Heterodox Alternatives
Participating in this exchange is becoming addictive, but it has been worthwhile because progress is being made. Even Paul Krugman now reluctantly ‘fesses up that it’s “the sociology of the profession”. I anticipate his admission will yield intellectual dividends down the road – perhaps a NYT op-ed.
With sociology finally out of the closet, now is a good time to turn to economic theory. Diane Coyle asks “What can heterodoxy do for me?” which is a good (but also slightly revealing) question.
Her earlier opening post acknowledged that many of today’s innovations in mainstream economics have their roots in heterodoxy – albeit that is too often unacknowledged in citations. For instance, consider new endogenous growth theory and the total passing over of earlier work by Kaldor, Myrdal, and Verdoorn.
Today, heterodox macroeconomics (the patch in which I toil) is buzzing with important and challenging questions.
Here are a few headline topics: rethinking the theory of income distribution and including economic power; rethinking the relationship between wages and employment; thinking about the role of corporations in shaping the economy and society; rethinking trade and offshore outsourcing along lines other than comparative advantage; developing alternatives to the saving shortage theory of trade deficits; reexamining the relationship between saving and investment, the implications of endogenous credit money and the increasing economic power of financial interests (financialization); the role of demand-side factors in spurring economic growth; and the old chestnut of whether price and nominal wage flexibility can ensure full employment. Other areas of heterodoxy, such as feminist and development economics, are also buzzing.
This suggests heterodoxy has much to contribute. Many of these issues are so important they are forcing orthodoxy to engage viz. Alan Blinder’s wobbliness on trade and Paul Krugman’s engagement with income distribution (the product of which I look forward to keenly). However, the nature and outcome of this engagement is impacted profoundly by the silencing of heterodoxy.
All over the world pictures of Che Guevera adorn the fronts of t-shirts, but that does not convey what Che was about. The market can capture and transform. That has lessons for the relationship between orthodoxy and hip heterodoxy. For instance, consider Greg Mankiw’s (former Chairman of President Bush’s Council of Economic Advisers) characterization of hamburger flipping as the new face of manufacturing and global outsourcing as a simple application of comparative advantage.
Alternatively, consider so-called “new Keynesianism” – a form of intellectual cuckoo that took over the Keynesian nest and pushed out the real Keynesian ideas (PS. Brad, you’re not chopped liver, but you are scrambled eggs. PPS. Nice post about the tool kit).
Methodology is another recurrent contention. Both Paul Krugman and Diane Coyle rave about representing the economy in terms of constrained maximization in an equilibrium framework, as if no heterodox economists do that. That is a straw man. Many heterodox economists have long used those tools. However, they do so with awareness of their limitations and openness to different assumption structures – including concepts of equilibrium.
Theoretical economic models are parables rather than mirror-like reflections of reality. This suggests the test should be what constitutes a good parable. Does it fit the task, yield insight, avoid unnecessary complexity, and avoid smuggling in hidden controversial assumptions? That approach leads to a very different type of economics, which is as rigorous but far more open.
Orthodox economics strictly polices parable telling by restricting allowable assumptions and representations of behavior. There is also an overwhelming preference for mathematically complicated parables. This policing explains why simple realistic ideas like inter-dependence of well-being (e.g. “keeping up with the Joneses” behavior) have been kept out for so long. The orthodox line was such theorizing was “ad hoc”: the reality is it challenges claims about the optimality of competitive markets.
Superstars like Nobel Prize winner George Akerlof may have been able to break through on some of these issues, but he is the exception that proves the rule. The main body of the profession – which is the substance of orthodoxy - remains methodologically unreconstructed and appears to disagree with him according to Chris Hayes. Moreover, he has challenged only a small part of orthodox economics’ assumption structure.
The above arguments suggest heterodoxy has much to contribute regarding subject matter and methodological practice. That being so, it is fair to close by asking what can you do for heterodoxy? That question brings us full circle and confronts the fact that economics in the United States is stifled by intellectual monopoly and a culture of intolerance – that sociology stuff again.
The US is a continental country with thousands of institutions of higher learning, yet there are only a handful of graduate schools where students have access to training in heterodox ideas. With so few Ph.D.s being produced and a Ph.D. being the price of entry into teaching, that spells extinction.
Tyler Cowen writes (a little patronizingly) that he would like heterodoxy to survive at the margin, but that survival requires institutional support. Would he support heterodox appointments in his economics department? I suspect not, and the same holds for departments of far lower ranking.
Some years ago (1997) I published a paper with a simple mathematical model of intellectual reproduction. The paper examined what happens when there are two populations, one pluralistic and the other intolerant. The answer is the intolerant population drives the pluralistic population to extinction. That is what has been happening in economics departments in America and Europe. The strategy of intolerance was perfected by Milton Friedman and his colleagues in Chicago, and has spread widely. That suggests heterodox economists need a hard-headed reproduction strategy of their own, perhaps along the lines suggested by Jamie Galbraith.
