When Economists Stop Being Polite

My three cents on the rumble in the econ department touched off by Chris Hayes' article on heterodox economics. My first thought when I heard the contention that the neoclassical consensus behaves like a mafia was to remember my Thomas Kuhn. One hears tell of mafia-like behavior among purported social scientists and thinks to oneself "this isn't how a real science behaves." Kuhn reminds us that, in fact, that's exactly how a real science behaves -- it's just not what a rational reconstruction of a successful line of research looks like.

Delving deeper into it, though, the main point I'm taking away from this debate is the extent to which heterodox economics doesn't call the neoclassical paradigm into question. Various heterodox sorts cast doubt on various specific contentions of the neoclassical paradigm into question but, as Hayes documents, the neoclassical paradigm is perfectly willing to incorporate such things into the doctrine when they prove convincing over time. What heterodox economists are really challenging isn't neoclassical economics but the political behavior of neoclassical economists.

The recent Alan Blinder fracas is a case in point. He didn't call any of the standard neoliberal case for free trade into question, and, indeed, didn't argue against free trade at all. He just said something that he thought would be helpful in spurring the creation of the sort of social democratic society with an open market that he favors, while many economists saw his statements as giving aide and comfort to people who have a political agenda (blocking new trade agreements) that they don't like. Even people who challenge free trade orthodoxy more directly -- Dean Baker, say, or the guys who write EPI's stuff about why we shouldn't sign new trade agreements unless they have much tougher labor rules -- aren't challenging the economic models underlying the case for free trade. They're having a political disagreement about the desirability of, say, passing CAFTA that has basically nothing to do with any deep disagreements about economic theory.

Comments

He just said something

For those of us who have no idea what you're talking about: what did he say?

Posted by Antid Oto | May 30, 2007 11:28 AM

Antid Oto: Check here and here.

Posted by Matt Weiner | May 30, 2007 11:43 AM

Perhaps the key two paragraphs, from the second link:

Mr. Blinder still believes the principle British economist David Ricardo introduced 200 years ago: Nations prosper by focusing on things they do best -- their "comparative advantage" -- and trading with other nations with different strengths. He accepts the economic logic that U.S. trade with large low-wage countries like India and China will make all of them richer -- eventually. He acknowledges that trade can create jobs in the U.S. and bolster productivity growth.

But he says the harm done when some lose jobs and others get them will be far more painful and disruptive than trade advocates acknowledge. He wants government to do far more for displaced workers than the few months of retraining it offers today. He thinks the U.S. education system must be revamped so it prepares workers for jobs that can't easily go overseas, and is contemplating changes to the tax code that would reward companies that produce jobs that stay in the U.S.

Posted by Matt Weiner | May 30, 2007 11:46 AM

> One hears tell of mafia-like behavior among
> purported social scientists and thinks to oneself
> "this isn't how a real science behaves." Kuhn
> reminds us that, in fact, that's exactly how a
> real science behaves -- it's just not what a
> rational reconstruction of a successful line of
> research looks like.

The problem is this: when the traditional physicists tried to ignore the young brash quantum mechanics upstarts, the young guys were able to go into the laboratory and bring back evidence that (1) tended to confirm their model {under some circumstances} but perhaps more importantly (2) contradict the traditional model {under some circumstances}. And in fact there was already evidence lying around that the traditionalists hadn't been able to explain. So at that point the traditionalists had to say, yeah, mebbe ya got sumptin dere.

First, where does economics get its experimental data? From econometrics? Pardon me while I finish hooting. From controlled lab experiments? Besides the inconvenient problem that most lab experiments in economics would be illegal to carry out, those that _are_ done never turn out as expected because people in small groups behave, well, in non-economic manners.

Second, the last 8 years are a pretty damned good real-world experiment contradicting large swaths of neoclassical economics - yet the profession won't even ADMIT that much less start looking at their theories. As far as I can tell they are preparing to retreat into their tenured chairs and the American Enterprise Institute jobs and wait for the next hard-right Republican Administration so they can get back to business.

Cranky

Posted by Cranky Observer | May 30, 2007 11:48 AM

So in other words, it looks like Blinder's disagreement mainly has to do with certain normative propositions, rather than positive ones.

Posted by JP | May 30, 2007 11:50 AM

“What heterodox economists are really challenging isn't neoclassical economics but the political behavior of neoclassical economists.”

