Home > Economics - General > Heterodoxy is not my doxy

Heterodoxy is not my doxy

June 1st, 2007

Following up on a couple of recent posts on Crooked Timber, I thought it might be useful for me to explain why I don’t think of myself as a ‘heterodox’ economist or even find the concept particularly useful. Although I’m clearly to the left of most people in the economics profession (including a fair number who would call themselves heterodox) I’m happy to identify myself with the mainstream research program in economics.

The first reason for this is one of personal/political strategy. Starting from broadly social-democratic premises about the way the world works, I’m concerned to identify and advocate policies that will lead to better outcomes for society as a whole and particularly for the working class and the disadvantaged. Mainstream economics provides a set of tools (the theory of public goods, externality and market failure, taxation and income distribution) to do the analysis and a widely-understood language in which to express the results. No existing alternative body of thought in economics comes close to this.

Of course, a lot of economists, maybe a majority (though this isn’t as clear as you might think) don’t use mainstream economics this way. Rather they employ the simplest possible version of the neoclassical model, which leads to the conclusion that the optimal policy is one in which governments do nothing (except perhaps for some limited income redistribution). Sometimes this is because they don’t know anything more than the simple model, and sometimes it’s on the basis of more sophisticated counterarguments against the mainstream case for intervention, based on ideas such as public choice theory.

By attacking the logical foundations of this simple model, heterodox economists may undermine faith in the policy conclusions derived from it. But this doesn’t get you very far. Even if you regard economic arguments for laissez-faire as worthless, this does not establish any positive case for alternative policies. As we discussed in our seminar on Sheri Berman a while back, orthodox Marxism, when faced with the challenge of depression and fascism, produced nothing but the counsel to wait for the revolution.

To give a more concrete illustration, I’ve spent a lot of time working on the implications of the equity premium, which, among other things, gives rise to a strong case for public ownership of certain kinds of infrastructure. If I understand the heterodox side of the famous Cambridge controversy correctly, the terms in which I express my case (relative rates of return to equity and bonds) are logically incoherent. But I have no idea how I would make my case if I were to use, say, the theoretical framework promoted by the late Piero Sraffa. It may be that, if the existing body of economic analysis were replaced by an entirely new theory developed on different premises, we could derive a better analysis. But I only have one life, and I’d rather devote it to promoting better policy outcomes than to relaying foundations.

More generally, I don’t find the whole idea of orthodoxy and heterodoxy, or the related notion of schools of thought, particularly useful. It seems to me to imply a kind of intellectual ancestor-worship which is of no use to anybody. It goes with debates about what Keynes or Commons or Hayek really thought, which seem to me to be almost entirely pointless. In most cases, if their ideas were good ones, they will have been adopted by at least some people in the mainstream, and tracing their intellectual ancestry is of at most second-order interest.

This goes with a judgement that most of the concerns* that are commonly raised against simple-minded versions of economics can be addressed without throwing out the whole system and starting from scratch. If you don’t believe in the perfectly rational economic man (sic), there’s a huge body of work on behavioral economics, bounded rationality, altruism and so on. If you don’t like simplistic competitive models, the shelves are groaning with books on strategic behavior and game theory. To the extent that I have an international reputation, it derives largely from models of choice under uncertainty that go beyond simple expected-utility theory to take account of more realistic representations of risk attitudes, fundamental uncertainty and so on.

I could go on, but this post has already reached Holbonian extent, so I’ll stop and thorw it open for comments.

* I guess the big exception to this is if you want to discard methodological individualism altogether, but the theoretical enterprises that took this route (such as structuralism) don’t seem to me to be prospering.

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  1. melanie
    June 1st, 2007 at 19:13 | #1

    For what you’ve just written, many economists would probably regard you as heterdox. But I’d say you don’t have a deep interest in the theoretical foundations of what you do, more of an interest in the practical uses to which you can put it. Which is fine with me.

    I think that for those who do take an interest in theoretical/epistemological foundations, the charge of dogmatism can be equally applied to neo-classicals and Marxists or neo-Ricardians (as followers of Sraffa are often described). As someone who, until this year, taught history of economic thought (including Marx), I have to say that my students found it immensely interesting and are more likely to be open-minded about alternative theoretical approaches than their previous ‘training’ might have led them to be. In scientific circles this is surely healthy?

    One of the things I find encouraging about the current state of economics as a discipline (as compared to the state it was in when I was a student) is that it is altogether much more heterodox than it used to be. There are still plenty of people rehashing old debates, but there are lots of people trying new things (what you said about behavioural economics, bounded rationality, game theory, etc). These have all taken off only in the last 20-30 years.

