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Is neoclassical economics a Mafia?
This controversial article from The Nation says yes, heterodox and non-neoclassical approaches are unduly ignored. I'm likely writing more about this elsewhere (you'll get the link), so I'll save my thoughts for now.
Posted by Tyler Cowen on May 26, 2007 at 02:39 AM in Economics | Permalink
Comments
I'm likely writing more about this, so I'll save my thoughts for now.
But you will violate the code of Omerta!
Posted by: arthur at May 26, 2007 5:22:41 AM
It is a mafia.We are taught from our schooldays only neo-classical economics.There should be enough freedom to choose hterodox approaches. Value systems,cultural heritage, religious,political and social set up differ across countries and therefore monoeconomics doctrine is dangerous.
Posted by: GVV at May 26, 2007 8:17:59 AM
Strange that the article didn't mention Vernon Smith and Experimental Economics, Austrian Economics, or New Institutional Economics, that is, that there are more or less heterodox approaches that comfirm the efficacy of markets and free trade.
Social influences on peoples utility functions has already been analyzed--see SOCIAL ECONOMICS, by Becker and Murphy. More generally, work is being conducted on extending the Neo Classical paradigm to explain previously believed non-rational behavior, etc. While the paradigm is a crass qualitative description of human behavior, it does often turn out to be reliable quantitatively--often 90-95 per cent accurate. Sometimes utility-maximizing behavior just needs to be set up appropriately in the empirical framework.
Yes, the discipline has become more empirical and accepting of heterodox utility and production functions in models, as comes with better empirical tools.
Nonetheless, economists would benefit from a better understanding of economics history and more circumspection about contemporary mathematical models. For example, after Solow invented the first growth model, there were tons of thereotical replicas of it that made minor tweaks here and there. Allegedly, Solow was not impressed, nor should he have been. Developing economists need to know what a genuine contribution to economics knowledge is and what is not. There a lot of interesting questions waiting to be researched--ask them and answer them!
Posted by: Chris M. at May 26, 2007 8:57:16 AM
I'm not an economist, but I've read a little on proto-economics and experimental economics. That's left me over the last year thinking about social trends and economics. I see here:
"Others point out that humans are social creatures, not individual agents, and their preferences and behaviors are forged by social structures: institutions, habits, social mores and culture all mediate and drive economic behavior."
As an outsider, that does strike me as the next big knock against Homo Economicus. And I was surprised to see the article end with:
"The 'missing motivation' of the title were social norms, people's conceptions of how they should act, which Akerlof argued played a central role in people's economic activity."
Wow. My radar must not be so bad.
BTW, it is an obvious observation that stalwarts in these threads are pushing "social norms, people's conceptions of how they should act." I a bit of irony, when that "conception" is of an economic world striped of social norms and conventions ;-)
Posted by: odograph at May 26, 2007 9:01:07 AM
I'm sure the author prefers an *irrational* government to correct for *irrational* actors.
Posted by: Jason at May 26, 2007 9:55:02 AM
The fact that economics even makes the distinction between "orthodox" and "heterodox" modes of thought is evidence of a perverse incentive system for those beginning on their careers as theorists. (The constrast with the market for ideas in, e.g., philosophy is quite striking.) A further problem is that, because they are not much good at the sociology of knowledge and professions, when they instrospect about these issues economists will tend to swing between two unsatisfactory interpretations of what is happening: either the structure of the field is essentially efficient, or it's a big conspiracy.
Posted by: Kieran at May 26, 2007 10:11:00 AM
I would just add that the article continually goes back and forth between defining the "mainstream" or "neoclassical" as:
1. a methodology
2. a set of theories
3. a set of policy conclusions
Among the heterodox-left crowd, this same slight-of-hand is often seen, having been the lone Austrian in their midst at a conference a few years ago.
One problem is that there are plenty of neoclassical/mainstream economists who don't believe in the "free market" policy conclusions. The other is the Austrians, who reject good hunks of 1 and 2, but come to the free market policy conclusions.
