Is neoclassical economics a mafia?

Sort of, says Christopher Hayes in a very well-written and very interesting piece in The Nation. He says orthodox economists are a close-knit group and are quick to penalize those among them or from outside who overstep the boundaries. Here is an excerpt:

So extreme is the marginalization of heterodox economists, most people don't even know they exist. Despite the fact that as many as one in five professional economists belongs to a professional association that might be described as heterodox, the phrase "heterodox economics" has appeared exactly once in the New York Times since 1981. During that same period "intelligent design," a theory endorsed by not a single published, peer-reviewed piece of scholarship, has appeared 367 times.

It doesn't take much to call forth an impressive amount of bile from heterodox economists toward their mainstream brethren. John Tiemstra, president of the Association for Social Economics and a professor at Calvin College, summed up his feelings this way: "I go to the cocktail parties for my old schools, MIT and Oberlin, and people are all excited about Freakonomics. I kind of wince and go off to another corner or have another drink." After the EPI gathering, Peter Dorman, an economist at Evergreen State College with a gentle, bearded air, related an e-mail exchange he once had with Hal Varian, a well-respected Berkeley economist who's moderately liberal but firmly committed to the neoclassical approach. Varian wrote to Dorman that there was no point in presenting "both sides" of the debate about trade, because one side--the view that benefits from unfettered trade are absolute--was like astronomy, while any other view was like astrology. "So I told him I didn't buy the traditional trade theory," Dorman said. "'Was I an astrologer?' And he said yes!"

Hayes makes a number of good points about how ideology permeates a lot of thinking by orthodox economists. Anybody who strays from conventional wisdom is in danger of being ostracized. Some years ago, when I first presented an empirical paper questioning some of the conventional views on trade to a high profile economics conference, a member of the audience (a very prominent economist and a former co-author of mine) shocked me with the question "why are you doing this?" 

On the other hand I have never found neoclassical methodology too constraining when it comes to thinking about the real world in novel and unconventional ways. See the Carlos Diaz-Alejandro rule here. To me it represents nothing other than a methodological predilection for deriving aggregate social phenomena from individual behavior--and as such it is a very useful discipline for any social science. You say people have some preferences, they face certain constraints, take others' actions into account, and go from there. Neoclassical economics teaches you how to think, not what to think.

So it has always been a bit difficult for me to understand the critique that neoclassical economics is necessarily driven by ideology or leads to foregone conclusions. Just as it puzzles me why so many neoclassical economists are ready to jettison what they teach in the classroom and espouse simplistic rules of thumb on policy.

UPDATE: Fadi, you guess right, and you win this.

UPDATE: Peter has some very perceptive comments in the thread below. I recommend them to all.

UPDATE: Christopher Hayes responds in an e-mail:

Your point about neoclassical economics as an approach as opposed to a substantive set of principles is an important one, and gets at the crux of the issue. To what point does the toolbox determine what the carpenter fashions? If all you have is a hammer, does everything begin to look like a nail?

Comments

[Torben]

"Neoclassical economics teaches you how to think, not what to think." An excellent sentence. Just out of curiosity when I start reading other social sciences I soon come to vihement hostility to "economists." Books by political scentists about political economy spend their time discussing that the field belongs to one group and the other groups should not fight over the same field that has been already on cultivation. Alas, economics is not about issues. It is about thinking and it is a science of thinking about social behaviour. A little reading in socialogy or social anthropoplogy gives us uncessary accusation of economists being imperialists on different topics. But, the fact is economists learn how think unlink others who teach and learn what to think! Actually, that is why Karl Marx is also an Economist.

[jerry]

Neoclassical economics teaches you how to think, not what to think.

I have a background in physics, and armed with Feynman (famous for telling us that we have to bend over backwards to show all the facts, implications, and ways in which our theories may be wrong, or else we fall into the realm of cargo cult science), I would have said that physics tells us how to think and not what to think.

