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Is neoclassical economics a Mafia?
Here is my short essay on that topic, riffing on Christopher Hayes's recent article. You'll find other related essays and links here (David Warsh and Paul Krugman will be joining in at some point). Here is my bottom line:
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.
Addendum: James Galbraith is mad at me and responds. And Max Sawicky has much to say about me.
Posted by Tyler Cowen on May 29, 2007 at 04:41 PM in Economics | Permalink
Comments
Tyler,
You write "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."
I think there is evidence that this was more true of the top journals thirty years ago or so than it is today; the evidence is clear that critical commentary has declined remarkably over this period. Of course it is true that EJW has stepped into the void, but this is a different door. In the long run the reputation of EJW may well come into parity with the top journals, but it is new and does not currently have the same impact on the profession. This comment is generic; that is, it does not apply only to "heterdox" papers, but to all papers challenging existing ones that have been published at the journals "top of the food chain."
Posted by: indiana jim at May 29, 2007 5:39:02 PM
The heterodox approach is largely ignored by mainstream economics (re: neoclassical) because most of the insights are situation-dependent -- that is, critical insights from the heterodox school lack the generality upon which neoclassical economics is based on. Most economists cannot and will not tolerate ad hoc explanations to human behaviour. One reason is because the math breaks down, and becomes mostly irrelevant.
Posted by: Econometron at May 29, 2007 6:12:01 PM
As an outsider, what I observe is that economists tend to fall closer on the logic-facts cognitive dimension to mathematicians than to historians. Economists like logic a lot; facts, not so much. They like to believe that having a good theoretical model allows them to economize on knowing facts, which they aren't all that enthusiastic about in the first place.
This helps explain to outsiders why a fact-oriented economist like Thomas Sowell is treated condescendingly by the economics profession.
Posted by: Steve Sailer at May 29, 2007 7:04:47 PM
One problem here is exactly as Tyler put it in his article: "Neoclassical" economics is used as a synonym for "mainstream" economics, and of course the mainstream, as in any science, absorbs new ideas and approaches...thus the mainstream remains mainstream pretty much by definition.
I thought the Nation article was poor.
Posted by: Mr. Noah at May 29, 2007 8:01:58 PM
Steve,
You would be correct except that the cost of manipulating data and
running empirical tests have fallen dramatically over the past 20
years or so.
But you ARE correct about some pure theorists who
puruse beautiful abstractions unrelated to ugly facts.
That is, there appear to be contrasting strands of literature: one that
pursues "pure" theory, and another that is leveraging new statistical
tests and databases made possible (and usable at low cost) by the
information revolution.
Posted by: indiana jim at May 29, 2007 8:34:37 PM
which of their valid propositions have been neglected. I'd like to see a simple list and start the debate there.
To be fair I can think of one item on that list; cambridge capital controversy. Yes, the neoclassicals conceded many points but the word used here was "neglected". And the CCC has generally been neglected since the 70's.
Of course part of that is because there's little alternative. Another part is that people really got sick of pure theory after the 70's. The third part is that the thinking about growth/development has moved from focus on capital accumulation to thinking about institutions, technology and other factors.
Posted by: notsneaky at May 29, 2007 9:20:23 PM
Much of the uneasiness with neoclassical econ seems to come from it's mathematical intensity. The heterodox economists tend to purely conceptual explanations, and view such explanations as better than ones that invoke a mathematical model. The question is, why should economics be purely (or mostly) conceptual? Mathematical models trump conceptual explanations in plenty of other sciences (physics being the obvious one, but fields like population genetics and computational neuroscience being others), why should economics be any different? The world is a complicated place, and our cognitive mechanisms may not be able to parse all the incoming data and patterns into neat little conceptual categories.
Posted by: Urstoff at May 29, 2007 10:27:41 PM
Great reads in classical economic theory
http://www.optimates.us/Greatbooks.htm
.
Posted by: Great reads in classical economic theory at May 29, 2007 10:38:06 PM
Ah, Tyler playing the contrarian Whig. Everything is fine, the Notre Dame department deserved to have their grad program shut down, they publish too many books and not enough AER articles. Move along, folks, nothing to pay attention to here.
I will grant that there has been a lot of loosening up in the micro area. Approaches that were not published much in very top journals because of the methods they used, e.g. experimental, are now OK to publish in those top journals, although QJE and AER seem a bit more open than JPE and Econometrica, despite the presence of Levitt and List at Chicago (and they seem to favor field experiments over lab ones anyway, at least somewhat).
