One economics or two?

I am a strong believer in One Economics (but Many Recipes), because conventional economics, as I have argued here many times, provides powerful analytical and quantitative tools for the analysis of social reality.  Every assertion about the world is based on some theory and underlying model. It is far better to make these explicit. Mathematics and statistics are indispensable tools in this.

This is of course not a widely shared view, especially among "heterodox" economists.  Erik Reinert, who has written an interesting book called How Rich Countries Got Rich ... and Why Poor Countries Stay Poor has a web site that develops what he calls the "other canon." A table in the book and on the web site lists the differences between mainstream economics and the "other canon". Here it is:

I don't know. I understand where Reinert and his collaborators are coming from, but I cannot agree with their characterization of the conventional approach. Is mainstream economics really stuck in the perfect information/perfect foresight mold? Ignores man's wit and will?  It doesn't handle novelty endogenously? Cannot handle dynamics? And this is just the beginning. Sorry, but this is not the economics I recognize or think that I practice.

Some of the items on the list seem more fitting.  For example, it is correct that mainstream economics has a penchant for abstraction.  I don't think this is a bad thing.  Simplifying things is a way of understanding them. Every theory is a simplification. What is often billed as a "theory that is meant to capture complex reality" is often not a theory at all, but just description.  

Comments

[PrestoPundit]

Is it so hard to understand that situational learning in the context of changing relative prices is the linch-pin causal element in the explanation of economic order across time -- and that this causal element _cannot- be captured in mathematics or statistics?

Is it so hard to understand that people get blinded to real phenomena by their formalisms and statistics -- and they begin to mistake their "models" and socially constructed statistics for real world phenomena which their "models" could in no way represent?

You are a fool if you don't recognize that this happens in economics all of the time.

Let's take capital theory for example -- or the "representative agent" model, or "labor" as used by Marx and the classical economics. The examples are endless.

And I won't even get started with econometrics ..

[PrestoPundit]

Is it so hard to understand that situational learning in the context of changing relative prices is the linch-pin causal element in the explanation of economic order across time -- and that this causal element _cannot- be captured in mathematics or statistics?

Is it so hard to understand that people get blinded to real phenomena by their formalisms and statistics -- and they begin to mistake their "models" and socially constructed statistics for real world phenomena which their "models" could in no way represent?

You are a fool if you don't recognize that this happens in economics all of the time.

Let's take capital theory for example -- or the "representative agent" model, or "labor" as used by Marx and the classical economics. The examples are endless.

And I won't even get started with econometrics ..

[Joe S.]

Looking at the list, Reinert does not claim that mainstream economics: is "really stuck in the perfect information/perfect foresight mold" or "Ignores man's wit and will" or "doesn't handle novelty endogenously" or
"cannot handle dynamics"

Instead I think that Reinert claims that mainstream economics STARTS from these places, and THEN adds dynamics or imperfect foresight or entrepreneurial energy.

The interesting question is not one of starting points, but one of path-dependence. Is mainstream economics trapped by its starting premises? Or can it get to the same places as heterodoxy, perhaps more carefully?

I don't know the answer to this. Muslims claim that one cannot translate the Koran; too much is lost when one departs from the Arabic. Can a mainstreamer sing the "Internationale" in neoclassical micro? Or is the result some kind of stilted literal translation that conceals too much?

[df]

This is heterodox economists' favorite trick: attack a straw man that is far removed from modern neoclassical economics.

[Aqdas Afzal (Pakistan)]

I think that "standard canon" is critical for understanding certain key phenomena: how do firms -- that exist to enhance their bottom line -- respond to a changing incentives in the socio-economic context. Here, I think, we can see that certain postulates of the standard canon hold true.

Another way in which standard canon premises can help in better understanding social phenomena is when democratic politics is analysed through the lenses of the standard canon (Schumpeter). We can treat winning the next elections, or rolling out pork barrel, as being akin to a firm's enhancing its bottom line.

However, the problem arises when other disciplines, impressed by the elegance and neat logic, try to incorporate models from the standard canon in order to theorize about social phenomena.

For instance, models from the standard canon do not provide generizable conclusions about phenomena like social movements (Islamist movements) or altruistic behavior.

In sum, I am positing that the standard canon and the other canon are positioned to grapple with different social phenomena.

[Bruce Wilder]

I have mixed feelings, as well, about these contrasting lists. It is not a dichotomy, which, in the end, I feel, is very enlightening.