We start off in physics with frictionless pulleys. But we've added them back in by the third year.

I am not sure how a field that actively seeks to keep out the heterodox can have evolved around a philosophy that tells people how to think and not what to think.

I never thought less of my Berkeley MBA's econ professors than in 1999.

Between 1995 and 1997 they had faithfully taught me that man was rational. Professor Spiegel gave his famous and popular lecture where he tries to auction off a dollar bill and finds there are few to no takers proving that there is no such thing as speculation in the markets, because eventually, all short term traders know they have to sell to a long term trader.

By 1999, the dotcom bubble surrounding Berkeley had collapsed, apparently never predicted by the Berkeley MBA econ department who I presume were shocked, shocked, to discover there was speculation in the market.

In 1999, the Berkeley MBA program sent me a brochure. I should spend $2500 and learn the newest behavior psychology economics theories from the Berkeley MBA Program Economists! Man was not rational!

I needed to spend $2500 to learn that? I figured that with less than a two year shelf life in their teachings, they owed me a refund of my tuition.

Thanks for the link to the Nation article. Very interesting read this morning.

[gaddeswarup]

I am not an economist and am trying to learn from blogs what sort of basic economics I should learn to understand development, trade etc. At the moment, I find that there is some politics and it is confusing. See for example David card's interview posted by Mark Thoma . Excerpt:"I've subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole." I wonder what you think of the papers American Economists and Marion Fourcade. There is also a long defence of traditional economics by Partha Das Gupta.

[gaddeswarup]

The links did not go through. Mark Thoma's post:
http://economistsview.typepad.com/economistsview/2006/12/an_interview_wi.html
Two articles I tried to mention are:
"Academic Knowledge and Expert Authority in American Economics" by Mike Reay and "The Construction of a Global Profession: The Transnationalization of Economics" by Marion Fourcade.

[jb]

Well said, Mr Rodrik. However, neoclassical methodology often comes bundled with some so-called "standard" assumptions, making it difficult to distinguish it from the method of deducting appropriate policy from preferences. This reminds me of something Robert Solow said some time ago:

"I will just say that the macro community has perpetrated a rhetorical swindle on itself, and on its students. (Evidently some of the students realize this, but not their teachers!) If you pick up any "modern macro" paper, it tells you it will exhibit a "micro-founded" model...it is, of course, the representative-agent, infinite-horizon, intertemporal-optimization-with-conventional-constraints story...it is as if my diet consisted entirely of carrots, and, when asked why, I reply grandly that I am a vegetarian. Being a vegetarian is not excuse for choosing and, worse, promoting a ridiculously restricted menu."

[Jean-Francois]

Clearly there is a need for better definition of what is neoclassical economics if one is to conclude "Neoclassical economics teaches you how to think, not what to think."

This is especially true if you compare it to heterodox economics. The main differences are about the underlying assumptions about path dependence, perfect rationality versus bounded rationality, returns to scale, etc... If the basic assumptions of conventional economics are NOT considered to be part of neoclassical economics, what is left? And if they are part of neoclassical economics, then neoclassical economics is partly teaching you "WHAT to think". And so is heterodox economics for that matter.

I think a better statement is "Economics teaches you how to think, not what to think." The rest, neoclassical versus heterodox, is mostly a matter of different assumptions (which do not get empirically verified for the most part) and thus, beliefs rather than methodology.

[Samuelson's Angry Angel]

I think Jean-Francois nails down the issues precisely.
In the past neo-classicals fought classicals, Keynesians and others mainly over the issue of a few assumptions. They also won many key battles mainly for having been armed at the time with better technical apparatus.
But much progress has been made over many decades in building the technical apparatus to now analyze markets in the presence of asymmetric information, enforcement problems, and other frictions and experimental evidence has also now made it clear that many of those original 'neo-classical' assumptions (convex preferences, concave production functions, etc) need to be handled with extreme caution and that many important and interesting phenomena only really make sense once they are abandoned entirely. Indeed I think it is fair to say that the 'neo-classical' research project was pretty much completed with Arrow-Debreu. Almost everything interesting in Economics since then has been interesting precisely because it departs from that narrow 'neo-classical' set of assumptions (lets call it the Arrow-Debreu-Hecksher-Ohlin-Samuelson' world).