This may be your impression of this current debate around Hayes article, but it would be a serious misunderstanding and misrepresentation of the long history of debates in the “history of economic thought” between the dominant orthodoxy and dissenting strains. To give some recent examples: debates in capital theory, utility theory, and theory of the firm. While there may well be political implications to be drawn from these debates, at issue are fundamental questions of internal consistency, viability of axioms and assumptions, and empirical testing of “predictions”, which are essentially separate from politics and policy.

Kuhn recognized this distinction in his discussion of “normal science”. It also helps to take into account later discussion that makes Kuhn rather dated now.

Posted by Jim Dandy | May 30, 2007 12:23 PM

Most of these self described heterodox economists are merely sociologists trying to affect an air of respectability.

Posted by pimp hand strikes! | May 30, 2007 12:36 PM

Jim Dandy, you are correct, I think that M_Y is completely misreading whats going on. The disputes are not political, but philosophical. The astrology v astronomy is a good, if flawed analogy (obviously I don't believe that heterodox economic thought is astrology), because is shows what the mainstream thinks of those who somehow understand the easy conclusion that humans are not rational. If i had had the language to characterize my disagreements with Economics, I might now have my phD ... Everything that Hayes discussed, I stressed over, but had no outlet (other than Veblen, and I found him too late).

Posted by the miltonian | May 30, 2007 12:42 PM

Christ. Nothing's worse than undergrads talking about philosophy.

Posted by sherifffruitfly | May 30, 2007 12:52 PM

Or, to paraphrase Daniel Davies, "Heterodox" Economists aren't so frickin Heterodox.

Posted by DRR | May 30, 2007 1:01 PM

"Or, to paraphrase Daniel Davies, "Heterodox" Economists aren't so frickin Heterodox"

And I, being me, am reminded of the arguments of hard Marxists against Parliamentary or Evolutionary Socialism.

I liked the Jamie Galbraith piece over at TPM. By showing the neo-classical (as currently defined) hegemony as a recent historical fashion (correlated with Empire in decline? ...not JG) he implies the current paradigm has exogenous causes.
Was the only interesting Samuelson in deliberate opposition to Galbraith?

What's is the title of Kuhn's famous book again? Like Einstein, you will recognize real heterodoxy when you see it.

Posted by bob mcmanus | May 30, 2007 2:40 PM

The economics profession, in contrast to the history profession, selects for individuals who are more interested in logical theories than in empirical reality.

The problem with that is that it's not always clear which theory to apply to a given reality. For example, the handful of economists who empirically study the impact of immigration (e.g., Harvard's George Borjas) tend to apply economic concepts like "externalities" and thus are skeptical of illegal immigration. In contrast, the George Mason school of libertarian theorists, who pay almost no attention whatsoever to the reality of immigration, argue from a different economic model, comparative advantage, to proclaim that illegal immigration _must_ be good for us and that if it doesn't look that way to you, that just shows you're too stupid to understand your Ricardo.

Posted by Steve Sailer | May 30, 2007 3:35 PM

I just translated a book by Silja Graupe containing a good critique of neo-classical economics from a Japanese perspective - The Basho of Economics. That book taught me a lot about the philosophical foundations of neo-classical economics, and I think Matt is in the right ballpark with Kuhn. However, I think Imre Lakatos' theory of the scientific research program is more pertinent to the history of mainstream economics, going back to its adoption of the method of "conjectural history" by Adam Smith - the phrase is from Thomas Reid's essay on Smith - which later became mathematized as economists agreed to pursue a heavily model based and theory based science. Leontieff, in a classic study in the 80s that has been updated since, shows that, compared to publications in physics, or biology or any other of the positive sciences journals, papers in economics tend to be astonishingly empirically poor and theory rich - the production of ever more models is the norm. For this conjectural history to endure, there are certain unquestioned, apriori parameters. One of them is the very notion of equilibrium. Long ago, JK Galbraith noted that the major split in economics occured when Keynes rejected Says law - and I think that this is still a good marker of why, contra MY, heterodox economics will never be comfortably assimilated with neo-classical economics. The resurgence of neo-classical economic policy in the 70s emerged around this issue - Robert Lucas said, I think pretty distinctly, that market clearing - the idea that supply and demand mutually adjust towards an equilibrium - was an apriori condition of intelligibility for economic science. Since Keynes said, on the contrary, it is a matter of empirical fact - or not - Keynesian economics has always borne the Satanic impress for the neo-classicals - and always will.