If you're going to talk about the mainstream as mafia, you better get a clear handle on what defines them.
Posted by: Steven Horwitz at May 26, 2007 10:44:39 AM
And to Chris M.:
The absence in the article of the Austrians and the others you note is not strange IF you are defining orthodoxy by policy conclusions, rather than methods/theories. The article can't make up its mind.
It's also worth noting that the left-heterodox crowd at least HAD some sessions at the AEAs. I'm not sure if there were any Austrian ones there.
Posted by: Steven Horwitz at May 26, 2007 10:46:22 AM
Looking forward to the expose on bias against heterodox climate scientists.
Posted by: Josh at May 26, 2007 10:48:46 AM
BTW, as a not too serious observation, I have no problem with economics describing a certain "rational utility-seeking" aspect of ourselves. But you know, when you've got to define "utility" in terms of jeans that fall down off your ass ... something strange is going on. (Yeah, I know "utility" in "social signaling" ... but that just seems to redefine the irrational as rational.)
Posted by: odograph at May 26, 2007 11:02:29 AM
Chris.M,
Your posting speakes about utility maximisation and production function-all neoclassical concepts.
Newinstitutional economics is application of the same old neoclassical theory to institutions.It is not an example of heterodox economics.
Posted by: GVV at May 26, 2007 11:02:54 AM
Is the number of Austrians larger than the number of so-called heterodox economists in American academia? That's a genuine question, not something rhetorical.
Posted by: Brian at May 26, 2007 11:11:51 AM
I consider Post Keynesianism to be COMPLEMENTARY vis a vis the other paradigms. Many Post Keynesian theoretical models have been earning some empirical credence recently (Pressman & Holt's "Empirical P-K Economics").
Remember, when the capital controversy arose last century (Cambridge U.K. vs. Cambridge U.S.), neoclassicism conceded to Robinson & Sraffa et al. The only thing that kept neoclassicism from going belly up was the weight of Samuelson's authority and the fact that neither theory could be proven empirically. Literally, faith-based. Consequently, as an intermediate micro instructor, I do my best to be well-rounded...
Posted by: Ian at May 26, 2007 11:27:51 AM
Much of what is called neo-classical by the heterodox is not in fact neo-classical.
Posted by: GoodneesOfFit at May 26, 2007 11:35:24 AM
I love the argument strategy: assume the conclusion that mainstream economics is wrong, and then argue from conspiracy that it must be true. You could insert "intelligent design" for "heterodox economics" and have your typical Discovery Institute article.
Also, calling Marx a heterodox economist when he was really just an uber-Ricardian doesn't really inspire confidence in the author.
Posted by: Urstoff at May 26, 2007 11:41:53 AM
I am old enough to remember when Keynesianism was the dominant orthodoxy and Friedman and Hayek were considered heterodox. So apparently things do change, even in the world The Nation describes.
I would also point out that the exact same argument can be made (and indeed is made) against the so-called "scientific consensus" on global warming. Somehow I suspect that might get a (you'll pardon the expression) cooler reception from The Nation! :-)
Anyhow, the whole thing strikes me as (er, no pun intended!) warmed-over Kuhn.
Posted by: David Hecht at May 26, 2007 11:42:34 AM
Then again, most of the Ricardians today would certainly fall into the heterodox category, would they not?
I think what the last one or two decades of economics have shown is that the "mafia" is not so much about resulty, but about method. If standard methods (econometrics or formal theory) are used, you can get into the top journals, regardless what the political implications of your research are. You have to be fairly blind not to see a whole lot of papers with paternalist, anti-free-market implications in the top journals. But they use formal theory. Or up-to-date econometrics. And that is what the bulk of the heterodox camp won't produce.
So, the discussion in The Nation is a bit misleading, I think. If it were about: "What sort of science do we want, what is the adequate methodology?" then it would be relevant. But whining about too little left-wing results in top journals is plain silly.
