One economics, again

Tom Palley wrote last week a review of my One Economics, Many Recipes, and some people have asked me to comment on it.  On the whole, I have very little to complain about: Tom's review is gracious and probably gives me more credit than I deserve.  But he does take me to task for pushing the "One Economics" line instead of defending a plurality of methods of inquiry.

Part of the reason I have procrastinated writing this response is that in some ways Tom makes my case better than I did.  Consider his main point:

But, while the many recipes thesis has strong appeal and empirical support, and suggests a spirit of theoretical pluralism, the claim of “one economics” is misguided, for it implies that mainstream neoclassical economics is the only true economics.

This is immediately followed by

Part of the difficulty of exposing this narrowness is that there is a family split among neo-classical economists between those who believe that real-world market economies approximate perfect competition and those who don’t. Believers are identified with the “Chicago School,” whose leading exponents include Milton Friedman and George Stigler. Non-believers are identified with the “MIT School” associated with Paul Samuelson. Rodrik is of the MIT School, as are such household names as Paul Krugman, Joseph Stiglitz, and Larry Summers. This split obscures the underlying uniformity of thought.

In other words, the neoclassical family can house such diverse views on economic policy as those espoused by Milton Friedman, on the one hand, and Joe Stiglitz on the other. What "uniformity of thought" is Tom talking about?

Similarly, Tom says:

This reality [of an increasingly narrow and exclusionary view of the discipline] is difficult to convey. One reason is that liberal neo-classical economists like Stiglitz and Krugman share values with heterodox economists, and shared values are easily conflated with shared analysis. Another reason is that heterodox and MIT School economists also often agree on policy, even if their reasoning is different. Finally, most people are incredulous that economists could be so audacious as to enforce one view of economics.

Well, maybe it is difficult to convey this reality because it does not have much bite, for all the reasons that Tom explains.

Tom is right that "heterodox economists like Thorsten Veblen and Joseph Schumpeter long ago raised many of today’s cutting-edge issues in neoclassical economics, including the role of social norms and the relationship between technological innovation and business cycles."  But neoclassical economics is fairly good--in my view--in absorbing insights from outside perspectives and developing them in ways that their originators could not do. For my part, I have to say that I understand Schumpeter's key insights on technological innovation a whole lot better once I see it expressed in neoclassical garb (i.e., here is a bunch of firms, here are their choice variables, here is the market structure under which they operate, here is what they maximize, and here is what the equilibrium will look like...)

This is in part because I am not as smart as Schumpeter was. But then again, most of the students we teach aren't either.   

Comments

[Chandan]

Yeah, I have been waiting for this response...after reading your book recently, I read this review and was feeling uneasy about Palley's obsession with "one economics" and his ignorance/omission of "many recipes" stuff in the book... this response cleared my uneasiness!

[Barkley Rosser]

Well, of course part of the problem here is exactly what we mean by that noxious term, "neoclassical economics." There are lots of recipes and there are also lots of heterodox schools, each of which has its own idea regarding what constitutes "neoclassical economics."

Palley does not say much about this one, and I am curious what you have to say, Dani, but the (previously?) heterodox school that seems to be gaining respectability to the point of possibly challenging neoclassical orthodoxy as the dominant mainstream school may be behavioral economics. Some of us define "neoclassical" as assuming individual rationality and greed, leading to some sort of equilibrium (usually unique and stable). I have not seen Krugman, Stiglitz, or Summers deviate much from this approach, although their "New Keynesian" colleague, George Akerlof, most definitely has done so (see his AEA presidential address from last year). And there are now at least two behavioralists on the board of editors of the AER.

I note that, while there are differences over recipes among behavioralists (and also an unfortunate lack of unity on an alternative and overarching, theoretical model), there are some obvious tendencies regarding differences between neoclassicals and behavioralists in terms of recipes. These have even shown up in the presidential race, given that Hillary has been surrounded by old guard neoclassical advisers, while Obama seems to favor some more closely aligned with behavioral approaches, as has been discussed in various places in the econoblogosphere, including possibly even here (I forget).

