensation; the book on that sold half a million copies in Japan.
Nor was he alone. The Harvard economics department was then full of giants who would today be thought heterodox: Leontief, Hirschman, Kuznets, Duesenberry, Landes, Dunlop. As a guide to what the profession would become, it was totally misleading. It did, however, succeed in fooling me.
I went from Harvard to Cambridge in 1974, to study under Nicholas Kaldor and others including Joan Robinson, Keynes' close disciple. Returning eventually to Yale, I found another nest of highly heterodox figures, genially clustered around Jim Tobin: Nelson, Winter, Peck, Parker, Ruggles, Orcutt. All of these groups would be scattered within a few years.
But the point is: neoclassical economics was not always dominant. It rose to dominance in my professional lifetime. I expect to see it fall apart. Indeed as Hayes accurately reports, it is in fact crumbling, from within, right now. Again as Hayes reports, many neoclassicals realize this. The question is, what comes next?
Here the history of ideas matters, for the neoclassicals are determined to obliterate all traces of Marx, Veblen, Keynes, Kaldor, Robinson and Galbraith from the record and the curriculum. This will ensure that the successor doctrines–"behavioral economics" for instance–arise solely from within the neoclassical fold. And that is what heterodoxy exists to prevent. We represent intellectual biodiversity in economics; our mission is to preserve it, for better days.
The neoclassical trick is to insist that all "real economists"adhere to an arcane and limited set of techniques. The focus on conformity, on a bizarre hierarchy of journals, the dominance of the AEA at the annual meetings, all serve to define who is in the tribe, and their rank. Mainstream economics, as Hayes observes, doesn't have fixed ideas; it is defined by who accepts the discipline of the cult. No real science operates this way– real science is highly varied with respect to mathematics, measurement and experiment, and deeply grounded in data and evidence, as vast parts of economics are not.
But ultimately the question becomes: who is really in the ghetto? At the AEA meetings, it seems the heterodox are. But what about everywhere else? Just a tiny handful of post-neoclassicals– Stiglitz and Krugman for instance– operate brilliantly in the public realm these days. Everyone else one encounters there is a business economist, a regional specialist, a statistician, a practical Keynesian, or some other heterodox type. Yes, there are thousands of academic neoclassicals, but what do they amount to? For the most part, so far as public issues are concerned, they have nothing to say.
So much the better. My hope is that the neoclassical ghetto will continue to build its walls, and that universities, who hold the power in these matters, will eventually just shrink those departments and let them wither away. Instead, we should expand schools of policy, of business, institutes of government, and whatever else it takes to find places where heterodox economists can find work. We will then build our own associations, develop our own journals, and create a better economics, engaged with the actual problems of the world: globalization and poverty, inequality and unemployment, peace and security, climate change.
This is called competition, by the way. It has a certain tradition in the field, though typically honored in the breach.
Comments (11)
If academic economists want to have big endian vs little endian theological discussions we, the great unwashed, won't care a bit. The problem is that the dominant school is used to make social policy.
In many cases the most influential people are those at think tanks sponsored by right wing donors (the Hoover Institution or Cato, for example). These organization hire "scholars" with varying amounts of credentials, but their most important qualification is that they can turn out white papers which agree with the social policy position of the organization. These (un-referreed) white papers are then cited as if they were serious research and used by politicians as "proof" that their policies will provide the goals desired. One only has to look at those who backed "trickle down" economics or the Laffer curve to see this pattern at work. I'm still waiting to see an actual copy of the Laffer curve with some actual data points attached to it.
I don't know if academic economists want to stay above the fray, but there are plenty of others who play economists on TV who are willing to shill for the policies of those who pay their salaries. The fact that noted people can come to diametrically opposite policy recommendations to cure the same ill should warn people about how "scientific" economics really is.
--- Policies not Politics
Daily Landscape
May 29, 2007 12:40 PM | Reply | Permalink
Are any economists from any position asking this:
Presuming that "rational actors" would - to the degree they existed - produce a healthier economy just to the degree of their approximation to some ideal of rationality, then shouldn't we as a matter of public policy be promoting and nurturing rationality? Perhaps neoclassical theory amounts to a special case in economics, which only holds in a society of rational actors, much as Euclidian geometry only holds on a flat plane, or Newtonian physics only holds well below the speed of light and above a certain size of object. Regardless, we might rationally choose to live in a Euclidian, Newtonian world - or a neoclassical economic world - by seeking, for instance, to live on a flat plane ... or in this case to maximize the rationality of the actors in our economy. Maybe we're just so much better at Euclidian geometry that it really makes sense for us to seek out a part of the world where it works.
