The entire foundation of neo-liberal economics (the “mainstream”), the golden nirvana of the Tea Party Libertarian Free Marketeers, is a house built upon the sand (pdf). So-called free markets only work when you make some fundamental, and very foolish assumptions about how humans behave. And you know what you get when you assume…
Mainstream economists’ fear and loathing of government regulation are based on two cornerstone assumptions: that people are always rational and that people always act in their own interests. Therefore, any marketplace is a self-correcting entity, made up of informed sellers and buyers whose competition and self-interest enforce fairness and create total efficiency. These assumptions also allow human beings to be easily modeled mathematically.
Heterodox economists think these assumptions and models are hooey. To them, humans are social creatures who often fail at self-promotion because of things like stupidity, culture and niceness. Markets are therefore fundamentally destabilizing, inefficiently lurching toward monopoly, bubble or crash, desperate for the mitigating force of government or other institutions. With their focus on poverty and acknowledgment of class, the heterodox are the intellectual grandchildren of Marx. Perhaps that’s why the family tree includes so many goatees.
Even with the ghost of old Karl lingering, it seems obvious which worldview is more accurate: How many perfectly selfish, rational people do you know who don’t work at an investment bank?
It amazes me that, as a discipline, economics evolved as such a naive social science. It substituted mathematics for reason, formulas for observations, models for history.
There’s an old joke that fits right in here:
Q: How many economists does it take to change a lightbulb?
A: Two. One to assume a ladder and one to change the bulb.
Economists could learn a lot from anthropology and sociology, not to mention history. Look at mainstream economics and the treatment of fraud, for instance.
To say fraud is a blind spot within mainstream economics would be an understatement. Black had explained earlier: Fraud is not a rational action because getting caught is too large a price to pay for the gains. Even worse, a CEO who trashes his own financial institution, like Keating (or perhaps Jamie Dimon or Ken Lewis), actively distorts the metrics of his institution’s success in order to receive personal bonuses. Mainstream economists don’t study this kind offraud because it is hard to model and shatters the illusion of market correction. In the 200-page schedule that listed every panel and event at the conference, the word fraud was mentioned only once — when Black was speaking. After the Lehman crash, which was driven by perverse incentives within banks, that doesn’t seem like blindness. That seems like willful exclusion.
Give me the heterodox economists every time.
Thank you for this post, Phil. Looking forward to many more on this topic! With any luck Heterodox Economics won’t sink in academic quicksand like “The Greek Dark Ages” perpetuated by chronological orthodoxy but instead move at a more fleet and fluid pace like Plate Tectonics in the late 60s or Punctuated Equilibrium in the early 70s. My fear, however, is that unlike King’s lists, continental drift, and Darwinian gradualism, which are confined academic entrenchments, the academic discipline of Economics is shaped by the financial industry and the political system in a stymied, dysfunctional feedback loop.
I’m split over my own take on how a breakout of heterodoxy might be effected. On the one hand, there is the inevitable generational rollover in academic departments. Generation Y is pretty big and probably more open to heterodoxy. But, I don’t know if Economics is a popular major for this demographic. And, given the vested interest in suppressing unorthodox economic thinking and the success of disinformation in America today I tend toward insisting upon Economic Heterodoxy among our elected officials. Certainly, there is urgency to consider. Must we wait for another generational cycle to modify the dominant paradigm? I would say no and therefore opt for political pressure (how that is best applied, of course, is another matter altogether). On that note, tee hee hee… I finally received my GOTV call from the Obama Campaign. It received an earful (a kind and respectful earful) of Heterodox Economics. Judging by the reaction on the other end of the line, my opinion came as quite the surprise, and I shouldn’t think it made much of an impact. Yet, now they’ve got something more to analyze and (no pun intended) model!
Yes, I too get all my information about orthodox economic thought from a Playboy article and also consider myself well-informed!
Actually, Question Mark, I didn’t get my information about Heterodoxy from this article. I read primary sources on the topic – Heterodox Economists themselves and their critics. Was I hesitant about a Playboy article? Yes. Did I find anything in dramatic contradiction to what I already know about the shifting landscape of international economic thought? No. I am forced to concede that the angle and breadth of this article was surprisingly sophisticated. Do I have some minor criticisms here or there of how Heterodoxy was described in this article? Yes. But overall, I’d deem it extremely positive that Heterodoxy is entering common discourse.
I reiterate: Thank you for this post, Phil. Looking forward to many more on this topic!
Nice red herring you got there. Or, as I’ve said before,
Come back when you have something worthwhile to share.