Some people have responded to this new situation by trying to re-label the neo-classical as the school that embraces 'marginalism' and mathematical rigor, as opposed to everyone else. But that surely does not wash any longer, since plenty of new-keynesians, neo-marxists and other heterodox sorts are just as well tooled-up as any self-described neo-classical.

What is true is that there is most definitely still is a 'mainstream' set of assumptions that are somewhat difficult to challenge and which translate into economists are conditioned as to 'what to think'. Try for instance to present a seminar where agents in your model have and exercise any form of market power and you will be immediately and repeatedly challenged (as the Card discussion above suggests). Economic rents are just not supposed to survive, and your audience will grill you until you surrender (if not in this seminar, in the next paper you choose to write).

But present the same seminar and begin with a likely even more improbable statement such as 'I will assume free entry, competition and zero profits in every sector' and it will probably slide by without challenge.

All that said, there has been remarkable progress in opening up economics to new assumptions and research agendas in the past few decades. Modern economics is looking at market failures, at politics, and is re-examining assumptions. It's just that you have to overcome a lot of scepticism present work that departs from 'standard' assumptions.

So Economics teaches you how to think and not what to think, but there is a strong center of gravity which is difficult to pull away from.

[Bruce Webb]

I thought the most instructive part of the article was the Card portion.

"Card, a highly esteemed economist at the University of California, Berkeley, caught flak for his heresy not on trade but on the minimum wage. In 1994 he conducted a study to see whether an increase in the minimum wage in New Jersey had the negative effect on employment that basic neoclassical theory would predict. He found it didn't. In fact, his regression analysis showed that, controlling for other factors, New Jersey gained fast-food jobs after increasing its minimum wage, compared with Pennsylvania, which hadn't raised wages. The paper attracted a tremendous amount of attention and criticism, and Card himself largely abandoned working on the minimum wage. In a 2006 interview, he explained his decision to leave the topic behind this way: "I've subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole."

What this brings to mind is not mafia style omerta as much as soviet science under Stalin. The very notion that economics as a whole has a "cause" is revealing. As is the fact that Card felt compelled to drop that area of research. Not exactly a model for the free market of ideas.

[notsneaky]

I don't know what kind of seminars Samuelson's Angry Angel goes to (or for that matter who were Card's friends that he lost) but I think the statement:

"Try for instance to present a seminar where agents in your model have and exercise any form of market power and you will be immediately and repeatedly challenged"

is just wrong. I mean, first you got yourself the whole field of IO which is all about studying market power. Second, I'm willing to bet that if I pick up the last five issues of AER there will be roughly the same amount of models with imperfect competition as those with perfect competition.

In fact looking at the cover of the Sept. 2006 issue of AER which I have with me I see maybe... 1 article that makes the assumption of perfect competition. The rest is stuff on assymetric information, bounded rationality and just plain ol' empirical work.
The neoclassical mafia is very accepting if you got a model that hangs together and is relevant. Of course you will be challanged and scrutinized (perhaps too much) but then it's not like new ideas should be accepted without question.

And usually Keynesians, at least the American ones, are lumped in under the neoclassical umbrella.

[dale]

"predilection for deriving aggregate social phenomena from individual behavior--and as such it is a very useful discipline for any social science."

but what about all the other predilections? What about deriving individual behavior from aggregate social phenonmena?
Isn't that what the Hayes article is pointing out? that economics as a Profession is not just the sum of the individuals- but that the individuals tend to be the products of some larger aggregate social phenonmena, such as norms?

