Heterodoxy and diversity
It's fascinating to see the heterodox economists' reaction to Chris Hayes' marvellous article, which I think is spot on in its dissection of change in the profession. His message is that heterodoxy is - slowly - becoming the new orthodoxy. I agree. But are heterodox economists happy? They are not.
Either they dispute that the mainstream has shifted, or they argue that it has fatally watered down heterodox approaches by absorbing them. I begin to suspect that heterodoxy is not defined by the content of its ideas but simply by its outsider status in the economics profession.
Look through the past 20 years of research in a wide range of areas of economics, as I did recently, and you'll find that the 'laissez faire neoclassical orthodoxy' has evaporated. This is not just because of the high-profile rise of behavioral and experimental economics, nor even the prevalence of Freakonomics-style neat ideas in practical social science, but because of the adoption of less restrictive assumptions, new modelling techniques and a more applied approach across the board - in growth theory, international trade, competition and regulatory economics, labor economics, and so on. What professional economists do - in the wider world of consultancy and policy as well as the academic world - has changed dramatically in the past generation.
If you test actually existing economics against the complaints made by many who regard themselves as heterodox, you will often find that the complaint has lost its footing. Mainstream economists often do what heterodox economists say they ought to be doing. Loss aversion? Imperfect information? Social norms? Absence of perfect competition? Increasing returns? You bet. We mainstreamers offer all of that as standard now.
So what's left of the complaints? Simply that the mainstream is the mainstream. It's hardly a scandal, still less a surprise, that economics has its own sociology of status hierarchies and peer group reinforcement. So does every academic subject. These change slowly, as insiders defend their status. One of the defense mechanisms is the absorption of good ideas from outsiders. This is not to say that there's nothing to be criticised in the world of academic economics. I'd pick out two serious flaws. One is the unacceptable lag between what economists do and what they teach. Those professors who're doing interesting and, yes, heterodox work themselves are still teaching essentially the same flawed neoclassical model they no longer use. A second is a different aspect of the sociology of economics: its practitioners are much, much less likely than those in other fields to be female or non-white. The lack of diversity of ideas within the mainstream, the main charge made by heterodox economists, is much less pronounced than it used to be. I think the lack of diversity in these identity terms is more pronounced than ever.
As the article stated, it's not that Heterodox ideas aren't accepted, but that self styled "Heterodox Econonomists" are not. Or as Thomas Palley put it, ideas once on the fringe are incorporated into the mainstream of economic thought but the strings which heterodox thinkers think should be attached to such ideas are not. In other words, you can't just say there might be some merit to idea A that I've been working on, without signing on to my list of preferred public policies B. It's the equivalant of saying because Mises was right about the efficiency of Markets to determine value relative to state planning, you have to write 10'000 word essays on a tyranny of public sidewalks.
May 30, 2007 7:47 AM | Reply | Permalink
"Evaporated" is pretty strong. Current debates on Free Trade, CEO pay, Inequality and Minimum wage are thoroughly infused with orthodox assumptions to the point that people who challenge them are dismissed as dunces ignorant of the fundamental verities of Econ 101.
Which is the problem. You back a professional Economist to the wall and he will admit that he has read Akerlof (because how could he not) and that of course his theory holds all kinds of variables steady that in practice move. He holds up as a defence his fully peer-reviewed, fully caveated article in last Fall's Journal of Econometrics. Okay great but I don't read the professional literature, the question is why orthodox economists spoonfeed a grossly simplified Smith/Friedman version of markets to their undergrad students and allow the most ridiculous things to be published in the Op-Eds.
Real world policy debates are being carried out with arguments that are at best cartoon versions of even orthodox economics. Why are heterodox economists not happy? Because when it comes to policy they are still being hammered, there are people out there who blithely argue that CEO pay is not only set by the market but fully justifiable by increases in market capitalization, the notion that pricing power has a part to play being simply dismissed.
If heterodoxy is really becoming the new orthodoxy why was the packed house and the free bar over at the Friedman reception?
