Is neoclassical economics a Mafia?
Christopher Hayes is to be commended for his careful journalistic attention to contemporary economics; he is improving the standard of debate. But I do not agree with the central claims in his recent article.
Modern neoclassical economics, as practiced in U.S. universities, suffers from many flaws. It is overly specialized and it offers too few rewards for the excellent teacher, the practical policy analyst, and the application of real world experience (dare I add the blogger to that list?). But none of these flaws springs from a conspiracy or from a neoclassical Mafia.
The simple truth is that modern academia is shaped by the benefits and drawbacks of rigorous peer review. Peer review eliminates many scientific errors and encourages rigor. On the downside, scholars are encouraged to fit into well-established boxes, if only so their work may be evaluated more easily. In the short run, people who stand outside those boxes have a hard time getting a job or a promotion, and yes that includes many heterodox economists.
Nonetheless the boxes have changed a great deal over time. Steve Levitt of Freakonomics fame won the John Bates Clark award for the top economist under forty years of age. Political economy, experimental economics, and behavioral economics, among other trends, have risen from backwaters to major parts of the status quo. In the last few years neuroeconomics – scanning brains while people make economic decisions -- has been hot on the job market. A look at the American Economic Review shows that economics probably has never been more policy-relevant than today. Empiricism is on the rise and pure theory has been in decline for at least fifteen years. Surely this is a fundamentally healthy state of affairs, and it is a world in which heterodox ideas have had a basically fair chance to rise to the top.
It simply isn't true that neoclassical economists are blind to power relations or refuse to consider them. More frequently analysts of power relations haven't produced enough convincing articles showing that their views explain much of the data. For instance there is a sizeable literature which attempts to measure the wage gains from worker unionization. A ten to fifteen percent wage premium is a typical estimate, though of course the number is debated. The door is open to anybody with a better approach, and it is circular to claim a gap exists because heterodox approaches have been kept down. Plenty of people have looked at this problem from plenty of angles, including the pro union point of view. "Public choice economics" – which studies (among other things) how elites influence government – is another area where power relations are central to modern neoclassical research.
Paul Krugman is currently preparing a new book; his advance remarks indicate it will pinpoint power relations as a central cause (the central cause?) of growing income inequality in the United States. We can speculate what kind of hearing the book can receive, but if it has convincing arguments I am sure it will have a noticeable impact. Income inequality is one of the most important topics in the mainstream right now.
Hayes suggests that "While the discipline remains dominated by a "neoclassical" consensus that is generally pro-market and suspicious of government intervention". I don't think this is quite true. The research of my colleague Daniel Klein has shown there are many more Democrat than Republican economists; by some measures the ratio is three to one. Most economists, for better or worse, are not so far from the political status quo and that includes plenty of room for government intervention.
There's much talk in Hayes' article about discrimination against heterodox economists, but he gives surprisingly little attention to which of their valid propositions have been neglected. I'd like to see a simple list and start the debate there.
Heterodox economics, as it currently stands, simply is not up to replacing the neoclassical paradigm or even living as a significant supplement. It doesn't have enough testable hypotheses to take center stage. Most of its best elements, such as behavioral irrationalities, as analyzed by Veblen, or changing preferences, as analyzed by Galbraith, have been absorbed by the mainstream, as Hayes himself admits and indeed emphasizes.
At the margin, I'd like to see heterodox economics survive rather than perish. It keeps us all on our toes, and that includes unorthodox cultural economists such as myself. But the market for ideas is intensely competitive, and in the longer run better economic ideas have usually found a hearing and then a good bit of fame. If heterodox economics is not doing better, the most likely reason is that it hasn't made sense – and won't make sense – of most of the economic world.
Comments (15)
There are two issues: a) what gets published and b) what affects policy.
Point B is actually the driver of point A. No one is overly concerned with what gets published in the field of theology, for example, because it isn't used to set policy (at least directly). On the other hand it is not the peer reviewed articles which seem to set the tone of policy debates, but the white papers published by various institutes and think tanks.
I can't remember the last time I saw a scholarly paper discussed in the general news media (aside from a couple of NY Times business columnists), but papers from the Hoover Institution or CATO come with a PR barrage that insures that their points will be echoed elsewhere.
These are not peer reviewed papers, in fact Hoover runs ads with some of their papers in them in opinion magazines just to make sure they are seen. So the real issue is why are partisan papers taken so seriously while those on the other side are not?