[fadi]

I agree with Jean Francois, there is no big difference if someone teaches how to think or what to think; the latter results from the former.

Both heterodox and mainstream economics are driven by ideology (by the definition of ideology itself). What’s wrong about mainstream economics is that it denies any debate on high theory issues and it retires into itself. Notsneaky says that in the AER there is only one paper with perfect competition; probably the other ones just add frictions to the standard models. You would not find a paper with a real different concept of distribution (it is not just a technological issue), price rule (mark-up), time (how the long-run set up is), production function (the problems on the value of capital or the Wicksell effect, Sraffa stuff etc.). On high theory aspects we have epistemological standardization with some variants (at least in top journals and in top universities). Furthermore mainstream economic theory started to be linked to neo-liberal policy. However, while we still have a fresh debate on policy issues (trade, wages, aid…) we lost debate about core theory.

One of the most interesting points of the article is about orthodox ostracism and that heterodox ideas are coming into the mainstream, but mainstream economists aren’t. It seems to me that these ideas come only on empirical basis, from observing reality. For instance one of the main interesting arguments of Prof. Rodrik as free trade scepticism, the importance of production diversification even in an open economy, the role real exchange rate (these are renown issues to no-mainstream economics) are smartly based on observation of reality which is harder to confute than a theoretical model. However, as you said, you found yourself attacked by a colleague (do I win something if I bet on AA?), I remember that in an article (or maybe a book) you said something like “…the mainstream economists, as I am…”, it stroke me to see that you felt the necessity to affirm that you are part of this group. Also in your blog-posts when you attack free trade you feel the necessity to stress that you are not a protectionist as “they” are. Thus, there is undoubtedly ostracism among the mainstream that is reflected also by the fact that when a mainstream economist says something different (heterodox) often don’t quote the heterodox economists that in any case were a reference to his work.

Does this ostracism imply that new ideas are refused by the mainstream? I think that the answer in the article of Hayes is right. It depends on WHO propose the “new” idea. If you are officially a heterodox forget it. If you are officially a mainstream you can be welcome.

I am student that is suffering because is going to study grad economics in a big and renowned orthodox university. Wish my mixed background of heterodox and mainstream economics will allow me to survive to the standardization factory process I am going to undergo. It seems that Jerry survived, I hope I do too.

[dissent]

The description of classical economic orthodoxy and the social pressures and presumptions around that orthodoxy are very reminiscent of orthodox Freudian analysis - also a discipline with a strong desire for the authority of science. Freudian analysts enforce their discipline very effectively but their numbers are shrinking, because their model is limited and inflexible.

It will be interesting to see if economic blogging has any effect on the enforcement of classical orthodoxy. I think there is something absurd about these machinations, and intellectually trivializing. It can't be good for the profession. The more this sort of thing is exposed via blogs to thousands in the light of day the harder it will be for it to continue.

[Samuelson's Angry Angel]

To Notsqueaky: Certainly, as I also pointed out, most interesting articles these days deviate significantly from the standard 'neo-classical' assumptions of yesteryear. I'm familiar with the modern IO literature which of course analyzes market power, especially in bilateral and partial equilibrium settings.

But what explains the at times visceral reaction to Card and Krueger's minimum wage work? Don't you think the nub of the issue has something to do with the fact that to accept their empirical result one would have to allow for the possibility that in equilibrium individual firms exercised oligopsony power in a labor market very close to home?

We are trained to pounce on such claims. It's just not supposed to be: competition should have been the 'corrosive acid' to have make such a possibility go away.

Assume perfect competition (monopolistic competition is safe as well) and you're always much better off with referees and seminar audiences even if your gut tells you differently. And not just because the math is much easier. It's that to explain the persistence of economic rents one has to appeal to barriers to entry, 'power' and other 'institutions.'