As in the dichotomy you offered a while back, between first-best and second-best economic reasoning styles, the core issue is epistemological: getting theory right with reality and empirical research: un-confusing concepts and generalization, and getting knowledge of what is and how things work, an honored place alongside the logic of what might be, and how things might work.

Economics seems to have a lot of trouble letting empirical research feedback into the analytic framework taught in Econ 101. There's too much confusion between theory and descriptive cataloguing, between concepts and generalizations.

I am not sure these contrasting lists help, though. It seems more like slander of the in-group by a self-satisfied out-group.

[Rich C]

Bruce,

I don't think its a self-satisfied out-group, but an angry one that believes (justifiably) that its work has either been belittled and ignored or appropriated without credit. If you look over the material at the Other Canon site, there's a lot there about the purging of Anglo-American departments of heterodox economists, which I think is what's galvanized the recent upsurge in challenges to neoclassical orthodoxy.

The thing is, as Dani Rodrik himself exemplifies, economics has been changing, there is a lot more empirical work being done, and a much greater willingness to entertain and test theories that do not conform to textbook assumptions. The problem is that the textbooks by and large have not changed, and many generations of economists have been trained to view the world according to assumptions that no longer characterize the best work in the discipline. Promoters of the Other Cannon may mischaracterize the mainstream cannon in some ways, but there are a lot of criticisms of the mainstream they make that are correct and in fact find supporters among mainstream economists.

[notsneaky]

Looking at the very last item I see that it has a misrepresentation/misunderstanding of at least Keynes if not Schumpeter too (I mean, yeah savings may largely result from profits but if those profits hadn't been saved they'd end up as someone's consumption which makes this not at all different from the neoclassical 'cannon'. Not to mention this is more of a 'classical' assumption of Ricardo than Schumpeter)

[Rich C]

notsneaky:

Isn't the list describing savings by consumers? The whole point behind the critique of the mainstream canon implicit in this list is a failure to distinguish between different kinds of economic actors, particularly consumers vs. entrepreneurs. I guess one could also throw in something about how textbook neoclassical econ admits of no pure profits, whereas for Schumpeter its profits that drive innovation, and hence growth.

On Keynes, as long as one interprets "per se" to mean "necessarily" then it looks to me that they have it right. That's the paradox of thrift.

[Barkley Rosser]

df,

Well, in a book I wrote with David Colander and Richard Holt entitled _The Changing Face of Economics: Conversations with Cutting Edge Economists_ (2004, University of Michigan Press), we identified "orthodoxy" as an intellectual category, "mainstream" as a sociological category (those in charge), and "heterodox" as being both, anti-orthodox intellectually and alienated from the ruling mainstream. This allows for a "non-orthodox mainstream," which I suspect Dani Rodrik may find himself having some sympathy with.

I see the term "neoclassical" as referring to an intellectual orthodoxy, one that is ossified and pretty well described by that list on the left, which does indeed look like a straw man if one thinks about research practices by many leading mainstream economists, but which is also very much present in the textbooks, and which does get enforced at many second-tier and third rate places (think Notre Dame, with its assault on the definitely heterodox economics department there).

Between those two lists, I definitely side with the right side, mostly. I do however note that not all heterodox economics is anti-mathematical (see my edited volume with Edward Elgar, _Complexity in Economics_, 2004). Also, some biological thinking is very neoclassical mainstream, think the Alchian-Friedman theory of why firms really do maximize profits and why speculative bubbles are impossible (duh), versus the sort of thing one finds current econophysicists and Santa Fe hanger-outers doing, which definitely draws from physics. Much of this is a matter of "what kind of physics" and "what kind of math"?

[Kimmitt]

I have to say, my first thought upon reading Dr. Rodrik's papers was something like, "Wow, this is fundamentally different from -- and better than -- the vast majority of the work I have read!" So, yes, I do think that the economics which Dr. Rodrik practices is not entirely mainstream.

[notsneaky]

The point is that "neoclassical" theory isn't particularly wedded to any view of where savings come from. If you want to think that savings largely come from profits then fine. But in some form or another these savings must come at the expense of current consumption (unless you were planning on burning your dollar bills instead).

Also I don't think mainstream economics really puts that much emphasis on savings as the engine of growth. The whole point of the neoclassical growth Solow model is that savings can only get you so far - they cannot fuel sustained growth.

And I still think Keynes is being dragged into this without his knowledge or approval, paradox of thrift not withstanding.