Even Tyler Cowan's critique above is short of specifics to rebut Hayes's claims (and those he interviewed). A nice analysis of the types of papers accepted and rejected from a variety of journals would clear up the issue better than unsubstantiated claims by either side.
--- Policies not Politics
Daily Landscape
May 29, 2007 12:11 PM | Reply | Permalink
Two points here. First. Mr. Corwen may not have the necessary distance to analyze the overall situation. Casting no aspersions, those who are fully engaged inside a system are generally not in the best position to figure out its weaknesses.
And as I said in the other thread, (neo)classical economics has been drawn/used in such a manner as to comfort the comfortable and afflict the afflicted. As a result is has a built-in tendency to attract funding, conference sponsors, think tanks (with their journals and their own lucrative non-academic positions), and the political support of one of the major political parties. Again that makes it difficult to state that (neo)classical economics wins a competitive battle since it outspends the opposition by a considerable amount.
sPh
May 29, 2007 12:20 PM | Reply | Permalink
What area of academia, beside medicine and the hard sciences, really have an impact on America. There was a time when Universities participated and even dominated the national debate in many fields. Now students arrive as a way station to graduate school and academics write about smaller and smaller topics that have very little connection to most Americans. It is not just economists.
Daniel A. Greenbaum
May 29, 2007 12:53 PM | Reply | Permalink
I tend to agree with you 100%
As you may know, I'm the resident "university critiquer" here.
In my opinion, the power centers at universities will be challenged by the up and coming IP companies since innovation will be seen as coming from outside rather than the inside of universities.
For universities to maintain their power, I think they'll have to outsource their undergraduate programs to technology based platforms which excel at teaching content efficiently and at low cost.
Currently, the media has given a golden halo to teachers/professors but if the IP companies can start changing that widely held belief-- about where innovation comes from, then perhaps the requirement of getting an undergraduate degree would become "innovation" not a particular set of courses which people forget.
I see this happening already but very slowly. For example, silicon valley start ups are recruiting students to work full time for them and asking them to delay their graduation.
Essentially, this means that the brightest students will be asked to choose between the value of the university and the value of a recruiting company.
With digitized libraries, video conferencing and personalized "short courses," a whole new intellectual ecosystem could be at hand.
In general, the times before us should be very interesting as the mafia is challenged!
And it's nothing personal because the role of priest, civil servant and now, perhaps, the teacher/professor is losing status at it becomes commoditized!
To boldly go...
May 29, 2007 1:12 PM | Reply | Permalink
No one is overly concerned with what gets published in the field of theology
weren't the Vatican II documents a big deal?
the recent pope also wrote that babies who die before baptism go to heaven. I think this allows the women in europe who have more abortions (from what I understand) to believe that their unborn babies still go to heaven, even if it has a soul. or, doctors can perform an abortion even if he/she believes that the baby has a soul.
To boldly go...
May 29, 2007 1:18 PM | Reply | Permalink
"...there are many more Democrat than Repbulican economists."
I don't know exactly what that phrase means. Unless you meant to use an adjective to describe those economists of the more liberal persuasion. In which case, the word is "Democratic." Democrat is a noun and can't modify the word "economists."
Just because GWB uses the same language doesn't make it any more correct.
May 29, 2007 3:34 PM | Reply | Permalink
Shorter Cowen:
That neoclassical economists haven't accepted heterodox economic theories (but for a couple) is proof that heterodx economic theories are wrong, not the other way around. But they're cute and adorable so I hope they keep having fun in their sandbox and let us adults take care of the real work of economic theory.
May 29, 2007 3:43 PM | Reply | Permalink
Here is an idea that might be interesting to consider;
Money is not a commodity. It is a public utility. As a medium of exchange and government obligation, it has far more in common with the public highway system, then as private property. We like to think of our bank acounts as personal property, but they are not a safe deposit box. That money is only in our possession when we need it, much like the section of road we are driving on is only ours as we need it. Everyone decries government debt, but it is an essential part of the overall investment pool. The same with Social Security. Where would that money be invested otherwise? The stock markets, real estate, etc. are flooded with liquidity already. If this surplus wealth wasn't being recycled through the public sector and back into the economy, it would be a much smaller economy.
If we understand money as a form of public utility, then wealth becomes as much a responsibility to the larger economy as it is a right to direct that economy. If money is simply one more commodity to be traded, then there is little obligation beyond the Darwinian imperative to maximize one's position.
When we tie it to a particular commodity, whether how much gold is in the treasury, or how much is needed to run the oil markets, then we give those who control that commodity undue influence over the rest of the economy. Those with the gold, rule. With the power this gives oil interests, energy conservation is unlikely, if not politically impossible.