I was trying to draw attention to which ideas, as you put it, got "scrutinized too much" compared to others. It seems palpable to me that certain assumed market structures will almost always be more readily accepted by a 'mainstream audience' while others will always be scrutinized.
Is there any other more salient dimension that you would highlight that partitions economic ideas more effectively between 'scrutinize too much' and 'not enough?'
It's not exactly a conspiracy or necessarily an ideology but it does seem a 'group think' phenomenon that affects incentives to research and publish in certain areas.

[Justin Rietz]

Interesting article. As noted in other comments, one of the major problems with the neoclassical school is that it adheres to assumptions that don't reflect reality. Hence, while many neoclassical theories may more or less hold true in the real world, it is easy to refute the theory behind them. Hence, members of the neoclassical school have to do a little hand waiving when their assumptions are questioned, and this comes off as blind faith (which, to a certain extent, it may well be).

I'll go a step further and say that the reliance upon econometrics has gone too far in most schools of economics. The ability to differentiate between cause and effect (whether direct or indirect)is always an issue, and ultimately can only be determined by an understanding of human nature and the study of history. In addition, strict empirical analysis has another major flaw - the ability to include all relevant data (or even know what should be included) and the ability to capture non-quantitative factors.

[Carlos]

Wouldn't be more accurate to say:

"Neoclassical economics teaches you A WAY to think, not what to think, NEITHER HOW TO THINK."

am I the only one on this one?

[notsneaky]

"Notsneaky says that in the AER there is only one paper with perfect competition; probably the other ones just add frictions to the standard models. "

What's wrong with that? But anyway, that's not really the case.
For the list of articles in that particular issue and their abstracts you can look here:
http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=4&issue_date=September%202006
(need AEA membership for full access)

Looking at them quickly (no I haven't read them all) I get the following break down (after the dash is the "heterodox" idea that the paper deals with):

Skipping the intro Shelling paper.
1. Empirical - Imperfect information.
2. Empirical - labor market frictions.
3. Empirical - agent heterogeneity.
4. Empirical - pretty standard I guess, rational addiction and all that.
5. Experimental/behavioral - non-rationality, learning, expectations.
6. Experimental/behavioral - non-rationality
7. Theoretical/behavioral - non-rationality
8. Theoretical - imperfect competition, social preferences.
9. Theoretical - standard, but not really "neoclassical"
10. Theoretical/Political Economy - see previous
11. Finance/growth - standard
12. Monetary/theoretical - this is the poster boy for "mainstream" or "neoclassical" economics. I mean, it's Tom Sargent, come on.
13. Empirical/Development - role of institutions
14. IO/Empirical - Imperfect information

This particular issue may not be representative because there seem to be few macro articles.

I don't know what school you're going to but you'll be fine. "heterodox" ideas are fine as long as they work and have merit. May want to be somewhat picky with your choice of advisor though.

[Peter]

The question of what sustains the reign of orthodoxy in economics continues to get more interesting. We used to be able to say it was based on intellectual differences: there was a neoclassical school that had one view of how economics should be done, and there were various dissenting schools. The purpose of institutional exclusion was to guarantee that the "right" kind of economics was taught and published.

Now there is lots of heterodoxy being produced within the inner core of what used to be the neoclassical world. Speaking as a heterodox economist, virtually all the ideas and research findings I use in my own work come from the mainstream. So how do we understand the world pictured in the Nation article?

Here are my current thoughts.

1. There is enormous institutional inertia, having to do with key departments (and key people in them), major journals, NBER and the funding sources (like NSF). The median worldview of those at the center of these institutions is more conservative (in methodological terms) than the profession as a whole. I don't know if this is true -- I'm just speculating.

2. Departures from orthodoxy are acceptable as "wrinkles"; it is still frowned upon to gather them together into a genuinely alternative framework. So we can have behavioral departures, or nonconvex environmental damage functions, or rents subjected to bargaining, or speculative dynamics in asset markets, but each of these is supposed to be embedded in a model that is otherwise "clean". After all, if you have lots of these crazy things working at once, how can you isolate each one's individual effect, as if the specific effect of a departure in an otherwise neoclassical world is what economists ought to study.