Posted by: statler at May 26, 2007 12:39:53 PM
I always thought that neo-classical econ was basically a tautalogical framework which that could incorporate any of these supposed problems.
Posted by: josh at May 26, 2007 1:23:41 PM
I think neoclassical economics is persistent primarily because it's easier to learn, comprehend, and apply than most of the alternatives
Posted by: Mr. Noah at May 26, 2007 1:26:47 PM
Are Richard Thaler and the rest of those rascally behavioralists considered neo-classical? Thaler had that string of anomolies articles in our beloved JEP. He must have been "made" or something, lest he would have been bumped off.
As a member of ISNIE, I'd say there is more than a fair bit of dissent within the profession even before you get to the Austians and heterodox thinkers.
Posted by: david at May 26, 2007 1:43:10 PM
Brian asks:
Is the number of Austrians larger than the number of so-called heterodox economists in American academia? That's a genuine question, not something rhetorical.
I can tell you that the Society for the Development of Austrian Economics has around 100 members and the Mises Institute's mailing list dwarfs that. The SDAE list probably has a much higher percentage of economists with university or policy affiliations, but the number of such folks willing to identify as "Austrian" or sympathetic to it overtly is certainly in triple digits in the US.
Not sure how that compares to "heterodox" folks.
I would add that, in my view, Austrians *should be* considered heterodox as well. I have an essay in a collection on heterodox economics coming out this year that makes that argument.
Posted by: Steven Horwitz at May 26, 2007 1:57:23 PM
GoodnessOfFit and Statler have hit the nail on the head. Bravo!
Posted by: indiana jim at May 26, 2007 4:19:32 PM
It's easy to say that "people aren't rational," because it's easy to choose a very high standard of rationality, and then give umpteen examples of how people fall short. It's very, very, very hard, though, to say that people do not respond to incentives -- which is essentially all I (and I think most economists) mean when I use the term "rational." The divide between orthodox and heterodox really doesn't have much to do with the debate over whether people are rational. Of course they are, with only very, very rare exceptions. A few behavioral economists have leapt onto the "irrational" bandwagon, but they don't seem to realize that the use of heuristics, i.e. mental shortcuts for decision-making, is itself rational behavior -- a way to reduce information costs. For the most part, behavioral economists are, as Hayes notes in the article, part of the orthodoxy.
Posted by: Steve Miller at May 26, 2007 4:26:17 PM
Extending upon Statler's comment, there is evidence that the top general interest journals in ecoonomics have become less and less interested in the publication of comments, replies and rejoinders. Several articles in EJW provide the evidence and suggest competing explanations; one is obviously more Mafia-like than the other, although conspiracy is not part of either explanation.
Posted by: indiana jim at May 26, 2007 4:35:31 PM
Statler makes the correct point. Neoclassical economics, or, better, the broader field of today's mainstream economics, is about methodology, not about conclusions and policy implications.
Economics should be about learning how people behave in economic decision-making, about being able to describe the implications of these decisions, and draw inference for what-if scenarios, so that we are able to recommend policies that are in line with what we want to achieve. And the only way to make such inference is, as Becker puts it, to "tie our hands" with methodology.
Heterodox economists (at least most of the "left-heterodox") are completely wrong at least in two ways. First, they confuse this methodology with free-market argument. You feel that market imperfections exist? Build them into the model, verify it with data, and then you'll see there may be space for governmental action. The same about limited rationality of agents, informational advantage etc. The fact that the models often find the space for governmental action limited is not because this is some mafia conspiracy, but rather that the data simply do not support the idea of a beneficial governmental action, or find the cost of such an action as too high.
Second, the argumentation of these heterodox economists very much lacks any methodology at all. When you read the articles in the Post-autistic economics review, they are full of argumentation on how different social norms, different perceptions of value, or different histories make it impossible to transfer policies from one place to another, invalidate the free-trade argument, and strenghten the case for social action. But they never say HOW different these norms, perceptions, or histories are, and how important this actually is. They use this just as an excuse for not being able to set up a coherent argument that could be use for valid analysis. Although I very much favor the importance of things like institutions in policy analysis, you cannot do it without a framework. Otherwise it is just useless blabbery.