Posted by roger | May 30, 2007 4:13 PM

I just translated a book by Silja Graupe containing a good critique of neo-classical economics from a Japanese perspective - The Basho of Economics. That book taught me a lot about the philosophical foundations of neo-classical economics, and I think Matt is in the right ballpark with Kuhn. However, I think Imre Lakatos' theory of a scientific research program cohering around a negative heuristic - a core of unsurrender-able suppositions - is more pertinent to the history of mainstream economics, going back to its adoption of the method of "conjectural history" by Adam Smith - the phrase is from Thomas Reid's essay on Smith - which later became mathematized as economists agreed to pursue a heavily model based and theory based science. Leontieff, in a classic study in the 80s that has been updated since, shows that, compared to publications in physics, or biology or any other of the positive sciences journals, papers in economics tend to be astonishingly empirically poor and theory rich - the production of ever more models is the norm. For this conjectural history to endure, there are certain unquestioned, apriori parameters. One of them is the very notion of equilibrium. Long ago, JK Galbraith noted that the major split in economics occured when Keynes rejected Says law - and I think that this is still a good marker of why, contra MY, heterodox economics will never be comfortably assimilated with neo-classical economics. The resurgence of neo-classical economic policy in the 70s emerged around this issue - Robert Lucas said, I think pretty distinctly, that market clearing - the idea that supply and demand mutually adjust towards an equilibrium - was an apriori condition of intelligibility for economic science. Since Keynes said, on the contrary, it is a matter of empirical fact - or not - Keynesian economics has always borne the Satanic impress for the neo-classicals - and always will.

Posted by roger | May 30, 2007 4:14 PM

I sort of agree with Cranky, as an economist. No social science can be as good at testing predictions as, say physics, (and "hard" sciences like ecology have the same problem too). And if you can't meet that standard of proof you should be a lot more humble about what is and is not good economics and always keep in mind the problems with your frameworks. Those aren't reasons to throw away social sciences or statistical approaches like in econometrics, they are reasons to think that sociology-ish arguments and evidence (case studies) is worth as much as econometrics work or theory.

Posted by CalDem | May 30, 2007 4:29 PM

This is an interesting discussion, but for Pete's sake let's put an end to the highbrow Appalachian writing style: "One hears tell...", "quantum mechanics...sumptin dere".

It's making my head hurt.

Posted by ask | May 30, 2007 4:46 PM

"Long ago, JK Galbraith noted that the major split in economics occured when Keynes rejected Says law - and I think that this is still a good marker of why, contra MY, heterodox economics will never be comfortably assimilated with neo-classical economics."

Because it is very far from trivial

"Malthus saw that in capitalism the demand of the workers could not be large enough to enable the capitalists to realize their profits. And since prices included profits, they could not be realized in intra-capitalist exchange. Capital-labor relations contained and created a lack of demand which destroyed the incentive to accumulate capital. Malthus concluded that this demand must come forth from social layers other than labor and capital. In this way he justified the continued existence of the non-productive feudal class: he deemed their consumption necessary for the proper functioning of the economy. However, “the great puzzle of effective demand with which Malthus wrestled, vanished from economic literature,”[17] until resurrected by Keynes. His theory may thus be regarded as a modern version, elaboration, and possibly refinement of Malthus’ theory of accumulation." ...Paul Mattick:Marx and Keynes The Limits of the Mixed Economy, MIA, 1969

Now I don't know if Keynes was in the "Feudalism or Communism" category, but Schumpeter was famously suspicious of democracy, and the political implications Pareto seems to take from his economics are fairly dismal. Friedman famously advised Pinochet with an apparent indifference to the tyranny.

If neo-classical economics is trying to reconcile prosperity with freedom against great odds, then there is a lot at stake in an orthodoxy.

And no, I haven't a clue about what I am talking about.

Posted by bob mcmanus | May 30, 2007 4:48 PM

I fervently agree with Jim Dandy and the miltonian. Debates over economic policy are obscuring, in this instance, debates over the integrity of economic theory. Reducing this to disputes over policy looses, as Jim writes:

> fundamental questions of internal
> consistency, viability of axioms and
> assumptions, and empirical testing
> of “predictions”

Economist Barkley Rosser (you can find him in the MaxSpeak.org comments, among other places) argues that there are two categories at issue here: intellectual and sociological. He speaks of an orthodox conceptual framework when addressing the former, and the mainstream practices of the economics profession when addressing the latter. The two are unlikely to be cleanly separated, but perhaps the debates will be more coherent if we recognize both areas as contested.