3. The definition of what constitutes a publishable research paper is derived from an orthodox conception of the discipline. A proper paper should be based on a model that takes 95% of its content from orthodoxy and devotes strenuous scholarly effort to justifying the 5% deviation. (This is the lit review section.) Then the model, then the empirics. For me, one of the most interesting aspects of the formula has to do with the empirical strategy. It is enough to demonstrate that the evidence "is consistent with" the model you have constructed. Rarely is any attention given to the question, to what extent does my empirical strategy differentiate between alternative explanations, particularly those that might entail greater departures from orthodoxy? The official answer is a kind of vulgar Popper as channeled by Friedman: real science means looking for disconfirmation. It is enough to look for it and fail to find it. As a philosophy of science, this position is now quite indefensible, but I think there is actually a different motivation. *Because the model is almost entirely conventional, and therefore beyond reproach, only the weak test of non-disconfirmation is required.* That is, most of the model is self-justifying. Only the departure needs empirical support. If it survives testing -- in fact if it enables the full model, most of which we assume is correct, to survive testing -- then we really have something. In other words, I am making the case that the sort of article likely to be accepted by reviewers at major journals, even in its empirical aspects, reflects point (2) above.

Because publishing in the principal journals is the currency of the discipline, I would give the greatest importance to (3).

By the way, the level of flexibility shown by orthodoxy varies wrt the propositions being questioned. Rationality is now almost more difficult to defend than attack, while the basic structure of trade theory is held in an iron grip. The generalizations I and others throw around on this topic don't hold up well in a finer-grained analysis.

[Barkley Rosser]

One issue that is very much going on with this whole discussion is the current disjuncture between micro and macro. So, as notsneaky notes, much of the current lit in micro in leading journals does not perfectly conform to the fairly recent neoclassical orthodoxy. This has been in the process of breaking down, although what will replace it has not really become clear yet.

OTOH, in macro we seem to have had the emergence of a sort of neo-orthodoxy in the form of the dynamic stochastic general equilibrium models. They claim to synthesize New Keynesianism with their assumptions of sticky wages and prices with New Classicism, with their exogenous shocks driving dynamics for assumed representative agents with rational expectations, all in intertemporal general equilibrium.

The problem is that this latter stuff is simply become less and less credible as the new developments in micro proceed, that micro foundation is just disappearing or becoming absurd or irrelevant. I think this is the source of the hostility towards Akerlof's presidential address that Hayes found at the meetings; Akerlof was pointing out what one gets if one allows for some pretty reasonable micro behavioral realities, and it is not this DSGE.

[fadi]

Notsneaky I guess that the second point made by Peter can give you an answer.

In the articles you mention is there something really heterodox in their principles? Are capital and labour treated as symmetric inputs or not? The short term closure is on the labour or on the commodity market? Are there any distributional issues that don’t derive from productivity? Does someone refer to the problem of measuring the value of capital in the standard production functions? Is time considered as a continuum of interchangeable events or is the long run a concatenation of irreversible short time equilibriums? As I said, I think that on core theory issues there is no longer debate.

Carlos it’s fine, “neoclassical economics teaches you A WAY to think”.

The problem is that in the top journals it is the UNIQUE way of thinking accepted and in most universities and colleges it is the UNIQUE way to think that is thought. One of the best courses I got was “neoclassicism vs. neostructuralism”, “alternative theories of economic growth”, and seminar classes on alternative international finance, and heterodox micro. I did take also the standard classes on micro macro etc. I found those classes intellectually very stimulant and it was really useful to understand better the mechanisms of standard models. I think that it’s a lost for all of us that different ways to think about economics aren’t generally thought.