Heterodox economists advocate policymaking on a case-by-case basis. But that is a step from serious research and analysis toward disprovable arguments, very much in style of intelligent design. For research is not about proving arguments (which is impossible by definition), it's about disproving them. Neoclassical economics (with its current wide extensions) has shown to be sufficiently robust to extensive analysis, and flexible enough to be able to incorporate a lot of possible scenarios. Using this framework, you can argue which factors do not play a role, and then omit them as a reasonable approximation. Using the argumentation of heterogenous economics, you can never dismiss any argument, since there is no framework based on which you can dismiss it.
We should be thankful that we have a framework which actually allows us to show which things do NOT work, and which can be invalidated by research. If we embraced the approach of (most of) heterodox economists, we would never be able to do so. And that would be the end of economics.
Posted by: pinus at May 26, 2007 6:35:33 PM
Pardon my confusion of New Institutionalism with heterodox economics. Atleast insofar as being taught "mainstream", it seems to me to be less mainstream, though an extension of the neoclassical framework.
Indeed, the article does seem to confuse methodology with policy reccomendations. There are plenty of liberal economists trained in the neoclassical framework who advocate center-left policy ideas.
Posted by: Chris M. at May 26, 2007 9:39:37 PM
pinus,
Which Becker? Probably the one that argued that the law of demand is the most fundamental proposition in economics. In one of his articles, he made a brilliant argument that even if people acted ramdomly, the law of demand would hold (he argue this simply on the basis of the income constraint, avoiding utility entirely).
Posted by: indiana jim at May 26, 2007 10:14:22 PM
indiana jim,
Yes, this Becker. I know the article, it's not about acting completely randomly but rather with a certain degree of inertia. And it exactly shows one of the points - that although people are not perfectly rational machines, there are well justified cases where some degree of irrationality simply does not matter, and rational agents are a good approximation.
Of course, there are other cases when this may matter. But it is exactly the methodological framework that helps us discriminate among them.
Posted by: pinus at May 26, 2007 11:26:46 PM
pinus,
Becker's article was the perfect response to the challenges (I think in the late 1960s or early 1970s) being made by other social scientists about the absurdity of the assumption of rationality. His argument hugely advanced confidence in what he called the most robust concept in economics: the law of demand.
But it seems that this article has not been read by many of the economists newly minted in the last 15 or 20 years, because there have been a small number of publication with theories in economic journals that postulate upward sloping demand curves. No empirical support for the upward slopes, just hypotheses and some in top journals too. I wish more people shared your awareness of Becker's article.
Posted by: indiana jim at May 27, 2007 12:47:48 AM
The Nation writes:
"Card, a highly esteemed economist at the University of California, Berkeley, caught flak for his heresy not on trade but on the minimum wage."
Of course, Card's study of Miami in 1980-85 claiming that immigration doesn't lower wages is wildly popular with many of the same economists who hate the conclusion of his minimum wage study.
The problem with economics these days is not so much the various models as that economists believe that having models lets them get away without knowing much about the real world.
For example, Card's comparison of wage trends in Miami in 1980-85 relative to four other cities is pretty useless because that was the peak of the Scarface - Miami Vice cocaine boom in that city, so ceteris wasn't paribus. Now, anybody who watched TV in the 1980s should know that, but economists never seemed to notice when discussing Card's study. Worse, they seldom seem to care that they are often ignorant about the realities that they so confidently pronounce upon.
Posted by: Steve Sailer at May 27, 2007 3:36:57 AM
I could comment at length on much of what has been said here so far, but will stick
to just two points.
1) In connnection with Steve Horwitz's remarks, there is an organization that attempts
to unify or act together among the various heterodox schools of economic thought, the
ICAPE, (sorry, I forget what exactly this acronym stands for). Austrians are definitely
included in that organization and I believe active in it, although it is certainly true
that more leftist heterodoxies probably dominate the group. In that regard, of course
The Nation is a leftist outlet and it is not surprising that Hayes focused more on the
identifiably leftist heterodox economists.