I'm afraid you have let the cat out of the bag:
There are two problems with this statement. First, too many people in public policy positions take the "parables" to be an actual statement of truth. A typical example being those who follow Ayn Rand.
Second, economics makes claims about being a scientific discipline. There is no place for parables in science. Either something is testable or it is not. This is not to say that people in the field can't adopt analogies to make their discussions more pleasant. So, in physics, people speak of elementary particles have "color" or "charm" or "spin". They are just terms picked by bored scientists as a bit of witticism. Particles don't actually have any of these characteristics, they just can be classified by certain parameters which are grouped under such categories.
However, in economics people really seem to believe that human nature is of a certain type. Popular views are selfish, rational or improvable. These simplifications have had disastrous consequences. People have been "improved" to death in re-education programs, for example.
If economics is going to use ideas about human nature as axioms in their theories they had better start creating teams with psychologists and sociologists included.
--- Policies not Politics
Daily Landscape
June 1, 2007 7:30 AM | Reply | Permalink
This whole debate reminds me of calls by the Right for "strict construction" or "judicial restraint" judicial appointments. However, this is a smokescreen for a call for judges who will reach results that are pleasing to the Right. Attacking the socialogy of any academic profession is a highminded way to go after results one does not like.
Daniel A. Greenbaum
June 1, 2007 8:37 AM | Reply | Permalink
Like Professor Palley, I'm glad, too, that the debate here has gone on so long. It's thus allowed concrete, clear descriptions of what heterodoxy adds, as with this post and the latest from Professor Riccio. I'm much the wiser for it. The latest post from Professor Thoma could even be said to exemplify the issues with adapting such insights piecemeal, as in noting how well the standard models can handle producer price setting. If one party can set prices, what other constraints are ignored in taking such an adjustment in isolation?
John
http://www.haberarts.com/
June 1, 2007 9:32 AM | Reply | Permalink
Well, I think your desire to bash economics is taking it a little far here. Economics is a social science and doesn't pretend to be otherwise. Every social science makes certain reductive assumptions about human behavior (whether individual or group) to construct theories about how the social environment works. If you're going to bash econ on this basis, you have to equally bash psych, sociology, and political science as well (actually, you should bash those much harder, since the formal models of economics at least make the terms of the argument much clearer). Theories in any science are NOT intended to mirror reality perfectly - that isn't the point of science - the point of science is to deduce mechanisms that satisfactorily explain general patterns in observed phenomena. If economists become wedded to neoclassical models, it has less to do with pure evil than with their belief that the models tend to have decent explanatory power.
I also don't think it's fair to single out economics for being put to nefarious purposes by politicians or the public. Unfortunately, those are the breaks of academia sometimes. But this is hardly unique to econ. I don't recall economics being responsible for the development of nuclear weapons technology, for example. And anyone who believes that economics is more evil than other social sciences needs to read about the Stanford prison experiment, Milgram's "obedience to authority" research, and John Watson's experiments with "Albert".
June 1, 2007 11:29 AM | Reply | Permalink
I'm only singling out economists because these parallel discussions are about and with economists.
That fact that other social sciences can be misused or can make claims which exceed the evidence is around us every day. Just to cite two in the news:
No Child Left Behind - the "results" which led to the mandated school requirements were based upon fraudulent data cooked up by Rod Page in Houston. Educators have known what works since Socrates. The fact that some in society don't want this type of teaching is why Socrates is dead. Read John Dewey for a more recent view of what works.
Abstinence Only Education - once again well-known results of the benefits of comprehensive sex education were ignored in favor of quasi-scientific studies which allowed the present admin to pander to the religious right. (And more than pander, they have dumped $1 billion into their coffers.)
What all these disciplines have in common is that "studies" are given more credence (or less critical review) than otherwise, partly because the results found support the policies being promoted.
It wasn't too many centuries ago that court astrologers were being consulted. If Nancy Reagan had been around then nobody would have laughed at her. It is just a matter of time before today's astrologers get replaced by those who have a better methodology.
--- Policies not Politics
Daily Landscape
June 1, 2007 12:05 PM | Reply | Permalink
Whenever I point out that 85% of all money spent by corporations on investment comes not from borrowed money (and therefore savings) but from retained earnings and other internally generated funds, mainstream economists alway respond with profound silence.
I often like to point out that if all savers were to pull all of their money out of banks next week, the Fed could---and would---easily maintain the interest rate by simply buying every debt instrument in the country (and/or by buying buildings, land or whatever else it desired) with money that it creates out of thin air.
