Economists, one might assume, have something useful to say about the current problems afflicting the world economy. Yet, since the crash of 2008 there has been a considerable amount of reflection in parts of the discipline about its failure to anticipate the crash and its failure to offer effective prescriptions for getting the economy out of the hole it’s in. Of course, elsewhere in the discipline it is business as usual – with a range of prescriptions for privatisation and deregulation at the microlevel and fiscal restraint at the macrolevel.
This week’s Nobel announcements are salutary in that respect. Olaf Storbeck described them as a prize for the Ancien Régime. He was criticised for doing so, but his intervention might be better seen as simply the most recent in a chorus of disapproval directed at an approach to macroeconomics that came to dominate the field. Thomas Sargent, who shared this year’s prize, did as much as anyone to propel rational expectations and new classical macroeconomic models to the forefront of the field, and his macroeconometric work has been hugely influential. That is why he was awarded the Nobel prize. But that can be separated from the question of whether, looked at from a broader perspective, such models actually shed much light on the way the economy operates.
Some see the solution to the problems afflicting macroeconomics as the need to search for new ideas. Paul Krugman has recently argued, on the contrary, that the problem is that the discipline has amnesia.
The history of economic thought is littered with potentially useful ideas that have been rejected or neglected in favour of new classical or new Keynesian models of complete markets. The problem is that most economists do not get a chance to study these older ideas, rather their education focuses upon the current ‘state of the art’. When quite a number of high profile economists have argued that much macroeconomic theorising since the 1970s has been travelling further and further up a cul-de-sac, this is more than simply unfortunate.
In his presidential address to the Eastern Economics Association* Paul Krugman frames the point vividly:
… in responding to the crisis, the profession presented a sorry spectacle of unnecessary ignorance that didn’t even recognize itself as ignorance, of bitter debate over issues that were resolved many decades earlier. And all of this, of course, made the profession mostly useless at a time when it could and should have been of great service. Put it this way: We would have responded better to this crisis if macroeconomics had been frozen at the level of knowledge it had in 1948, when Paul Samuelson published the first edition of his famous textbook.
This neglect among economists of their intellectual antecedents is not a new phenomenon. It is, however, getting worse. Fewer and fewer economics departments offer courses in the history of economic thought. This means that ideas with great potential lie unexplored. It also means the discipline condemns itself to reinventing the wheel. And it deprives students of an enriching experience. One of the most memorable parts of my own economics education was wading through Roger Backhouse’s (1985) A history of modern economic analysis and marvelling at the twists and turns of the story as successive generations of economists tried to make sense of their subject of study. It also gave a clear sense that the process by which economic knowledge moves forward is not unambiguously a process by which ‘better’ theory replaces ‘worse’ theory. There are other things going on.
The neglect of intellectual history sits alongside an intolerance of heterodoxy in many economic departments. People like Krugman and Stiglitz, although Nobel laureates themselves, are routinely denigrated and derided by economists working within the mainstream. No doubt in part that is because of their media profile – after all you can’t be a ‘serious’ scholar and try to engage the public as well. But it is also because they adhere to a broadly Keynesian perspective (for the reason, as Krugman pointed out succinctly the other day on his blog, that it does a better job of explaining what’s going on). It is interesting that the ideas of Hyman Minsky, a post-Keynesian economist, have attracted increasing media attention in recent years as people cast around for ways of explaining the financial crisis. Yet, those ideas have had very limited traction in most economics departments.
The neglect of intellectual history and the intolerance of heterodoxy are important because they obviate the need for broad reflection. The evolution of economic thought and the cleavages between contemporary schools of thought rest on questions of ontology and epistemology. But economists tend to spend most of their time on methodology. Fundamental questions about the nature of the economy divide approaches – questions about the nature and implications of time, knowledge, learning, uncertainty, expectations, for example. Or questions about market structure, market adjustment, frictions and transaction costs. Or questions about the nature of economic relationships – their direction, separability, stability, linearity. Different approaches to ‘doing economics’ often flow from profound ontological differences. Austrian economics, for example, is not more discursive and less mathematically dense simply because Austrian economists don’t like maths. It is because their understanding of the economy means the application of the full panoply of technical economic tools is viewed as pointless. The economy, from this perspective, just isn’t amenable to that type of analysis. But many economists, well versed in mainstream approaches but little else, would have had no opportunity to reflect upon such issues in anything except the narrowest terms. And it is unlikely that any such engagement is framed explicitly as concerning the ontology of the discipline.
The neglect of intellectual history and the intolerance of heterodoxy are of a piece. They both flow from a process through which a particular perspective and a particular set of values – the so-called values of the maths department – have come to capture the commanding heights of the discipline and to marginalise or silence alternative perspectives. Progress in economic thought has come to be defined in rather narrow terms, and relevance to understanding pressing applied problems does not feature all that strongly. Many within the discipline have been conscious for at least the last two decades that this has been happening. Many have bemoaned it. Movements like post-autistic economics (now, real world economics) have arisen in opposition to it. But they have yet to make serious inroads into thought leadership within the discipline.
How to effect a change of culture within the discipline is a political or sociological question, rather than a purely economic one. Although no doubt focusing upon incentives would be fruitful. Krugman concludes his speech on a frank, if slightly defeatist, note which captures the essence of the problem:
What we really need is a change in the destructive social dynamics that brought us to this point. And I wish I knew how to do that. But my problem is obvious: I’m an economist, and it seems that we need some kind of sociologist to solve our profession’s problems.
This captures the scale of the challenge. But before successful change can occur there needs to be broad-based acceptance that it is needed – as those who study organisational change will tell you. I’m not sure we’re quite there yet.
* Krugman, P. (2011) The profession and the crisis, Eastern Economic Journal, vol 37, 307-312.