2) Ric Holt, mentioned above, has a book with me and David Colander entitled,
_The Changing Face of Economics: Conversations with Cutting Edge Economists_, 2004,
University of Michigan Press, pbk. In that book's first chapter (and a related article
of that year in the Review of Political Economy), we distinguished between "orthodox,"
"mainstream," and "heterodox." We argued that the first category is strictly intellectual,
an established set of ideas widely accepted and established and (more or less) internally
consistent and coherent. The second is sociological, the group that is in charge of the
main journals and funding sources, and the top departments. They may have no ideas at all,
just pure opportunism, but they run the show, and they are not all "orthodox" (or "neoclassical")
in their thinking. Indeed, the "non-orthodox mainstream" was very much a topic of our book.
However, "heterodox" is both an intellectual and sociological category; they are both
anti-orthodox intellectually while also being sociologically alienated from the power
centers of the profession, which are in some sense self-feeding and reinforcing. I hope
that this is useful to various readers.
Posted by: Barkley Rosser at May 27, 2007 4:39:34 AM
It seems that the main difference between orthodox and heterodox economics is similar to the difference between mafia and camorra. If you would mentally reverse the situation you might find that currently "heterodox" economics would suppress the "orthodox" one exactly in the same way.
There is a third important component, however, which is not discussed here - the the society. There are several parts or agents of the society which enforce the laws of economic theory, whatever they are - orthodox or heterodox. Here we clearly see that both theories are marginal - or even criminal. IF you read the speeces given by top officers of the FRB . They accept the orthodox theory by words not by actions. It is obvious why - if applied any selected theory can make only worse what is not the task for the Feds.
Posted by: I.Kitov at May 27, 2007 6:42:25 AM
"A few behavioral economists have leapt onto the "irrational" bandwagon, but they don't seem to realize that the use of heuristics, i.e. mental shortcuts for decision-making, is itself rational behavior -- a way to reduce information costs."
FWIW, I think the thing to do is to tie it back to the part of the brain doing the "thinking."
Posted by: odograph at May 27, 2007 9:52:39 AM
Pinus or Indiana Jim-
What is the name of Becker's article?
Thanks
Posted by: d at May 27, 2007 12:36:48 PM
Becker (1962, JPE) Irrational Behavior and Economic Theory
Posted by: pinus at May 27, 2007 1:42:47 PM
The article seems confused about its definition of neoclassical economics:
"Classical economics refers to the theories laid out by Adam Smith and David Ricardo in the eighteenth and nineteenth centuries, which emphasized the power of the "invisible hand" of the market to promote the division of labor and economic growth."
Mafioso economists (but not heterodox ones it appears) know that Adam Smith wrote "The Theory of Moral Sentiments" as well as the Wealth of Nations, and that he never "laid out" a "theory" of the market.
Paraphrasing Luther - it's an article of straw (man.)
Posted by: PJ at May 27, 2007 4:08:45 PM
Regarding the business of upward sloping demand curves, part of the problem
is defining exactly what is to be held constant when one assumes "ceteris paribus"
to draw the curve. Usually it is stated that "everything else is held constant,"
except for the price and the quantity of the good itself.
The problem arises when we allow for a change in the price of the good itself to
change some of these things that are being held constant, in particular expectations.
Thus, in the real world with speculation we see lots of situations and times where
an increase in the price of something draws forth an increase in the quantity demanded,
or at least an increase in people trying to buy the thing. The standard way to
view this is to say that the demand curve shifted with the change in expectations,
but the change was induced by the change in the price of the good itself. The
situation really is rather murky.