So, neoclassicals are more likely to propose that we "reform" social security by offering people lots of alternative choices. Behavioralists are more likely to default people into some socially preferable solution regarding pensions more generally, while maybe granting them options out if they really want them. More generally, behavioralists are more open to trying to take account of how people actually think and behave in forming policy than do neoclassicals, who tend to assume their assumptions are correct, even when they generally know better.

[arin]

I think it's important to stress the point (as Dani does) that neoclassical formalism can be elastic enough to capture many of the insights from distinctly non-neoclassical thinkers. However, this raises an uncomfortable problem for those of us who are neoclassically oriented. So many of the interesting insights about the economy (right or wrong) have come from scholars theorizing without the neoclassical scaffolding (or shackles, depending on one's perspective), and not as incremental variations in the neoclassical models. (Let's see, Keynes, Schumpeter, Arthur Lewis, Albert Hirschman, etc.) Does this not support the contention that the "social planner" of the economics profession may want to increase incentives to think outside of neoclassical economics to maximize "idea generation?" Of course, good ideas can get incorporated within neoclassical economics... But it seems while it is a good "internal consistency and robustness check," neoclassical modeling is not necessarily a (or only) great way to come up with insights ...

[haider A. Khan]

Debates about "schools of thought" are interesting but it seems that they are always more voluminous than luminous. It may be more productive to look at individual thinkers and most great thinkers manifest many tensions in their insights. Thus, Marx carries on a lot of Smith's work on markets but introduces new distinctions and reformulates some key questions. Likewise, Keynes draws a great deal from Marshall in the General Theory and yet departs from him in crucial ways. Many "MIT-school" economists use the standard optimizing agent framework and yet arrive at "Keynesian" conclusions.Minsky uses some insights from Keynes to offer a new approach to financial instabilities in capitalism. By modeling Schumpeter's insights on creative destruction, some modern economists(including myself) derive results that are quite diverse. The real problem, as many of us have tried to point out, lies in a dogmatic refusal to engage in detailed causal comparisons with alternative explanatory frameworks in assessing the scientific validity of specific theories and hypotheses. Here, the guilty parties are spread across paradigms although since the major economics departments are usually dominated bythe "neoclassical" dogmas, these are easier to spot.What we need are very specific comparisons of models, theories, hypotheses etc.This will not eliminate all controversy ( and I do not think it is possible or even healthy to do so), but it will, I hope, lead to a better conversation based on mutual respect on many important issues. Ultimately, it may even help economics make some further progress while lessening acrimony.

[wjd123]

"I have to say that I understand Schumpeter's key insights on technological innovation a whole lot better once I see it expressed in neoclassical garb (i.e., here is a bunch of firms, here are their choice variables, here is the market structure under which they operate, here is what they maximize, and here is what the equilibrium will look like...)"--Dani Rodrik

But aren't the market structures under which choice operates, especially in a global economy, more than an economic veritable? Isn't there attached to such decisions value judgments about more than maximizing profit?

In a global economy it is easy to see that the decisions I make as a CEO will also effect the market structures under which I operate. How can I hop-scotch from the rules of one national economy to another without weakening the market structures under which I'll operate?

If I believe that this process will lead to a growing amoralism in the structures of national economies and in turn will lead to weakening of social bonds, I may decide on moral grounds not to compete because I find this veritable choice morally objectionable for sociological reasons.

How does neoclassical economics capture this decision? I made my economic decision not to compete on moral and social grounds. Do neoclassical economist ignore it as not within there purview. Do they posit economic man as man working only within the economic sphere with its economic goals?

Who wants this narrow minded automaton who can only act to maximize profit making decisions that effect the rest of us in what kind of society we will live in. Why should economic man be allowed act freely within the economic sphere escaping the guidance of the moral sphere? Isn't allowing economic man this economic freedom to cause social destruction when he has nothing creative to offer in its wake the economics of faith? After all, he can only hope that the rest of society will adjusts?