Posted by Shane Taylor | May 30, 2007 6:09 PM

Superstar Harvard economist Andrei Shleiffer engaged in corruption while advising the Russian government in the 1990s, leading a federal court to impose $28 million in fines on Harvard and Shleifer.

http://en.wikipedia.org/wiki/Andrei_Shleifer

The economics profession has taken no steps to reprimand Shleifer.

He's a made man.

Posted by Steve Sailer | May 30, 2007 6:31 PM

Like scientific theories, economic theories are approved or disapproved as plausible or implausible by peer review and academic consensus. That's the mafia part. Unlike scientific theories, economic theories are rarely proved or disproved by controlled experiments. That would be the not mafia part if it existed. So I think I'll remain skeptical about elaborate economic theories, especially the theories most popular among rich Americans. I'd rather not get suckered again - not since that whole Galileo thing anyway.

Posted by Gary Sugar | May 30, 2007 7:58 PM

Two economics Nobelists, Myron Scholes and Robert Merton, were fined millions of dollars after the failure of Long Term Capital Management, which required a multi-billion dollar taxpayer bailout. Russia still hasn't recovered from Jeffrey Sachs's advice. None of their reputations were harmed. Made men, as Sailer says.

Posted by John Emerson | May 30, 2007 10:15 PM

Let's not forget Efficient Market theorists like Eugene Fama. Warren Buffett mocked them 20 years ago with his speech.

Posted by Fred | May 31, 2007 12:56 AM

Whoops -- fucked up the HTML a little there. That link goes to Buffett's Super Investors of Graham-and-Doddsville speech.

Posted by Fred | May 31, 2007 1:05 AM

I beg to disagree Matt (see, I can do posh too!).

The degree of disagreement in economic does not just stem from policy disagreements, but rather from a conflict between different research programs with incompatiable hard core assumptions.

The hard core of neoclassical economics is 1) Rational, given individuals with wellbehaved utility functions, 2) equilibrium and comparisans between equilibria as a good description of 3) informations assumptions (doesnt have to be perfect information but there cant be radical uncertainty).

Other research programs disagree with at least one of these assumptions. For instance an (American) Institutionalist might have 1) Habit- and rulefollowing socially constituted individuals 2) The economy is a historical evolutionary process, analysis of processes rather than endstates is key 3) Radical uncertainty for actors, many information problems lead to the nessecity of 1).

One program might try to incorporate insights from the other (institutionalist might use partial equilibrium to analyse the function of a market with institutional features that makes such analysis relevant, ditto New Institutional Economics), but there is a basic conflict about social ontology there with isnt just a case of "look guys, we all basically agree on the science we just have different norms".

Posted by Tomas | May 31, 2007 2:09 AM

Tomas - Bingo!

Posted by roger | May 31, 2007 12:47 PM

I heard about the wild times over in these parts. I would strongly agree with Matt's basic point, I don't think the key issue between the heterdox economists and the mainstream is methodology. The problem is that mainstream is not honest.

Starting with the trade example, the mainstream theory says that trade should produce overall gains, but that there will be losers. The losers are basically the 70 percent of the workforce without college degrees. Economists do their best to hide what their own theories show, waiving their hands or just telling outright lies about the possibility of there being losers from trade. They also grossly exaggerate the gains from trade. For example, NAFTA was sold based on a story that it would create 200,000 jobs, a figure that every serious economist knew was not credible.

Carrying this further, whenever I raise the issue of increasing trade in highly paid professional services (e.g. doctors, lawyers, economists), which would put downward pressure on the wages of the mostly high paid workers, economsts almost always go running for cover. They try to claim that we already have free trade (stop laughing) or that it would harm developing countries too much (economists know how to redistribute from winners to losers so that everyone gains).

There is almost no research on the relative efficiency of patents compared with other mechanisms of supporting prescription drug research even though the distortions created by drug patents dwarf the distortions created by almost all trade barriers. The same story applies to copyrights.

The list goes on, but the point is that there is no reason to challenge the mainstream methodology, I would be satisfied just to see it honestly applied. It isn't and that is the biggest problem with modern economics.

Posted by Dean Baker | June 1, 2007 1:50 PM