Professor Rodrik, thank you for the prize! Actually I am your admirer, if I’ll be blamed for some intervention in class I am going to show it!

[Bruce Webb]

I look down that list of articles notsqueaky supplied and do see a lot of talk about asymmetric information but not much about asymmetric power.

Is progressive taxation redistribution? Well of course. Is it therefore unfair? Only if you start from the assumption that the market correctly allocated the gains in the first place.

Which may be at the root of Card's ostracism, if you frame the debate as "Markets vs Marxism" then the visceral reaction becomes understandable and some of Caplan's frankly anti-democratic stance becomes explainable. Because once you concede that a minority of the population has pricing and market power over the majority you risk political decisions on economic policy that start from equity, the enlightened self-interest of that majority ruling over the minority's shaky claim to rationality.

After all some people take the title of Hayek's book quite literally 'Road to Serfdom' If some version of this Manichaeism is at the center of Chicago style economics, and I suggest it is, then any defense of the minimum wage and any opposition to free trade makes you a traitor to Freedom.

From the review at Mises "What F.A. Hayek saw, and what most all his contemporaries missed, was that every step away from the free market and toward government planning represented a compromise of human freedom generally and a step toward a form of dictatorship--and this is true in all times and places. He demonstrated this against every claim that government control was really only a means of increasing social well-being. Hayek said that government planning would make society less liveable, more brutal, more despotic. Socialism in all its forms is contrary to freedom."

Not a lot of middle ground and negotiated solutions here. Nope one step and BAM on the Road to Serfdom.

[KY Choong]

I did a combined law/economics undergraduate program in Australia (many years ago). Whereas in an exam, my law lecturers would give me points for "spotting issues", I quickly learnt that the best way to pass economics exams is to regurgitate the models presented in class. This is not to say that there is no orthodoxy in law. (Conservative law schools stayed well away from critical legal theory.)

Orthodoxy is probably unavoidable in any discipline. After all, we don't want to keep reinventing the wheel. Economic orthodoxy does seem to change over time, but perhaps not as fast as some of us would like.

Keynes had this wonderful observation: “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

Economists (and philosophers) are themselves slaves to some higher set of ideas. From time to time, a great man/woman comes along to free us from the grip of those ideas. However, it is often difficult to recognise the true prophets (and distinguish them from the false prophets). Unfortunately we often end up persecuting our prophets. (Consider Jesus.)

[green apron monkey]

Wow. An academic discipline whose receptiveness to new ideas is influenced by who those ideas come from.

I know I'm shocked.

[Steve Sailer]

What strikes me is economists' excess of confidence relative to their shortage of factual knowledge. Economics seems to attract people who are good at logic, but bad at remembering facts that don't fit their logical models.

[Anarcho]

Funny that people still take Hayek's arguments seriously.

The 1960s and 1970s were hardly examples of a road to serfdom -- the ruling elites were bothered about too much freedom and democracy as previously marginalised sections of the population started to assert themselves against authority. In the workplace, discipline was breaking down as workers did not fear the sack due to unemployment (wildcat strikes hardly suggest a serf-like mentality).

The 1980s saw right-wing governments uses mass unemployment to get working class people servile again (under the codeword "fighting inflation). Since then, the road to private serfdom has been the norm.

And I would be wrong not to mention that the only real example of serfdom being imposed in the 1970s was in Chile, where the von Hayek and Friedman influenced regime forced workers to be free by means of state terror.

In terms of the 20th century, state intervention did not lead to dictatorship. Rather dictatorship lead to state planning. Of course, ignoring history does allow you to attack the welfare state, which is why Hayek's theory is still popular in certain circles.

[Robert]

Are there other equally valid ways of "how to think" about economics? What happens when a group of economists start, perhaps, developing a consciously heterodox way? At Notre Dame, they get denied grad students. Harvard has its own history of purges.