Isn't it the duty of the moral sphere to impose some limits on economic man for the social good? Isn't economic man acting as though he is completely risk adverse when he bases his actions on the belief that Humpty-Dumpty can always be put back together again? Scary, scary guy this economic man.

[paine]

i may have discovered
a new law of development

from clear verbal formulation to clear formalization

lets call it
the 45 year plus/minus law

examples robinson chamberlain 32
dixit stiglitz 78

schumpeter 42
romer 87

big push guy
one of us
jewish genius in the shadows
type guy
name runs together with
dozens more
also 42
murphy et al 89

[paine]

bark
the behave yourself crowd
to me are doing for internalization
what the historical school did for the state
and gosh
the romantics
did for externalities

[paine]

"assuming individual rationality and greed, leading to some sort of equilibrium "

"greed "

looking only to oneself
is not limited
to greed is it

equilibrium
is only a debris clearing assumption

the formal system
of anything
needs to simplify

of course
it is precisely there
in the simpling down assumptions
the magicians tricks
behind the illusion
of certainty
can enter
from stage right or left

ps
my 45 years law
implies
all economics is neoclassical....

in the long run

[paine]

"assuming individual rationality and greed, leading to some sort of equilibrium "

"greed "

looking only to oneself
is not limited
to greed is it

equilibrium
is only a debris clearing assumption

the formal system
of anything
needs to simplify

of course
it is precisely there
in the simpling down assumptions
the magicians tricks
behind the illusion
of certainty
can enter
from stage right or left

ps
my 45 years law
implies
all economics is neoclassical....

in the long run

[Dani Rodrik]

Welcome back, paine!

[Thorstein Veblen]

One basic conclusion of your line of thought is that detailed case studies are important for economic policy. In a Foreign Policy course, one would actually go back and read everything known about, say, the Vietnam War, and then write a Policy Brief or critique about what the proper policy should have been, or what went wrong, based on the evidence. This is like artificial practice for policymakers... Economists, on the other hand, instead of reading or writing any case-studies at all in graduate school, solve a few Hamiltonians, prove the value function is concave in addition to the Welfare Theorems, and then get to go play around w/ policy, w/out the benefit of all that artificial practice that the Foreign Policy types got in Grad School...

[rolex watches]

People usually say :"Seeing is believing." http://www.tt88times.com
Each attempt has a corresponding gain, in part or obvious, or vague. At least we have the kind of satisfaction After I bought this watch ,in a sense,it means a great deal to me. http://www.fashionhairfu.com

[jordan shoes]

I am happy to find this post very useful for me, as it contains lot of information. I always prefer to read the quality content and this thing I found in you post. Thanks for sharing.

[Runescape powerleveling]

Classic exposition, I have also mentioned it in my blog article. But it is a pity that almost no frienddiscussed it with me. I am very happy to see your article.

[Account Deleted]

Have you ever tried to write a Term paper? Writing does not come naturally to many students; they found themselves often clueless and tired. What they need is little bit guidance and assistance to get an excellent term paper.

Term Paper Writing

[Account Deleted]

raf

Thanks so much.

[Ohioguide]

Even if I don't always agree with your posts, I always appreciate reading them. Columbus Hotels

[Account Deleted]

celikraf
celikraf

thanks ...

[Account Deleted]

Raf
raf

Thanks to you ...

[Account Deleted]

Many places and centers offer business and trade promotions to both buyers and supplier.What about the differences in skill intensities across industries? The job losses in the relatively unskilled-labor intensive battery industry should have little effect on the relatively skilled-labor intensive machinery
sexshop
sexyshop
sexshop online

[SellHouseNash]

Good read!

SELL YOUR HOUSE NASHVILLE

[Account Deleted]

Whether you need any help in giving a finishing touch to your papers or writing the difficult chapters or need the analysis of those critical assignments, you can take help from us anywhere anytime.

Paper writing

Professional Paper Writing