If so, two things: (1) a social policy of rationality is exactly the opposite of what we've been pursuing of late (see Al Gore's new book), and those politically favoring neoclassical economics are the very worst of the offenders against the rational, (2) a social endeavor towards greater rationality might employ larger numbers of psychologists, sociologists, and yes, anthropologists, and sideline the neoclassical economists - who after all by their own lights have pretty much solved all the fundamental issues in their field already.
Of course, it might be that the neoclassical approach completely misses the mark, and that rationality itself is but some pre-post-modern delusion. But if we say that we can't favor any science at all. So: given that there is, for example, greater efficiency in devolving economic decisions to local agents (with their superior local information) rather than collecting them under distant, central control; but that this works reasonably well only to the degree those local agents actually are capable and rational, why do the neoclassicists in practice favor policies which increasingly centralize power in the hands of ever-larger, more distant, more standardizing (and thus locally irrational) corporations? Why aren't they producing programs to educate local independent retailers, for example, in how to cut Wal-Mart's feet from under it?
I'm no economist (obviously). But there would seem to be positions not publicly taken that would (1) support the intuition that the less distant control over peoples' lives, the better, on the whole (to which the neoclassicists constantly if incoherently appeal), and (2) emphasize the vital importance of the social and educational cultivation of broad rational capability as an absolute priority. What am I missing?
May 29, 2007 1:56 PM | Reply | Permalink
Mr. Galbraith Suggests
I'd like to raise the traditional caution against getting what one hopes for. Safety for heterodoxy is more likely to be found in a closer alliance with the traditional liberal arts than in isolated beaurocratic enclaves, whether they operate under the umbrellas of Universities or privately funded think tanks in Washington or New York. I think departments of economics within schools of business are quite different from departments of economics within colleges of arts and sciences. The former are likely to be more orthodox, because the masters they serve are more concerned with orthodoxy in terms of the purpose of the unit. What are Schools of Business for? Or, for that matter, Institutes of Government?
If one looks to the evolution of academia, one sees the discipline of Economics evolving from moral philosophy and political philosophy--and as the names implies, both branches of the larger discipline of philosophy--which we still honor through the doctorate which most of us claim. I'd like to see economics become more fluid through allying itself with the newer trends toward integrative or interdisciplinary studies. In settings where heterodoxy is the orthodoxy, one can feel safe and at home. And I think the economics created would be better understood in the public sphere that way, as it was in the day of John Kenneth Galbraith, a hero to many of us.
Some people might like prowling around the History of Economic Thought website, a gift to us from the New School for Social Research. Literate, artistic, and funny. The welcoming poem translated from Goethe is worth taking a few bytes to share with people.
Somebody says: "Of no school I am part,
Never to living master lost my heart,
Nor any more can I be said
To have learned anything from the dead."
That statement - subject to appeal -
Means "I'm a self-made imbecile."
aMike
May 29, 2007 3:05 PM | Reply | Permalink
Three related points:
(1) Some say that mainstream economics is a “science.” Others say that it is merely a “conversation” in which the participants themselves determine who is the “good economist” (using their own subjective rules based partly on insider status).
D. McCloskey is associated with the second perspective above. But, surprisingly, a close reading of Lionel Robbins’ Essay on the Nature and Significance of Economic Science – often cited as the key in justifying defining economics as “allocation of scarce resources” -- reveals that Robbins took exactly the SAME approach.
Economics, said Robbins, is what is done by folks that I (that is, Robbins) considered “economists.” These folks can all be seen as being concerned with allocation of scarce resources; therefore, economics=concern for the allocation of scarce resources.
This is not a very good argument. But it is one that McCloskey would approve of.
Nowhere does Robbins attempt to JUSTIFY this very subjective definition of economics. But this particular definition is now used to exclude many people from the title of “real economist.” Virtually all the major intro economics texts start off with this perspective apparently because most "real economists" seem to believe that Robbins (or someone else) must have come up with a really good justification for this one (subjective if not random) definition of economics.
(2) But why did THIS particular definition of economics come to dominate academic economics? Certainly the fact that it tended to be very positive toward capitalism was important. But rather than go the “ideology route” I’ll go a different direction….
More important is this: the “allocation of scarce resources” approach, when combined with mathematics, became the ultimate of a “progressive” research program. Such a program, says Lakatos, generates lots of interesting questions and constantly opens up new avenues for research. And, not unimportantly, this leads to tons of (easy) publications. It is normal science galore: lots of small questions that bright folks can address and answer without ever dealing with any true fundamental issue.
Because in academia “publication = power,” this led those using the approach to zoom to the top of the profession and take over the “top” schools. They took over the conversation as they were doing lots of stuff and often doing it using math (=science!). THEY now defined who did economics and who were the good economists?: people like them doing what they do!
(3) But…important question: is a very “progressive” (in Lakotos’ meaning) research program the “best” or most helpful for getting us to a good society? Is it the “most true?” Does something that leads to massive amounts of publication necessarily lead to the best analysis for the economy?