    Real world events have caused this interesting development – including the end of the post-War boom; the appalling results of the Monetarist vogue; the collapse of the Soviet system and the opportunities it provided for understanding more about how markets really do (a) emerge and (b) function; the failures of development economics, etc.

    In addition, having clashing orthodoxies is helpful too. I was quite amazed years ago when I read Douglas North’s Structure and Change in Economic History (not at all sure that I’ve got the title right), that his reference list included people like Perry Anderson (a Marxist editor of New Left Review). The whole concept of bounded rationality was clearly developed in response to the institutionalist critique of neo-classical hedonism.

    Another interesting development is the fact that economics departments seem to be dying – or rather merely providing service courses to disciplines (accounting, management) that are the new loci of mainstream/conservative thought. We currently only have about 10% of our 1st year intake actually majoring in economics (i.e. taking the full macro and micro core). The market apparently doesn’t want economists anymore. Since I happen to think that economics *can* provide a critical perspective and *can* be relevant to real world problems – and therefore deserves to survive – I find this quite dismaying. I would say that, beginning in the 1970s, the discipline has gone through some sort of crisis from which it may yet emerge. So as to orthodoxy and heterodoxy my answer is ‘the more the merrier’.

    Sorry to be so long winded.

  2. jquiggin
    June 1st, 2007 at 19:27 | #2

    Longwinded is fine !

  3. gaddeswarup
    June 2nd, 2007 at 03:39 | #3

    I am not an economist but have been trying to learn through blogs about development inequality etc. Inevitably there seem to be some politics in the discussions. A sociologist Reay in his study based on interviews with over 50 American economists:
    http://academic.reed.edu/sociology/faculty/reay/papers/ReayAuthority.pdf
    says “…it seems as if the ‘ideas’ used to
    distinguish economics from a spreadsheet program were those of what might be called the ‘core’of modern American economics, that is, a series of insights and practical techniques centered primarily on basic microeconomics. Core skills such as instinctively considering costs as well as benefits, focusing on incentives and maximizing decisions, assuming prices respond to supply and demand, and acknowledging opportunity costs, were what most subjects mentioned when asked to identify ‘what economists know that others don’t.’
    This ‘core’ has in the past sometimes been glossed as simply ‘mere undergraduate level’ theory used by lowly applied practitioners (e.g. Enthoven 1963, Allen 1977, Hamilton 1992), but this is misleading insofar as it was the academic as much as the nonacademic interviewees who identified it as central to their unique expertise. Furthermore, as a set of almost unconscious attitudes, tacit skills, and habits developed through extensive experience working as an economist, the core was not thought to be something easily picked up just by doing a BA in
    economics, let alone by running a few regressions on Microsoft Excel;
    I think there’s sort of a reasoning of ‘maximize this subject to that’ that has implications that are second nature to us, which aren’t necessarily understood [by others]. Now that’s not something that could be expressed in five minutes. The idea could be expressed in five minutes, but then the doctor, for example, would have to practice it for a while before it became natural, ”
    The last paragraph is a quote from an interview. I am wondering whether you can recommend some books and papers which describe these core skills; just enough so that laymen like me can understand the economic discusions better.

  4. June 2nd, 2007 at 06:26 | #4

    I think “schools of thought” are useful terms to fascilitate meta discussions about economics and public policy thinking. They are crude and clumsy but they do have the capacity to raise self awareness.

    People who were heterodox fourty years ago may be considered orthodox today. And whilst I am myself inclined towards the laissez-faire worldview I don’t feel as though the world at large, or even the economics profession regards that worldview as orthodox.

  5. June 2nd, 2007 at 08:11 | #5

    for the record, there are vast numbers of people who regard every word above as angel-on-pin-head counting. the next time one of you counters gets elected to anything outside academia- publish the news. indeed, if you can get published in any ‘general interest media’, it’ll be big news.

    people are capable of managing their own affairs in co-operative ventures on any scale from corner-store to national states. but usually they are bound into coercive social structures ruled by people who enjoy mastery, and have the ability to establish or maintain these structures.

    academics who write in jargon to one another support these alpha-males if only by being silent in popular english. you’re part of the problem, until you start talking to ordinary people in language they understand, about the fundamental problems of society.

    naturally,if you intend to make a living by providing clerical support to you local alpha-male you are excused from communicating with the hoi-polloi, but a a courtesy to the general public, would you preface future remarks with some disclaimer such as: “academic exhibition follows, read only if in need of a laugh”?

  6. Novo Mestro
    June 2nd, 2007 at 09:14 | #6

    It’s an incredibly difficult decision to make when your desire as an economist is to influence the real world for the better.
    If you use orthodox methodologies you can make genuine and sincere attempts to approximate the real world on aknowledged weak foundations. You can build up a model of how a cannonball flies in real life by building from a model in a vacuum, and so we can try building from a foundation of a perfect market.
    Of course, whilst describing things in terms of deviations from a vacuum is more plausible than describing things in terms of deviations from a hypothetical system.