I actually ran into this in a weird sort of way quite some time ago. I had submitted
a paper to a journal about speculative dynamics. The paper was rejected because a
referee (whose identity I figured out and is actually a very prominent economist)
said that there can be no such thing as speculation pushing prices and quantities
purchased up. This referee said that this would constitute an upward-sloping demand
curve, and then proceeded to cite George Stigler on the claim that we have never
observed any upward-demand curves. Sic transit gloria, gustibus non disputandum est.
Posted by: Barkley Rosser at May 27, 2007 6:09:02 PM
"I think neoclassical economics is persistent primarily because it's easier to learn, comprehend, and apply than most of the alternatives"
Easier to learn - as long as you are not in the habit of asking questions or thinking for yourself, IMO.
As a student said in David Colandar's excellent book 'the making of an economist': "What does it take to succeed in economics graduate school? Good math skills and not too critical a mind."
Posted by: DarrenMc at May 28, 2007 12:31:03 PM
The Econ mafia is part methodological and part elite based. Especially now, when there is no such thing as anonymous submissions, your department really affects your submission reviews. And of course mainly the top departments recruit from the top departments, so there is not a lot of room to break in if you start out at a lesser program, even if you overcome the lack of resources.grad students, etc.
But the other part is methodology, that the heterodox articles look like sociology or polic sci to most of us. It might be good or not, but I can't judge it. I can critique your identification strategy but not your rhetoric.
The problem with this is that it doesn't provide room for economists with a non-mathematical approach like Galbraith. Galbraith would have to be a political scientist now. That's a problem with the discipline that it has narrowed down and doesn't have a way to judge and award the next Galbraith.
Posted by: CalDem at May 28, 2007 4:19:22 PM
Barkley,
What is not murky is that a number of "prominent" journals have published papers with upward sloping demand curves that provided NO evidence in support. No economist worth his salt is wedded to the idea that demand curves ALWAYS slope downward; the Giffen Good story is the most widely argued about possible exception to the law. However, Gary Becker's theoretical argument based upon income constraints alone suggestst that there exists an everpresent bias favoring the law of demand. In light of Becker's arguement and the empirical robustness of the law, you are certainly not suggesting that we are equally accepting of theories (sans evidence) that posit upward or downward sloping demand, are you?
Posted by: indiana jim at May 28, 2007 5:13:20 PM
Ya know, I read a working paper version of a paper that was published in the prestigious and uber-mainstream Quarterly Journal of Economics, which showed that systemic use of a rule of thumb by stock analysts created large mispricing in the stock market over decades.
If you can actually use evidence to demonstrate instances in which people deviate from the neoclassical model of behavior, especially when the costs of deviation are high, you do quite well in the profession.
So a lot of this "heterodox" complaining just looks like kvetching.
I think the Austrians are actually getting a lot more respect, mainly because their notions of "radical ignorance" rather than just probabalistic uncertainty make a lot of sense given what economics is learning from cognitive psychology. People's cognitive shortcuts and biases do create radical ignorance, and competition does then act as a discovery mechanism.
In some sense, the social darwinist sociologists of the 19th century (Spencer, Sumner) did have deeper insights about economics than a lot of modern neoclassical economists.
Posted by: Keith at May 28, 2007 5:33:46 PM
Indiana Jim,
Really? What prominent journals have recently published papers about
"upward-sloping demand curves"? Now, the Giffen good case has been known
forever, but it has also been argued by folks like Stigler (a long time ago),
that we have never really seen a true example of a Giffen good, with all the
supposed historical examples not really being so. I have seen very little
on this now antique topic recently, certainly not in any leading journals.
The issue is the one I raised, which involves a matter of defining how
one defines the conditions under which one defines a demand curve. If one
defines it according to what happens, holding other exogenous elements constant
when the price of a good changes, then if the price of the good changing itself
changes the expectation about future prices, we can see behavior that looks
like upward-sloping demand curves, people buying more when the price rises and
buying less when the price falls. This is, after all, what the demand curve
is all about, n'est-ce pas?
