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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