    But there’s no alternative yet if we want to make a difference. Whilst the criticisms heterodoxy makes are valid, and that the house is on weak foundations, we don’t yet have a language and structure to recommend global warming strategies or education spending.

    And we get into a catch-22. Thousands of worldly economists who are reluctantly using orthodoxy because they want to influence policy. If they all had moved into heterodoxy, perhaps a framework would have built up, and the language accepted enough to allow them the influence they desire. But each is a self interested agent (insofar that helping society at large is self interest) and only a self sacrificing minority toils in obscurity at the Santa Fe institute and elsewhere.

    Man, forget the Dvorak lost cause myth, this is a real case of a self perpetuating, but less than ideal standard.

  7. jstrocch
    June 2nd, 2007 at 16:58 | #7

    Hard-headed is best for high-minded.

  8. June 2nd, 2007 at 17:09 | #8

    For Peter Boettke’s take on The Austrian Economists…
    http://austrianeconomists.typepad.com/weblog/2007/06/larry_white_set.html

  9. melanie
    June 3rd, 2007 at 13:05 | #9

    This seems to be the article that started the orthodoxy – heterodoxy argument.

    http://www.thenation.com/doc/20070611/hayes

    I think it demonstrates pretty clearly that JQ is not too orthodox! Though that would depend on how often he wears a suit, doesn’t pay the price of his drinks at the AEA meetings, and feels depressed about George Akerlof’s ‘radical’ ruminations ;)

  10. KYC
    June 4th, 2007 at 09:05 | #10

    John Quiggin seems to be saying that “orthodox economics” and caring for “better outcomes for society as a whole and particularly for the working class and the disadvantaged” are not mutually exclusive, which I agree with and is a point worth making in the orthodox vs heterodox discussion.

    I also agree that no other body of thought in economics comes close to the set of tools provided by mainstream economics for identifying and advocating policies that lead for better outcomes from a social-democratic perspective.

    I recently heard podcast (from the ABC Radio’s Philosopher’s Zone – http://www.abc.net.au/rn/philosopherszone/stories/2007/1923237.htm#transcript) of an interview with John Wrignt, a philosophy lecturer from Newcastle University, on the ethics of economic rationalism. It was a little frustrating to hear John Wright conclude (at the end of the interview) that “the ethical case against [economic rationalism] is stronger than the ethical case for it”. Mainstream economics may be danger of being associated with an impoverished caricature in the minds of the public, which will be a great pity. This is arguably a consequence of the way economics have been used as a tool to entrench political power in the hands of an elite.

  11. June 4th, 2007 at 12:52 | #11

    KYC,

    Interesting that several of the definitions made by the so called man in the street in that article were along the lines of this one:-

    Polly Rickard: Economic rationalism. What does that mean to you?

    Man: Just another way for the government to make money, I guess.

    Polly Rickard: Can you explain that a little bit more?

    Man: Well, if by rationalism you mean bringing the economy together, I think it’s just another way for the government to take money off the Australian people, that’s all.

    Polly Rickard: Thank you.

    Man: No worries.

    Governments of both flavours have cut a lot of government services and privatised a lot of former government enterprises. However they seem to keep all the savings rather than passing them back to the people.

    The Howard government has massively increased the amount of tax they take from us in real terms whilst at the same time mouthing small government rhetoric.

    http://alsblog.wordpress.com/2007/05/10/howard-govt-costs-34-more-than-keating-govt/

    Governments of both flavours have proved themselves to be greedy and it is little wonder than people on the street might see economics as something that gets used to hoodwink them.

    Regards,
    Terje.

  12. Tom N.
    June 5th, 2007 at 23:40 | #12

    MORE STRAW ECONOMIC MEN

    So, according to John Wright, economic rationalists are only interested in efficiency, not equity, and apparantly efficiency is about maximising wealth, not wellbeing.

    On this basis, the overlap between economists and economic rationalists must be pretty close to zero.

    That would not matter if people were aware of the difference, but I doubt that few of the (non-economist) listeners of that Philosophers Zone interview on ABC would have realised that Wright was knocking down straw economic men.

    Indeed, as Coleman and Hagger* have pointed out, one of the benefits of using the term “economic rationalism” is that, since it doesn’t mean anything in particular, critics of economics can use it as a smearing device without actually making a falsifiable statement.

    ________

    * William Coleman and Alf Haggar, Exasperating Calculators: The rage over economic rationalism and the campaign against Australian economists, Macleay Press, 2001. (Note that in a previous review, Q largely dismissed this work. Having read it, I think in this case that it was Q’s review that was lacking).

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