The more problematic area seems to be in macro, where there has been the emergence of this neo-orthodoxy with the dynamic stochastic general equilibrium (DSGE) model. It embodies many of the worst sorts of ideas left over from the old, now getting discredited, neoclassical orthodoxy, representative agents with rational expectations operating in intertemporal general equilibrium. And, please Tyler, do not tell us that it is easy to publish a macro paper in the JPE if one does not do the appropriate hand kissing to this approach or its close relatives, even as its underlying assumptions are simply being shown to be baloney in general at the micro level.
I think this is why Hayes found the kvetching by the people at the Friedman do about George Akerlof's talk on macro. He showed what happens when one dispenses with these micro neoclassical fantasies that the experimentalists have been undermining for years, but which a lot of macro people are quite enamored of. I would say that there is still quite a bit of methodological repression going in parts of the profession.
So, the answer to notsneaky's question is that everyone has simply decided to ignore the Cambridge Capital theory controversy (pretend it never happened and publish lots of articles and textbooks using Cobb-Douglas or CES production functions with aggregate capital). But, my answer to your query, Tyler, is alternatives to DSGE. Are journals like the JPE really willing to even give the time of day to papers that pose alternatives to this approach?
Posted by: Barkley Rosser at May 29, 2007 11:33:20 PM
phew, well that sure stung Galbraith. He doesn't feel neglected, mark you, just ignored! And as for you Cowen, your prose drips with the evil self-assurance of a Bond villain. Galbraith better watch out he doesn't stand on any concealed trapdoors if he visits the AER secret underground layer.
And what's Galbraith's great heterodox hypothesis? Inequality is not caused by technological change. That's it? Sounds like a perfectly sensible hypothesis to me, is that really such an anathema to the mainstream? I'm sure I've heard that idea raised in labour economics lectures, and isn't that just what Card argues? He seems to be doing OK. Mind you, I haven't tried to get a paper published on the subject, so maybe I'd find the gatekeepers are not open for business.
As to the Cambridge controversy and the dubious micro foundations of the neoclassical model etc. Am I missing something? Since when did neoclassicists start taking their models literally? Every time I questioned whether you can really add up captial like so many apples, or whether people really behave like optimising agents, I got told no of course you can't and no of course they don't - it's all just a first approximation, a vastly simplified model that may (or may not) do a reasonable job of informing us about the world. None of the lecturers I've ever had pretended that dynamic stochastic general equilibrium come close to completely describing how the real world works, but some of them would say that it's the best tool we have right now, and can tell us a number of useful things. Even if it pretends you can add up captial and that representative agents solve dynamic optimisation problems.
That said, if journals do turn away perfectly good papers just because they don't fit the current fashion, then that obviously goes against a truth-seeking scientific ethos (Popper would not approve) and if Card really did get ostracised for daring to suggest that the minimum wage might not actually destroy jobs (he says he did and I've no reason to doubt him) then those economists who behaved like that toward him should be very ashamed, and it's really troubling to hear that happened.
I think people inevitably form cliques and fall prey to group-think and so forth, so it's sad but not surprising to see that behaviour among those who control the profession (the best journals and the top deparments). It would be great to find ways of mitigating that tendency. But I bet the 'heterodox' crowd are just as guilty of it as those they attack - they're just in a different group. Are they any more open to the idea that they might be full of crap than their opponents are?
Posted by: Luis Enrique at May 30, 2007 5:55:34 AM
Every time I questioned whether you can really add up captial like so many apples, or whether people really behave like optimising agents, I got told no of course you can't
IIRC, Hayek did develop a theory of disaggregated capital. The issue is extremely complex and not really amenable to statical analysis, so the claim that valid approaches are being neglected is unsupported.
Posted by: guest at May 30, 2007 7:40:57 AM
[it's all just a first approximation]
but the whole point of the CCC is that it isn't even a first approximation.
Posted by: dsquared at May 30, 2007 7:42:34 AM
I think the new reality is that disciplines are increasingly defined by their methods not their "topics". There are plenty of outlets for heterodox economics, but these are economic sociology, econ. geography etc.. Economics has become defined by its (neoclassical) methods, and just because you have a paper about an economic topic does not make it economics, so seems to be the implication.
As Econometron says, alternatives to neoclassical economics are situation-specific, again more like sociology or anthropology.
Posted by: Jack at May 30, 2007 7:47:27 AM
Thomas Sowell is treated poorly by economists? Please elaborate!
Posted by: jason voorhees at May 30, 2007 7:47:29 AM
Thomas Sowell is treated poorly by economists? Please elaborate!
Posted by: jason voorhees at May 30, 2007 7:47:40 AM
D2
Well you've caught me out skating on thin ice there. My impression was that the defence against the CCC was that the neoclassical model is still a workable approximation or perhaps mathematical metaphor (huh?). Wasn't that about it? (even though the CCC lot did claim otherwise).