When the Fed purchases assets, it does so with money that was not saved by any saver---thus the interest rate is not dependent in any way on savings. One not-so-orthodox economist I mentioned this to acknowledged that this was true, but then inexplicably stated that he nevertheless believed that the assumption that Savings=Investment was essentially true.
Here's hoping you succeed with your noble efforts...
June 1, 2007 12:52 PM | Reply | Permalink
rdf, in all fairness to economics, the abuses of other social sciences you cite aren't really parallel. No Child Left Behind and abstinence-based policies aren't examples of either poor practices within the academy, the limitations of the social sciences, or their misuse. They're examples of the usual conservative approach to policy that ignores and denigrates scholarship or even reality altogether. Why should they care what goes in universities when they have their own pretend aademia in well-funded think tanks, plus an effective propaganda machine.
The comparison is a little like blaming mainstream economics for Leninism. (Granted that some postmodern philosophers have controversially traced the latter to Englightenment thinking, but that's another story.)
John
http://www.haberarts.com/
June 1, 2007 1:02 PM | Reply | Permalink
That raises an interesting question (for us non-econ profs who don't read the journals and don't go to the conferences): what's the state of heterodox economics research and acceptance elsewhere in the world? Obviously the US is an intellectual heavy weight, but our ideas and preferences aren't nearly as important world wide as they are domesticly.
So what's up out there in the rest of the world?
June 1, 2007 1:36 PM | Reply | Permalink
Prof. Palley advertises his comment as an answer to the question regarding the contributions of heterodox thought. It is false advertisement, I'm affraid.
Prof. Palley lists a number of issues/topics/notions which are in fashion among, or draw the attention of heterodox authors. "Headline topics" are not results by which we can evaluate the work of a tradition/school.
Nothing is said about any new, insightful hypotheses. No particular tool--and its practical applications--is highlighted. Praising the masters is understandable, but hardly an answer to the question.
The rest of the comment is simply more criticism of the mainstream and dealing with points of disagreement with other commentators.
So... What has come out of the Anglo-Italian school over the last 30 years? "Power and exploitation" were not news 100 years ago. Are they now?
We haven't seen any of the commentators say: "Look, I have this model, it works like this, it assumes this, it results in this steady state where this and that happens. It's really interesting, isn't it?"
Any mention of heterodox work here was limited to praising the masters (dead or living).
Denouncing the Great Satan that is the mainstream is fine, but... show us the goods, already.
June 1, 2007 2:20 PM | Reply | Permalink
Dear Gabrielpm,
I think your comments are unfair.
(1) The mainstream enjoys hundreds of thousands of hours more of research time & tens of millions more of dollars of funding. On top of its advantage in the academy, its reserach is supplemented by the Federal Reserve banks, other country central banks, think-tanks, the IMF, etc. Under those conditions I would expect the research product to be different.
(2) I will point you to a few papers I have written. On trade see two policy briefs at the Levy Institute; on income distribution see a chapter in a book edited by Bill Gibson honoring Joan Robinson; on monetary policy see a chapter in the Handbook of Alternative Economics edited by Arestis & Sawyer; on aggregate demand and demand-led growth see a chapter in a book edited by Setterfield (2002) and a paper in the JPKE (1996). On wages and employment read the literature initiated by Bhaduri and Marglin (CJE 1990).
Your criticisms are largely unfair. Heterodox work is excluded from visible channels & nor do orthodox economist bother to look for it. That means most orthodox economists speak about heterodox work from a position of ignorance.
(3) I agree with you that the impact of th Anglo-Italian school has been disappointing. I do not know that literature particularly well. I believe the work of Heinz Kurz and Neri Salvadori criticizing orthodox micro-foundations is of a very high standard, but they have failed to promulgate that work successfully.
(4) That gets to a very important point I have not had an opportunity to make in these limited postings. The academy is like a business enterprise. The last generation of heterodox economists were dismal failures as leaders, acting egotistically and splintering in totally unnecessary ways. Cambridge UK was the worst. As I noted in my first posting heterodox economist are also prone to falling for the science myth and they too suffer from such human failings as pride.
Good economists keep an open mind. Sincerely,
Tom Palley
June 1, 2007 3:09 PM | Reply | Permalink
Yes, my comments were unfair in a sense. I apologize for that. I'm particularly frustrated with the heterodox presence on the web, on *all* sides of the political spectrum.
I won't admit any guilt on this particular point, though: We need to hold everyone to the same standard, regardless of funding or audience. I don't see how those are important in the production of new ideas (more than, say, research time and access to computers and the internet).
Regarding the Anglo-Italians question... it isn't mine. It's Bliss'. He basically said: fine, beat us with the stick of the capital controversies, but what have you done since the '70s? -- And the answer seems to be that they kept alive the old debates, with no one else engaging them.