[Jay]

“It may not sound unusual. But in economics, most people don’t do experiments. They’re happy to take the data as they find it. They don’t create novel experiments to understand the way the world works,” Feldstein says. “It was a very ingenious way of showing how taxes actually affect shopping behavior—that people actually shopped less when they recognized the full cost of what they were doing.”

http://www.american.com/archive/2007/september-october-magazine-contents/the-experimenter/?searchterm=chetty

[Maris]

From the article Jay linked to: "Raj emphasized that they [the unemployed, M.] find it very difficult to meet their prior commitments. For example, they must pay their rent or their mortgage, and these commitments very much add to the difficulties of being unemployed. Economists were just not thinking of that until Raj came up with it."

This scared me a bit. Is this true? The person speaking is Akerlof, it's not just a random journalist.
If economists were not taking into account that the unemployed have bills to pay, what value has their contributon to debates about benefits?

[Kramladen]

Dr. Rodrik,

The points at the right sight remind me of the recent work of Edmund Phelps.

That mainstream economics is moving more and more to the right side of the table is the theme of an article by the economic historian David Colander about the death of the term "neoclassical": http://community.middlebury.edu/~colander/articles/The%20Death%20of%20Neoclassical.pdf

[hari]

Dani- How funny economists can't identify manifestly what's their "religion"!

This sounds more like a storm in a teacup!

But for whom the bell tolls, ONLY foolish/insane economists will seek to
"create", as the saying goes, "mullah's" out of bean counters!

I find the discourse not only insane but sign of academic "caste" system.

[pat toche]

Spot on Dani, I mean these guys are still stuck in the 1960s, just take a look at the Nobel prizes of the 1990s and 2000s, can you name anyone who fits in the paradigm of the left-hand side ?

and even the 1980s does not yield many names, Debreu maybe? You can argue either way for Lucas and Sargent.

These guys are frustrated because they can't read the abstract in econometrica.

[Barkley Rosser]

pat toche,

Excuse me, but this is one of the more inane comments that I have seen here. Yes, there are heterodox economists who oppose math. But there are plenty who do not. Read my comment here and some of the references cited. In fact, some of the current heterodox econ is much more mathematical than most standard neoclassical econ, but different, e.g. the econophysics literature, which most economists are not able to understand at all.

Please, this sounds like the sort of ignorant put downs one heard in the 1960s about heterodoxy, when the Cambridge capital theorists were showing how many holes mathematically and logically there were in the standard neoclassical story that even Paul Samuelson agreed were valid critiques, but the more pathetically third rate could not deal with.

Just ignorant, supercilious, and stupid crap, your remark, if you'll excuse my bluntness, sir.

[gordon]

So where does Ha-Joon Chang fit?

[Barkley Rosser]

I feel I should apologize to pat toche for my intemperate language and name-calling, although the gist of my comment is completely correct.

So, again, there are heterodox economists critical of the use of math, or of certain kinds of math, with some of them not good at math, but plenty of them very good at math. But there are others for whom math per se is not at all the issue.

Let me just recount some actual history. So, we have Duncan Foley, who brought Arrow-Debreu general equilibrium theory to MIT. He taught the grad micro theory sequence there in the late 60s, and basically changed it from the purely Samuelsonian type to the later Varian type. Then he went to Stanford and got interested in mathematical Marxian models. For this sin he was turned down for tenure. He was a math and classics major at Swarthmore and had Herbert Scarf at Yale as him major prof. These days he does econophysics at New School University.

Or then we have Sam Bowles and Herb Gintis, turned down for tenure at Harvard. Gintis was actually a grad student in math at Harvard when he switched over to econ. Today he is author of a leading book on evolutionary game theory. When they were turned down for tenure (Bowles actually), the top people in the department, including all three of the former AEA presidents, supported them, including Kenneth Arrow. It was the second-tier third raters who did them in, led by then Department Chair Richard E. Caves. Never heard of him? Well, unless you are somewhat older and in IO, I am not surprised.

I could go on, but toche's remark is one that used to thrown around at various grad schools by various ignorant third raters. But anybody who really knew what was going on, did not indulge in such nonsense.

[notsneaky]

While I think Barkley's right about his side of things, pat's remark on the fact that none of the Nobelists from the 90's and 00's fit the left side column and probably none of the ones from the 80's is also correct.
So yeah, it's a straw man but perhaps it's wiser to leave the author's motivation for its construction out of it.

[paine]

"geist proceeds matter"

i submit that
pretty much captures
the range of the con here

for what its worth.....
as a marxist hack
econ con myself
and for 30 plus years now

i still agree with u

"Mathematics and statistics are indispensable tools ..."

but hey the devil quotes the talmud and the koran too ..... right ??

[Septeus7theParaniod]

Grrr... I want to read that book.

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