Category Archives: Meta Economics

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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Intellectual Darwinism and the fallacy of the marketplace of ideas

I recently attended panel discussion, organised by the University of Manchester’s Post-Crash Economics Society as a counterweight to the Royal Economic Society’s conference, between Victoria Chick and Diane Coyle on economic pluralism. The Q&A session became somewhat heated after one audience member suggested that the reason modern economics is dominated by one school of thought is that this particular school of thought has beaten out the others. He referred to the numerous paradigm shifts we have seen in economics – from the classics to Keynesianism and from Keynesianism to the monetarists – as evidence that the best theory prevails.

This, however, is a view which neglects the long history of paradigm shifts, both inside and outside economics. Wherever ideas and viewpoints are challenged, those who hold them are often quite naturally defensive. This is normal, and a perfectly human reaction. I am certainly not accusing anyone of wilfully suppressing debate and critical engagement – I think it happens accidentally because we are all, alas, human. However, just because it happens by accident does not mean it is a phenomenon we should close our eyes to.

Throughout the history of the sciences – natural and social – challenging viewpoints have been met with hostility. Within our own discipline, John Atkinson Hobson’s initial theories on underconsumption were to influence the thoughts of John Maynard Keynes over 50 years later in his magnum opus, The General Theory. However, in his own time, Hobson was not so highly regarded. Having found himself unable to counter the arguments of a friend using orthodox theory, he turned away from it, in what was to be a damaging career move. In his own words (cited in Keynes’ The General Theory, 1936: 365-6)

The Physiology of Industry [was] published in 1889.This was the first open step in my heretical career, and I did not realise in the least its momentous consequences. For just at that time I had given up my scholastic post and was opening up a new line of work as a University Extension Lecturer in Economics and Literature. The first shock came in a refusal of the London Extension Board to allow me to offer courses in Political Economy. This was due, I learned, to the intervention of an Economic Professor who had read my book and considered it equivalent in rationality to an attempt to prove the flatness of the earth”

This situation – a promising theory which challenged the deficiencies of the orthodoxy of the time – bears a somewhat worrying resemblance to the present situation, particularly the recent cancellation of Manchester’s Bubbles, Panics and Crashes module. Differing points of view are blocked from academic positions, denied funding and effectively silenced. Of course, those doing the silencing do it in good faith, but that does not change the reality of the situation – dissent is possible, but exceedingly difficult. As a social science, we should be fostering dissent, debate and critical thinking, rather than impeding it. As pointed out in the Association of Heterodox Economists’ response to the last QAA review of the economics curriculum, almost all other social sciences view debate between different and legitimate viewpoints as central to their discipline itself.

If, like many in economics, we prefer to view our discipline as closer to the natural sciences than social sciences, there are still powerful lessons to be learned. Many of the natural sciences have a shameful history of suppressing what would later turn out to be revolutionary ideas. Alfred Wegener’s theories about plate tectonics were met with scathing criticism and hostility during his lifetime. Crick and Watson were instructed to drop their research on DNA, yet continued it on their own time – again, much like the recent Bubbles, Panics and Crashes module.  Even within the “purest” of fields, mathematics, Gauss was unwilling to publish his work on non-Euclidean geometry for fear of ridicule. This fear proved well-founded, as Lobachevsky was, indeed, to face ridicule for daring to publish work on non-Euclidean geometry.

This pattern of hostility to new thought proves that we cannot simply assume that the prevailing ideas of the time are the best. Much like advocates of Social Darwinism, advocates of Intellectual Darwinism fail to comprehend the structural constraints in a system they perceive to be perfectly competitive. The situation is more akin to a sapling trying to grow under a large tree; even if the sapling could potentially grow to be taller than the tree, it will not do so while the larger tree shades it and stunts its growth. It might, perhaps, be suitable to prune back some of the branches of the larger tree in order to see which sapling might grow tallest.

Building on this, it is difficult to see why a talented young economist who could potentially revolutionise the discipline would stay within it. Expensive degrees, vanishingly low wages for PhD tutors and few opportunities to meaningfully challenge the existing paradigm make the life of the next potential Smith, Marx, Keynes or Friedman a somewhat unappealing one, should they choose economic academia. Suffice to say, it is difficult to see why a rational utility-maximising individual would bother with trying the change economics.

Economics needs to change, and it cannot wait until the next great idea in order to do so. Without changing the discipline, we reduce the likelihood of that idea every coming into existence by driving its potential originators out of the discipline. Only by actively fostering debate and critical thinking, and going out of our way to ensure that orthodoxies can be challenged, do we ensure the survival and relevance of economics.

Whether we view economics as closer to a natural or social science, it is clear that we must learn from other disciplines. If it is to be viewed as akin to a social science, we must be mindful of the fact that paradigms in social sciences are allowed to compete and coexist, and that this complex interaction is a key part of the discipline itself. If, on the other hand, it is to be viewed as closer to a natural science, we must be mindful of the long and shameful history of silencing dissent within the natural sciences, and ensure that our paradigms can be effectively challenged.

This post also appears on the Rethinking Economics blog.


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