A response to Krugman’s ‘Frustrations of the Heterodox’.

In a recent article in the New York Times, Paul Krugman criticised the heterodox economics movement for going too far. His patronising article is both self-contradictory and self-serving. In his article he repeatedly accepts the need to learn from mistakes and incorporate new ideas into economics while simultaneously attempting to silence those with different ideas. Silencing those who challenge the mainstream has obvious benefits to a man who has made his career out of being a critic embedded within the establishment. I have no doubt that Krugman is sincere in his writings, yet it does not change the fact that much of his prominence arguably comes from being a consistent yet not too radical critic of establishment economics.

By opening the piece with a line like the heterodox need to realize that they have, to an important extent, been working with the wrong story line”, Krugman reveals his intentions. He seeks not to listen or engage, but merely to dismiss out of hand, by patting us on the head and telling us we’ve gotten ourselves muddled. His mocking tone is that of someone who seeks to protect themselves, not to actually debate anything. In fact, it is arguable that in this piece Krugman has misinterpreted some of the facts; more on that later.

Krugman accepts that economists failed to predict the 2008 crisis, while also pointing out that nobody else did either. This is somewhat strange, given that studying the economy is, well, the job of economists. If a security guard doesn’t spot an intruder, they have failed to do their job. Pointing out that several passers by also didn’t spot that intruder doesn’t change that fact; none of those passers by were responsible for identifying and dealing with intruders.

This aside, Krugman argues that the failure to predict the recession is as simple as a failure to properly identify the rise of shadow banking. This seems a little too simple, and misses out many important facts. First of all, when an entire profession completely misses such an important fact, one has to question whether that profession was functioning properly. Even if we accept this explanation, it is still very possible that the uncritical nature of the current state of economics and its failure to adapt to new phenomena are linked.

Krugman also skates over recent developments within heterodox economics – such as the Bank of England’s admission of failure over the role of money. By ignoring the contributions of Steve Keen – as so many within the mainstream have been so keen to do – Krugman distorts the debate to make it seem like there is nothing out there that could aid our understanding that isn’t currently being discussed.

He then goes on to insist that the response to the crisis – austerity – is based on a rejection of textbook macroeconomics. This, of course, depends on the textbook. Many undergraduate economics textbooks are full of material that supports austerity, highlighting the efficiency of markets versus the inefficiency of governments. Can Krugman really not see the connection between a reductionist economics curriculum in which we are taught to accept principles with relatively little questioning and the disastrous application of those principles into public policy?

Furthermore, the culture of avoiding questions of politics and claiming political neutrality must also be linked to austerity. The language that supported austerity policies is tied closely to mainstream macroeconomics. The policy was presented as the only valid option, political and social externalities were ignored and GDP growth was viewed as the only thing worth valuing. If we had an economics that was able to challenge these ideas, to accept that economics has a political aspect and to look beyond GDP growth, then we might not have seen austerity policies brush aside criticism like they did. Many mainstream economists did object to them, this is true, but those economists came from the same culture that prevents economic policies from being criticised on social grounds.

At this point, one possible motivation for writing the article shines through when Krugman says that heterodox economists “want to drive people like me out of the temple, too”. Oh, the horror. Frankly, I don’t particularly want to drive Krugman out. He is clearly a very intelligent person who has a lot to contribute to economics, despite my disagreeing with him on this article. However, I think it is possible that Krugman – who has made a career out of being consistently slightly critical – would see his importance to the discipline of economics decline if we allowed more genuine dissenting voices. No longer would he be the left-most superstar economist, he would have to share that territory with others. Given Krugman’s possible self-interest in the failure of the heterodox movement, it is worth taking his article with a pinch of salt.

Krugman finishes the article by building a rather strange heterodox economist strawperson and knocking it down, before noting that the crisis and the resurgence of high inequality mean that we need to ask questions about how we teach economics. But how are we to ask questions if the people we ask them of are so eager to dismiss concerns out of hand? In the very next breath, Krugman again attacks heterodox economists for having the temerity to question his interpretations of events. This kind of piece serves nobody but Krugman and the mainstream. It gives the illusion of caring about diverse opinions while in practice stifling debate and protecting those who currently rule the temple.

 

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