May 30, 2007 8:07 AM | Reply | Permalink
I believe that what heterodox economists want is an academy where the neo-classical 'text' should not be the 'Bible' of the profession. Because, and this is particularly frustrating, Keynes and his successors showed, not at all very long ago, that the neo-classical model was deeply flawed. In the mid-1970s when I studied economics, the three introductory economics classes began with the classical model but quickly incorporated the Keynesian critique and its revisions to neo-classicism, the continuing unresolved difficulties of Keynesian economics, and Friedman's critique of Keynesianism and the Keynesian response.
Because, back in the 60s the economics profession -- being a real academy and not a bible school at the time -- had accepted into the mainstream conversation Friedman's revival of neo-classicism. (The only people who were upset in those days were the Marxists, who were excluded from the introductory classes and the mainstream of the profession.)
Friedman and his followers (by the early 80s) proceeded to destroy the conversation and much more.
May 30, 2007 8:18 AM | Reply | Permalink
"Either they dispute that the mainstream has shifted, or they argue that it has fatally watered down heterodox approaches by absorbing them."
Professor Coyle faults the heterodox for what? For heterodoxy.
QED.
James Galbraith
May 30, 2007 9:08 AM | Reply | Permalink
"Evaporated" is pretty strong. Current debates on Free Trade, CEO pay, Inequality and Minimum wage are thoroughly infused with orthodox assumptions to the point that people who challenge them are dismissed as dunces ignorant of the fundamental verities of Econ 101.
I don't know about CEO pay, but as for the other three topics, your accusation just isn't true.
And as someone who's followed you at other econ & related blogs, it seems your main gripe is that there is a debate on these topics at all. And this coming from someone who probably agrees with you public policy wise.
If I remember correctly, you're the guy making the pro minimum wage argument that the long term benefits to the labor market as a whole outweigh the negative employment effects which may be only short term, no?
Interesting take, but despite the shift in emphasis, I hate to break to you that it's "thoroughly infused with orthodox assumptions."
May 30, 2007 9:16 AM | Reply | Permalink
Well, consider these:
Loss aversion ... but not uncertainty aversion, because while risk can be incorporated, true uncertainty cannot.
Imperfect competition ... but not pursuit and creation of economic power, since utilitarian game theory can incorporate business tactics, but not business strategy.
Social norms ... but it is necessary to refrain from social institutions as such, since if the New Institutional Economics allowed itself to ask the questions that would allow it to tackle culture, then it would fall out of the pale, in the territory inhabited by American Institutional Economics.
Increasing returns of innovations that have occured ... but genuine theories of innovation involve not imperfect information but incomplete and yet to be created information, and so also lay outside the pale.
The death of Walrasian General Equilibrium has indeed freed orthodox economics to explore a much greater diversity of the conceivable terrain that surrounds utilitarian decision making. However, the unit of analysis of much of orthodox economics remains selection from alternatives, followed by performance, and this unit of analysis directs the analyst to conceive of the problem at hand as a series of selections followed by performances, and away from effectively understanding human behavior that fails to fall within the limits of this unit of analysis.
It should be noted that the unit of analysis of the New Institutional Economics is, in fact, more flexible than this, being the transaction followed by performance. Rather than an archipeligo of individuals each surrounded by a sea of choices, the New Institutional unit of analysis implies a group of interacting individuals. However, in retaining contact with the orthodox approach, the New Institutionalist approach is constrained from fully exploring the implications of a group of interacting individuals.
From outside the orthodoxy, it is on first impression discouraging to see so much effort wasted on so much pointless flailing around. The status of the orthodox approach as radically incomplete remains, even with the greater diversity that has emerged with the death of Walrasian General Equilibrium as a central coordinating idea.
However, in the longer view that flailing around is encouraging. The task of heterodox economists of all sorts is to continue to pursue scientific cause-and-effect explanations, and to share that process as widely as possible. There's plenty of time later to arrive at the central place in the conference schedule and the open bars, as long as today heterdox economists continue developing actual scientific explanations regarding the material provisioning of our societies.
May 31, 2007 8:07 PM | Reply | Permalink