One day I would like to think a lot more about this, perhaps starting here:
http://eaepe.org/eaepe.php?q=node/view/233
But I have been advised to wait a couple of decades or so, when I might be in a position to spare a few years.
Posted by: luis_enrique at May 30, 2007 7:56:16 AM
but the whole point of the CCC is that it isn't even a first approximation.
Why? The approximation is that roundabout methods of production are more productive: That sounds quite acceptable to me.
Posted by: guest at May 30, 2007 8:03:16 AM
and it is a secret layer by the way, a bit like floor 7 and a half.
Posted by: Luis Enrique at May 30, 2007 8:03:39 AM
Luis, you wrote "if Card really did get ostracised for daring to suggest that the minimum wage might not actually destroy jobs (he says he did and I've no reason to doubt him) then those economists who behaved like that toward him should be very ashamed, and it's really troubling to hear that happened."
Quite the contrary, I believe he got the best-economist-under-40-award, not ostracised. It took a long time for the AER to publish a critique of his paper, some would say WAY, WAY too long; but then the AER was officially "hostile" toward critical commentary (the publication of comments, replies, and rejoinders) at the time that it published Card's co-authored paper. So albeit it after substantial delay, the AER allowed the science of that paper's analylsis to be challenged; this is anything but shameful. The publication of critical commentary is one of the checks and balances that long kept those at the top of the food chain from behaving like the mafia. Thankfully the EJW has stepped into the void left by the drastic downsizing of critical commentary that has taken place at the top general-interest journals. But again, Tyler, this is, given the newness of EJW, still a "different door."
Posted by: indiana jim at May 30, 2007 8:07:27 AM
oh - well what explains his (Card's) description of the virulent reaction that paper received? (I can't find the link to the interview, but it's quoted in the orginal Nation article that started all this)
Posted by: Luis Enrique at May 30, 2007 8:11:56 AM
Maybe Card thinks that his wage is too low? Just kidding; I actually have no idea why he would be upset about the open exchange of ideas that his co-authored paper aroused (if that is in fact what he is upset about).
Posted by: indiana jim at May 30, 2007 8:57:21 AM
Card's wage is (much) too low given his status in the profession.
I thought the responses on TPM were pretty silly. The person who corrected Tyler for using "Democrat" instead of "Democratic" was particularly awash in delicious irony.
The people who complained about Democrat - I feel comfortable using that term since I belong to a, dare I say it, heterodox third party - economists being pro-market are missing the obvious implications. When people who care a lot about inequality actually study economics, they reject the standard solutions of the hard statist left.
I think it would help the lefties to always keep the Austrians in mind. Their exclusion from the mainstream clearly indicates that the gatekeeping is not based on politics but on the quality of the research. Also, there is nothing amiss in the fact that it took the public choice folks or the behavioral folks a while to gain mainstream acceptance. The optimal barrier to entry is not zero given the time cost associated with reading and absorbing papers.
Jeff
Posted by: Jeff Smith at May 30, 2007 9:31:40 AM
If Robert Murphy is saying reswitching (more generally, recurrence of techniques) depends on there being "only two ways of producing a particular good", he just has gotten his arithmetic wrong. Anyways, it is wrong to say that economists know that, approximately, roundabout methods are more productive. Not that that approximation would justify the use of an aggregate production function in which the interest rate is equal to the marginal product of capital. (I don't know of any empirical work using Champernowne's chain index for measuring capital.)
I don't see what's heterodox about any of my links above, other than that I get my arithmetic correct. Nor do I understand the unwillingness, seen above, of mainstream economists to learn price theory.
There's plenty of neglected and ignored ideas in heterodox economics.
Posted by: Robert at May 30, 2007 9:36:57 AM
CCC is just one part of the critique. The problems with capital aggregation purely from a mechanically mathematical angle have been well documented by Franklin Fisher (a Bates medal winner to boot). The problems with capital aggregation are so deep that it is not even ok as an approximation.
The problems with aggregating the representative consumer are even deeper. Anybody who has been through grad school micro should know that. And I am not even getting into stuff like the use of expected utility maximization and the problematic axioms underlying it. These are serious problems that cannot be waved away. The argument that these are just models just doesnt wash. I think any paper using representative consumer and representative firm needs to be rejected outright just as any paper using a old style Keynesian macro equation (not founded on micro optimization) would. That whole macro program should be discredited. Unfortunately, that is not going to happen anytime soon. There is just too much sunk human capital invested in that program.
Posted by: srinivas at May 30, 2007 10:02:00 AM
Louis Enrique,
Ridiculing a great person is not a good quality, you neo-classical (nonsense) admirer.Galbraith stands tall in economics.
Posted by: GVV at May 30, 2007 10:38:27 AM