This is an essay I wrote on the topic;
http://www.exterminatingangel.com/index.php?option=com_content&task=view&id=203&Itemid=118
May 29, 2007 3:57 PM | Reply | Permalink
It is written:
"Heterodox economics...doesn't have enough testable hypotheses to take center stage."
So what observation would disprove neoclassical economics? Isn't it true that the ONE hard core prediction of NC economics is that income compensated demand curves are downward sloping? Other than that, nothing testable that would put NC theory at risk. Any other observation about anything would be consistent with the NC model.
Yes, particular models lead to many predictions, but the rejection of any of these particular models would not be seen as a rejection of the NC paradigm.
And, even is the GRAND prediction that income compensated demand curves was not rejected, this fails to prove that the NC paradigm is valid. This paradigm fails to made any real important prediction that is truly subjected to rejection.
So, while plenty testable hypotheses can be offered from within the NC paradigm, the NC paradigm itself is almost completely immune from rejection. IE, it is not "science" as science is typically defined.
May 29, 2007 4:11 PM | Reply | Permalink
This is totally offtopic, but the recent Vatican pronouncement on limbo actually means the opposite of what you and most people have asserted. They simply confirmed that limbo is not official Catholic doctrine and never has been. The Catholic catechism teaches that baptism is necessary for salvation- it notes that we can always "hope" that God's grace will save them anyway, but the reason hope is necessary is that the operating assumption is that they're destined for hell.
May 29, 2007 7:15 PM | Reply | Permalink
It simply isn't true that neoclassical economists are blind to power relations or refuse to consider them. More frequently analysts of power relations haven't produced enough convincing articles showing that their views explain much of the data.
Three observations. First, this article -- and the above statement in particular -- place the burden of proof on the heterodox economists. Moreover, it's an incredibly high burden; this is "beyond reasonable doubt" territory. I understand that one doesn't want cranks around, but I am reluctant to see any pursuit of knowledge be biased toward the status quo.
Second, it seems to me that all economic analysis is based on simplifying assumptions. There's an old joke about "assuming a ladder" that I'm not going to mention further. But what portion of the data would have to be explained for an analysis to be considered convincing? And is the proportion different for neoclassical economists and for heterodox folks?
Third, I notice that the defense is based on "convincing articles." Are those published articles? If so, this argument becomes circular. (No articles = not convincing = no worries about lack of articles.)
Admittedly, my bias is toward freedom of thought and discovery and trusting people. After all, if it's really bad economics, wouldn't the readership be able to figure that out?
May 29, 2007 8:20 PM | Reply | Permalink
Could Mr.Cowen please expand on the relation of his second sentence to the first in his paragraph:
"Hayes suggests that "While the discipline remains dominated by a "neoclassical" consensus that is generally pro-market and suspicious of government intervention". I don't think this is quite true. The research of my colleague Daniel Klein has shown there are many more Democrat than Republican economists"
Are we to understand that his view is that Democratic economists are not pro-market? Might he provide some more information...the ones I am familiar with seem quite pro-market.
May 29, 2007 8:35 PM | Reply | Permalink
I'm in accord with the general tenor of comments here, especially those of Viviane and VLaszlo, who both draw attention to the kind of slipshod rhetoric which makes me itch all over.
Let me add an observation of my own...letting it be reviewed by my peers here. We need to recollect what the disciplines are. I propose that we think of them as constructs which allow us to make orderly observations. The order rests in our intellect, not necessarily in the world we observe in order to create some order out of chaos. The sequence is observation first, order afterward. We create the disciplines: they don't create us. The problem is that we forget that we created them in the first instance, and having created them, allow them to be our masters rather than our servants.
aMike
May 29, 2007 9:44 PM | Reply | Permalink
I agree. One internet source is: here and another here
"People find it increasingly difficult to accept that God is just and merciful if he excludes infants, who have no personal sins, from eternal happiness, whether they are Christian or non-Christian."
I think the media (first source) focuses on this quote but the second source said that there wasn't enough information in scripture to make a definite decree.
Thanks for taking the time to "be off topic" and give me a heads up about how the media slanted the actual findings! I suppose this is another case of the media telling us what we want to hear-- a statement packed with tolerence, even by God!
To boldly go...
May 29, 2007 10:02 PM | Reply | Permalink
the nature versus nurture debate is a very difficult one.
To boldly go...
May 29, 2007 10:09 PM | Reply | Permalink