No. No. No. Lakatos never claimed this. McCloskey never claimed this.
Indeed, we have no reason to suppose that a hugely productive research program generates anything other than, well, a huge amount of research (that gets people tenure and power). Its own power to generate new ideas and huge amounts of work tends to make the participants uninterested in asking “should I be doing this?” It tends to attract people who are creative and smart but not particularly deep in their understanding of their own social role.
May 29, 2007 3:59 PM | Reply | Permalink
How is this different from their critics? EPI's output likewise hews to a predictable pro-gov't intervention line and is touted by politicians who share its ideological predisposition. The influence of these think tanks stems, like their progressive peers, stems from sympathetic politicians getting elected. The existence of diametrically opposed views isn't suprising; it's inevitable since it is the political controversy that calls into existence the ideological think tank, not the other way around.
May 29, 2007 4:21 PM | Reply | Permalink
The problem you cite with the Laffer Curve is accurate, but allow me to expand on it. The problem with finding data points for the Laffer Curve is that it is impossible to change the fiscal policies of a government quickly enough to fit to the curve against revenue, and determine that it is the cause (as clearly growth would outstrip most of the Laffer effects), but really the Laffer Curve is only a revenue concept, and ultimately it is difficult to argue that the U.S. is anywhere near the point on the Laffer curve where cutting taxes would actually stimulate increased revenues. Unfortunately it is now part of the orthodox Republican argument for tax cuts.
May 29, 2007 9:56 PM | Reply | Permalink
One piece you are missing here is that the argument of the neoclacissists is that Wal-Mart and other huge corporations must be efficient because they are profitable, which is only true in the special case which you are talking about. I think you are right that neoclassicism is a study of a special economic case, but neoclassicists view it as reality.
Centralization, by forcing some use of "best practices", can increase efficiency, but, as you point out, can do the opposite by centralizing local decisions. That is actually probably best determined by the free market, with government intervention to prevent harmful monopolies.
What I would add to your proposals is that one way to enhance rational choice is to add labels to products when they are bought in order to reduce the problem of asymmetrical information. This idea was bastardized by Congress when they added the nutrition labels which most Americans are completely unequipped to understand, to all our products... except the ones who had really good lobbyists. A better application would be to require McDonald's hamburgers to be labelled "Warning: Contains trans fat, a chemical known to cause many diseases. If you knew anything, you would not touch this 'food'." Also, it would probably illegalize many kinds of commercial advertising, as subconscious association of "Coors beer" with "beautiful twins in bikinis" probably decreases rational faculties.
May 29, 2007 10:08 PM | Reply | Permalink
Another refuge might be in schools where economics is viewed as a science, and hence undergraduates are given a B.S. degree rather than a B.A., which requires more focus on rigorous logical proof, whereas neoclassical economics is much more founded on the subconscious emotional premise of "I am rich, and everyone I know is rich (by global standards), so we must deserve this wealth by nature of some greater ability." An example of a school where I have seen this kind of program is the Colorado School of Mines, where, admittedly, many Econ students are engineering dropouts.
May 29, 2007 10:14 PM | Reply | Permalink
I think that it is wise to divide economists on these issues. Some economists are very much (and not to disparage anyone here) traditional social scientists. The tradition of the social sciences comes from moral philosophy, which is also ultimately the (more distant) progenitor of all the "real" sciences. As each science developed, it became more scientific. A science always begins philosophically, such as Freud's mostly evaluative description of evolution by natural selection, which has since been more precisely honed by biologists. This is where economic theory is headed. As data accumulates, the dismal science will live up to that name more and more, as more rigorous vetting of hypotheses will become necessary. But patience will be necessary in the meantime.
May 29, 2007 10:21 PM | Reply | Permalink
I'm not defending leftwing ideology any more than rightwing ideology. However, for the past 40 years the number of rightwing think tanks sponsored by the super wealthy has vastly exceeded those on the other side.
It's a simple case of the rich having all the money and being willing to spend it to preserve their elite status.
I like to cite this report (PDF) on how just 18 super wealthy families managed the PR campaign over the estate tax for the past 20 years. If you examine the list of backers you will see that the same names come up as big contributors to right wing think tanks as well.
Here's a partial list from Source Watch for Cato as an example:
It is a fundamental flaw in our contemporary democracy that the super wealthy have so much control over the levers of power and that the media does little to expose this influence.
--- Policies not Politics
Daily Landscape
May 30, 2007 6:07 AM | Reply | Permalink
John K Galbraith addressed this point directly in his autobiography.
He pointed to the millions GM threw into advertising and the willfull obtuseness of 'homodox' classicists who told us all that money was simply to let people know that, should the 'need' a car, GM made them.
So just what does 'need' mean absent ads?
May 30, 2007 7:44 AM | Reply | Permalink