Perhaps Rodrik is sufficiently heterodox that he has been convinced that a monopoly is a good thing, at least for economists.

[Robert]

Should be:

Perhaps Rodrik is sufficiently heterodox that he has been convinced by Schumpeter that a monopoly is a good thing, at least for economists.

[Barkley Rosser]

anarcho,

Well, most observers would say that the socialist calculation debate was one by Mises and Hayek, not Barone and Lange. Yes, you are right that dictatorship led to command state planning, as opposed to indicative state planning, which has existed in France, Japan, India, and some other more or less democratic societies. But, we have never seen a permanent command planned economy that was in a democratic society, never.

Regarding the welfare state, those who identify Hayek's Road to Serfdom with criticism of the welfare state have not read the book. Hayek came out for national health insurance in Road to Serfdom, although he did criticize certain kinds of welfare programs.

[Justin Delacour]

"Economists (and philosophers) are themselves slaves to some higher set of ideas. From time to time, a great man/woman comes along to free us from the grip of those ideas. However, it is often difficult to recognise the true prophets (and distinguish them from the false prophets). Unfortunately we often end up persecuting our prophets. (Consider Jesus.)"

Keynes' ideas --which weren't entirely original--became prominent in the '30s because they constituted a coherent response to economic crisis and because they fit nicely with the increasing power of organized labor; there was a conjunctural need for an economic model that would engender class compromise. That's really what explains the rise of Keynesianism in the '30s.

[DRR]

Barkley,

You would have to say that Hayek's hypothesis in Road to Serfdom was at some measure, a predictive failure no? Many of the policies pursued by the european states at the time he was handwringing over may have led to stagnant or sub-optimal economies, but England & Sweden didn't exactly go totalitarian did they?

Admittedly, he was referring to actual existing socialism rather than welfare state social democracy, and stated as much in the book, and many of the more egregrious command planning ideas with some measure of support were eventually discarded because even the Social Democrats knew they were no good. But although he differentiates between command states & market oriented tax & transfer states (ala Sweden) he still believed Sweden's continued pursuit of this model would eventually lead to ghastly outcomes we just don't see in the market capitalist countries in Northern Europe today.

Of course he won the socialist calculation debate, and the book provides as concise a treatment on the futility of command economics I can think of, but I think as things played out in the real world, many of the socialist-ish parties & individuals either learned this or would have learned it on their own.

Still a great book though, & even a cursory reading of it shows that Hayek is hardly the laissez-faire boogeyman some people make him out to be.

[Joe S.]

"Neoclassical economics teaches you how to think, not what to think."

Yes, if you have been taught neoclassical economics. Most folk are not this lucky. Some people are untaught. Others--the more powerful group-- are half-taught neoclassical economics: a few half-forgotten undergrad semesters. And neoclassical economics, when half-taught, definitely teaches you what to think. George Bush was half-taught.

It is kind of funny. Professional economists obsess about giving aid and comfort to uneducated hoi polloi on free trade. But they don't worry about the half-educated yobboes that they created, when said yobboes bloviate on taxes, regulation, etc. Well, to each Frankenstein his own monster, my mother used to say.

[Barkley Rosser]

DRR.

Actually, Hayek said very little about Sweden in any of his writings, although when he did he was not all that favorable to it. But I am not aware of him ever making the sort of forecast about it you attribute to him.

The context of Road to Serfdom was WW II, when central planning was in fact being used even in the mostly free market capitalist countries. He saw advocacy of this in the Labor Party platform, and he accurately forecast that it would win the first postwar election. He failed to forecast that the Labor Party would not implement central planning, much more that of the command variety.

BTW, the model that he had in his mind was Germany, which did slide from a social democratic government to a command capitalist one under the Nazis. There was also the unpleasant spectacle in Germany of many formerly socialist, even Marxist, economists who went over to at least German nationalism (mostly in WW I) and some all the way to Naziism. Sombart was a poster boy for this.

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