And, please, any person on the street can tell you about how when the prices
of houses were rising people were rushing out to buy them and now that they
have stopped doing so, and in some places started to go down, they stopped
doing so (although apparently they did jump back in last month). Or, if you
don't like houses, how about stocks in the rising price 1990s versus the
falling price year of 2000? Or, well, the examples are rife and do not need
some big econometric study to demonstrate. It is a matter of conceptualization,
and Becker's argument is simply irrelevant.
Posted by: Barkley Rosser at May 29, 2007 12:40:56 AM
Barkley: The demand curve a) is supposed to represent a set of mutually exclusive possibilities that occur over a given planning horizon for b) goods where purchase motives are dominated by use rather than resale.
Condition a) means thqt movements along the curve are entirely notional. (Oskar Morgenstern got this point wrong in one of his papers, where he argued for a complex scheme of accounting for purchases already taken off the market when prices change.) For many markedts, the demand curve is pretty stable from one period to the next, in which case aggregating data across periods will show real "shifts along the curve" that approximate this notional exercise. In general, though, there is no guarantee that time-aggregated data capture the demand curve if it's shifting around.
Condition b) means that for assets that can be resold, it's pretty hard to tell demand curves from supply curves. In the case of financial markets, I recall Steve Ross pointing out that in finance all "supply" or "demand" curves are either vertical or horizontal, with all the action occuring as these curves shift around rapidly under the impact of new information. Ross argued that this was exactly what separated finance from standard microeconomics, which seems like a pretty good demaarcation to me.
So on the basis of these conceptual points, the impact of today's prices on tomorrow's valuation of assets should definitely be thought of as shifting the "demand" curve rather than moving along it.
Posted by: srp at May 29, 2007 2:31:47 AM
Barkley,
The most prominent example was in the JPE, 99 (5), pp. 1109-1116. And this article, at my last count has been cited over 95 times; and none of the cites provide evidence of an empirically estimated demand relationship for which the own price coefficient of quantity demanded is positive and statistically significant. Looking at the citing articles I also found that in the vast majority of cases no question at all arose about the article's assumed upward sloping demand. This example is also prominent because the author is a prominent Nobel winner. The reason for all the cites may be his prominence, or it may be a cavalier approach to demand theory, or it may both; there is no low cost way for me to make this kind of assessment.
Another example was in the AER, 85 (4), pp. 771-792. Its author is a prominent theorist. Some colleagues and I debated him in the EJW on the merits of his theory (EJW 1(3), pp. 437-454).
Posted by: indiana jim at May 29, 2007 8:59:59 AM
Then there was that Battalio lead AER article in 1990 that developed a Giffen Good for rats.
As for the asset price demand argument, it is standard 101 that expectations of future price are curve shifters. But maybe I'm just being the neoclassical mob enforcer here. Of course, earlier I mentioned that a lot of old-school social darwinist sociologists had some deeper insights than many modern neoclassical economists, so I may be due for a whackin'.
Posted by: Keith at May 29, 2007 9:35:22 PM
Indiana Jim,
Your commentary here is unnecessarily confusing and weird. You cite Becker then you refer to papers by their journal name, vol. and p. no., without titles or authors or explanations what the articles said. I have now seen who the authors and titles are, but not sure if they are arguiing that "fashion effects" with restaurant prices or whatever cause upward sloping demand curves or do not do so. Your remarks are nearly incoherent, referring to debates without saying what the arguments are or were.
Regarding "fashion effects," well Veblen effects have long been known also to give the appearance of upward sloping D curves when they happen, but again this is all a matter of definition, and gets trickier. So, does the price increase change peoples' preferences towards the good, or are we dealing with people who want to buy things that are expensive to show off the high price for bragging rights? The latter might actually generate real upward sloping D curves, without any shifting due to endogenous effects from the price. Tony shampoo was the supposed example in the 1950s, but their price increase and sales increase was accompanied by a major ad campaign to upscale the image, hardly the same thing.
