On heterodox Economics and Innovation
By Arnold Kling
Chris Hayes kicks things off by boiling down his feature Nation piece into two main points made by heterodox economists: (1) the sociology of the profession creates constraints on what is and isn’t considered legitimate inquiry and (2) the theoretical framework of neoclassical economics has become largely identified with the definition of economics itself, like Rollerblades or Kleenex. Each marginalizes the work of heterodox economists.
…Tyler Cowen is pretty thoroughly unconvinced. Hayes’ article, he argues, lacks a discussion of any valid heterodox propositions that have been neglected. “Heterodox economics, as it currently stands, simply is not up to replacing the neoclassical paradigm or even living as a significant supplement. …Most of its best elements…have been absorbed by the mainstream, as Hayes himself admits and indeed emphasizes.” Cowen also notes that there are more Democratic than Republican economists.
Arguably, I don’t have a dog in this fight. The mainstreamers are too mathematical for my taste and too excited about finding theoretical instances of market failure that I find uninteresting in a dynamic enviroment–by the time “policymakers” fix the market failure, the market has moved on to something else.
The heterodoxers are to the left of the mainstreamers. They don’t use as much math, and they find even more reasons to doubt that markets work.
The kind of economics that I like best is probably exemplified by Kevin Lang’s book, Poverty and Discrimination. He tries to get his arms around a complex problem, using data without torturing it, and using previous research without laying on the citations just to try to kiss up to all the luminaries in the field. I actually think that my book on health care was written in the same spirit, if not at the same level (Kevin sets a high bar).
I’ve said before that the economics that I think gets no love is that of Douglass North, notwithstanding his Nobel Prize. One of the most interesting questions in economics is why we are so wealthy today compared to our ancestors of 200 years ago and our contemporaries in underdeveloped countries. In fact, Robert Lucas famously said that once one starts thinking about this issue, it is hard to think about anything else. And the way I see it, Douglass North has by far the most well-developed and persuasive answer.
In the late 1930’s, an important swath of the economics profession dropped what they were doing and turned to grappling with Keynes’ General Theory. The way I see it, that is what should be happening with Douglass North. But it isn’t. Not even close.
In my view, the reason that mainstream economics is so difficult to dislodge is the sheer inertia built into the system. In this post, I pointed out how the highly unequal distribution of quality of graduate students results in tight in-breeding. The result is a profession that is very slow to change.
Tyler Cowen’s view is that the best ideas win out, regardless. Maybe that’s true in the very long run. But I think that the process is too sluggish.
I believe that one of the biggest lessons of economics is the value of trial-and-error learning via entrepreneurial activity. That, incidentally, is one of the important ideas that is, for all practical purposes, outside of mainstream economics.
Economics as a discipline does not take much advantage of trial-and-error learning. We are like the French labor market–we can’t “fire” ideas that have low productivity (Euler-equation macroeconomics, mathematical general equilibrium theory, regressions with lots of right-hand side variables), and we don’t “hire” nearly enough new ideas on a trial basis.
Rather than operating in an entrepreneurial fashion, the institutional arrangements in academic economics lead it to behave more like a giant corporation, where everything requires buy-in from the top executives–in this case, journal editors and other members of the professional elite. In the corporate world, a lowly employee with a good idea can at least leave a company and start his or her own business. In economics, the best you can do is blog.