One question puzzles me... Other than the Austrian tomes, how come the various heterodox schools didn't publish introductory and intermediate textbooks? It would make a lot of sense, but it isn't really happening. Is there a non-neoclassical Mankiw out there?
June 1, 2007 3:51 PM | Reply | Permalink
Soon I will be having lunch with two old friends, late 40's, women, very accomplished I.T. professionals. Both have received buyouts and are leaving the corporate nest and probably the profession.
I have been frequently stunned in the past few years at the caliber of people pushed out of the corporation.
I actually have come to a conclusion: this is dumb. It's hard to decide that something the 'free market' decides to do is dumb, but if you knew the ground like I do, you would see what I mean. It's just dumb.
Somehow economics has to account for failures like this. We are past cutting the fat and we're chopping out bits of bone. It doesn't make any sense.
Is this stock price driven CEO's? A socio-cultural attitude? Relying on fancy financials instead of good products and good processes? What is up with this economy?
June 1, 2007 8:42 PM | Reply | Permalink
One positive contribution by a heterodox economist to economic theory is Thirlwall's Law (named after Tony Thirlwall, an economist in the Kaldorian/Post-Keynesian tradition), which theorizes that no country can grow faster than that rate consistent with balance of payments equilibrium on current account. According to Thirlwall's Law, assuming that real exchange rates are constant, and trade must be balanced in the long run, a country's long-run growth rate cannot exceed the ratio of the income elasticity of its exports to the elasticity of its imports, multiplied by the growth of world income. In light of the fact that less developed countries have a comparative advantage in basic commodities which have a low income elasticity of demand, this is a very powerful model for predicting the relative poverty of LDC's & increasing global inequality of income.
If you want to get a sense of what Post-Keynesian economics (the school that I believe Professor Palley would associate himself with) is doing, you can look at the abstracts of articles in the The Journal of Post-Keynesian Economics. In addition to Professor Thirlwall, other post-Keynesian economists with papers online include Paul Davidson, Marc Lavoie, Mark Setterfield, as well as Professor Palley. In addition, the Levy Institute has many excellent papers online.
June 1, 2007 9:56 PM | Reply | Permalink
Take a moment to consider this definition.
Nation: A body of people
Our chart of accounts for business does not recognize large expense items caused by a company and transferred to others.
In fact the well being of any human on this earth is not accounted for or tracked in any way over time except by monetary transactions.
This tracking system if practiced appropriately is the basis of the data that may or may not be correctly gathered and presented. (Remember Enron)
Any result from this data will certainly have no association with our social covenant embodied in our Constitution.
Any analysis and policies based solely on this data will not speak to the condition of the body of the nation, its people.
Any intellectual discipline that uses solely this limited data to drive government policy for the benefit of the Citizens should think about what is being maximized and who is being diminished.
----------------------------------------------
Today, are we searching for I deals or Ideals?
-Thinking
June 1, 2007 10:45 PM | Reply | Permalink
“…how come the various heterodox schools didn't publish introductory and intermediate textbooks?”
Just because you don’t know about such texts doesn’t mean they haven’t been written! Being marginalized means that heterodox works doesn’t get the same attention as a Mankiw. Below is a list of the authors of some textbooks and/or supplements for introductory courses that focus on or include heterodox approaches:
Goodwin, Neva, Julie A. Nelson, Frank Ackerman and Thomas Weisskopf; Goodwin, Neva, Julie A. Nelson, and Jonathan Harris; Bober, Stanley; Bowles, Samuel, Richard Edwards and Frank Roosevelt; Carson, Robert B., Wade L. Thomas and Jason Hecht; Colander, David; Fireside, Daniel, John Miller, and the D&S Collective, eds.; Hahnel, Robin; Heintz, James, Nancy Folbre and the Center for Popular Economics; Klamer, Arjo, Deirdre McCloskey, and Stephen Ziliak; Maier, Mark H. Maier and Julie A. Nelson; Riddell, Tom, Jean Shackelford, Steve Stamos, and Geoffrey Schneider; Stretton, Hugh. More info on each is easily available with a web search.
June 2, 2007 8:32 AM | Reply | Permalink
Also to be looked at:
(1) Mayo Toruno, Political Economics of Capitalism, Atomic Dog Publishing
http://www.atomicdogpublishing.com/ and then type in "Toruno" in the search box.
(2) And a draft book I tell students is of uncertain quality but the price is right (free!)
Eric Nilsson, Capitalism: Power, Profits, and Human Flourishing
http://economics.csusb.edu/faculty/nilsson/courses/econ200/Introductory_Microeconomics_Text.htm
June 2, 2007 9:20 AM | Reply | Permalink