Of course the income constraint argument says that eventually D curves must slope downwards. But they can slope upwards in lower level zones before the income constraint is hit.
srp,
So, you are the supreme authority with the definition. Fine. Sure, I agree most textbooks would say that all of this is shifting D curves, but I would remind everybody that the original identification problem in econometrics arose from trying to tell when it is a supply curve and when it is a demand curve that is shifting. When we see more being sold when the price rises, do we just automatically assume that the D curve must be shifting outwards (unless, of course, we are in one of those extremely rare situations where we might be dealing with a true Giffen good, which may exist for rats but Stigler says never did for humans)?
Steve Ross's perspective is interesting, but again, we see this kind of behavior for things that are not pure financial assets, like housing. The hard fact is that we can always say "the demand curve shifted, even if it was caused by the price change," which kind of undermines the whole argument about what a demand curve is. But we certainly do see lots of markets for both commodities and assets where we see behavior that on the surface looks like upward-sloping demand curves. Such phenomena are indeed all over the place.
Posted by: Barkley Rosser at May 29, 2007 11:22:33 PM
Barkley,
Sorry about being less than clear; I should have reported the authors names as opposed to just listing the journal, volume, issue number, and page ranges. It is much easier to use JSTOR with the author name, so, again, sorry (I just got lazy in my post).
Regarding the argument that my colleagues (Coelho and Klein) had with Pesendorfer on the topic of fashion cycles, the references are:
www.econjournalwatch.org/pdf/CoelhoetalComment1December2004.pdf
www.econjournalwatch.org/pdf/PesendorferResponse1December2004.pdf
www.econjournalwatch.org/pdf/CoelhoetalRejoinderApril2005.pdf
www.econjournalwatch.org/pdf/Pesendorfer2ndReplyApril2005.pdf
Regarding the Becker article on restaurants, I have an unpublished working paper that I will be presenting at the Western Econ Association Meetings this Summer; if you attend, I would be pleased if you would consider coming to my session.
Posted by: indiana jim at May 30, 2007 1:11:05 PM
Barkley: As you note, I'm giving the "textbook" definition, so I'm puzzled why you think I'm arrogating supreme authority over concepts.
Upward sloping demand curves are not "all over the place." I don't think your housing example is even correct, since the resale motive means that supply and demand are mixed together. Your reference to the classic problem of econometric identification is misplaced, because the issue here is not statistcal identification at all. In the classic identification problem, we have no conceptual difficulty in separating the behavior of wheat farmers and bread makers, who are separate entities operating on separate schedules. With housing, the same person is on both sides of the market simultaneously, which is a conceptual rather than statistical dilemma. That's why demand curves can't be applied in a simple way to products with strong resale components.
Posted by: srp at May 30, 2007 1:13:33 PM
Ah, so indiana jim is McClure. Sorry, won't make the WEA.
Used to belong before they jacked up the price (my own demand
curves are downwardly sloping, thank you).
Posted by: Barkley Rosser at May 30, 2007 2:45:23 PM
Barkley,
My institution supports travel to conferences, so even though the price has gone up, the price to me has not; so my demand curves slope downward too.
Posted by: indiana jim at May 30, 2007 5:14:41 PM
Ah, but does not your institution have a constrained amount that they give you
for that? Mine does.
Posted by: Barkley Rosser at May 31, 2007 12:39:23 AM
Yes our travel allowance is contrained, but happily our allowance was raised recently.
Posted by: indiana jim at May 31, 2007 4:17:01 AM
Neoclassical economic theory according to me is persistent because it's way more simpler and easier to learn, understand, and implement than other theories.
Posted by: Offshore Software Product Testing at Jun 5, 2007 8:10:13 AM
If the travel allowance has increased so has our pay allowance.
Posted by: Smart Card Development Solutions Consultancy at Jun 5, 2007 8:15:10 AM
Great post to read ...want to know more about these non neo-classical aproaches.
Posted by: Outsourced Product Development Center at Jun 7, 2007 3:25:32 AM
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Posted by: 謝文豪 at Apr 2, 2008 4:05:32 AM
