The reopening of the economic mind?

Where is the revolutionary thinking in economics? That was one of the first questions posed by a speaker at the Festival of Economics held last weekend in a very damp Bristol. It is also one of the most pressing and the most intriguing.

I was among the hardy souls who bought a season ticket for the event and got a feel for the range of material covered. But rather than review the whole event I want to consider the issue of revolutionary thinking – posed as part of the session on The future of capitalism – in the light of the discussion in the last session on Economics in crisis.

The question about revolutionary thinking was part of a discussion reflecting upon the way in which paradigm shifts in economic thinking are associated with previous economic crises. Most notably, the rise of Keynesianism occurred in the aftermath of the Great Crash of the 1920s and the adoption of monetarism – and neoliberalism more broadly – took place after the apparent breakdown of Keynesianism and the appearance of stagflation in the 1970s. Where is the new thinking – the reconceptualisation of the macroeconomy and the role of the state – to go alongside the current crisis? [Read more...]

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The maths question in economics

Over at Noahpinion last week a post on the role of maths in economics generated plenty of comment.* This followed the award of the “Nobel Prize” in Economics to Shapley and Roth for work that is, in almost anyone’s book, highly mathematical. Noah Smith identified a number of reasons for using maths in economic analysis, each of which could be a good or a bad reason, depending on circumstance. His broad conclusion is that:

Math is not always the most appropriate tool in economics. But the more real successes economics achieves, the more good math it will use.

He argued that there are times when it would be appropriate to make less use of maths in economics. The argument here is summarised as:

The only time not to use math in econ is when we haven’t found the right math yet.

And in practice, I find that a few of the people calling for less math in economics … don’t seem to have any such goal in mind. There are a few people out there who would rather econ stay imprecise forever – so that nobody will ever be proved wrong or right, and we can let a million flowers bloom, and everyone’s scholarly opinion about the economy will be equally valid.

This is a debate that I spent some time thinking about a while ago. I have written a little about it in relation to the specific applied field of housing economics. It was interesting to revisit the topic for the first time in a while.

It strikes me, though, that this brief flurry of interest in the maths question is framing the discussion a bit too narrowly and missing some of the significant points. [Read more...]

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Economists? That’ll be your problem right there

Last Wednesday Suzanne Moore posted a Guardian comment piece entitled Why do we take economists so seriously? which takes a rather scatter-gun approach to some familiar themes. The argument, in outline, is that the economy is in a mess and this is primarily because we have been hoodwinked by orthodox economists. These economists produce inadequate theories unsuited to understanding society. But we nonetheless invest them with too much power over it, and us. The range of opinions on how to resolve the current crisis is too narrow and largely reflects the interests of those who support the current social order. New voices are needed. As Moore argues:

we are indeed in reduced circumstances when debate is reduced to bankers arguing with economists. This clash of ideologies is not really left versus right. It is more akin to fundamentalists talking to agnostics …

This is what you get from this dictatorship of economists, and it should be overthrown. It is wrong and keeps being wrong. The choices to be made now are moral, not economic ones. Only an idiot or an economist would think otherwise.

For a piece in which the author professes to be largely ignorant of the matters about which she is writing, this is quite a brave stance. Predictably it has generated a response. [Read more...]

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On economic amnesia

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. [Read more...]

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