The moribund state of economic theory

I wrote about Hugh Goodacre’s post on the History of Economics discussion thread under the heading, How many economists can dance on the head of a pin?. This is what he said in his post:

Sir, The moribund orthodoxy that currently exercises such an inflexible grip on university economics departments will, as Wolfgang Münchau comments, inevitably face a challenge, and this “will come from outside the discipline and will be brutal” (“Macroeconomists need new tools to challenge consensus”, April 13). The orthodoxy has brought this dismal prospect on itself through the brutality with which it has purged those departments of any other school of thought than its own.

Indeed, in its extreme version, the orthodoxy’s doctrine holds quite simply that there are “no schools of thought in economics”, a totalitarian assertion all too true in most economics departments today, so ruthless has been the purge of alternatives. As a result, the different approaches to economic issues of Adam Smith, Bentham, Ricardo, Marshall, Keynes, Friedman and so on are all relegated to the fringe subject of the “history of economic thought”.

This is indeed a 1984 situation, in which the very idea that debate could exist on how to approach economic issues is regarded as a mere historical memory, and consequently of purely antiquarian interest.However, economics students are increasingly demanding a pluralistic curriculum, as discussed by Martin Wolf in “Aim for enlightenment, technicalities can wait” (April 11). Similarly, the “fossilised habits of thought” entrenched in much of the economics professions are facing increasing criticism from within the academic world (see, for example, “The world no longer listens to the deaf prophets of the west”, Mark Mazower, April 14). Let us hope that all this pressure from students, from the worlds of journalism and of interdisciplinary debate, will combine to bring university economics departments back into the world of liberal academic life from which they have for so long isolated themselves.

I left a very substantial space in time for others to say their piece, but after almost a week, I felt I had waited long enough. This is what I wrote:

I have let six days go by to see if anyone else was interested in Hugh Goodacre’s message on the moribund state of economic theory. The more time goes by, the more I am convinced there is this subject taught at universities called “economics”, and there is this aspect of the world that is called “the economy”, but the first has only a remote relationship to the second. And I could not agree more about the following in the letter Hugh quoted, with two minor qualifications which I will come to:

‘In its extreme version, the orthodoxy’s doctrine holds quite simply that there are “no schools of thought in economics”, a totalitarian assertion all too true in most economics departments today, so ruthless has been the purge of alternatives. As a result, the different approaches to economic issues of Adam Smith, Bentham, Ricardo, Marshall, Keynes, Friedman and so on are all relegated to the fringe subject of the “history of economic thought”.’

My first qualification is the exclusion of John Stuart Mill and second is the inclusion of John Maynard Keynes. Mill is excluded because he has become so far off the beaten track that virtually no one even thinks of his contribution to economic theory, which was massive and arguably a good deal greater than Ricardo or Bentham. Ricardo could no longer be read to gain insights into the operation of an economy, while with Mill you certainly can.

But the inclusion of Keynes is a mystery. Virtually all macro is Keynesian. Who nowadays writes contra-Keynes? Is there any economist in the world writing today – other than myself – who is associated with a strident anti-Keynesian perspective? I can think of hardly a one, and there are not many more than a dozen. Following the dismal failures of fiscal and monetary policies to restore growth – both of which I consider Keynesian to their roots – I cannot understand why there has been so little interest in a post mortem of some kind and the investigation of alternatives.

I can only wish Hugh and his associates the best of luck in their quest to broaden the spectrum of opinion that are considered worth consideration within schools of economics. It is long overdue.

If I knew how to write these things without antagonising the others, I would. But years in the midst of a political environment, and then all this blogging, has left me with a style of writing not necessarily perfectly equipped for the academic world. But following my post was this one from one of the great economists of the world, Professor Richard Lipsey, from whose world class introductory text I had previously learned and taught. And this is what he said:

I agree completely with the others who say that many modern economics departments (but not, I think, mine) admit of no conflicts among, or even the existences of, various modern approaches. It is a mystery how anyone can hold to this view in the light of institutionalists who emphasise the importance of institutions, ‘Newtonians’ of various sorts who use maximising equilibrium models and evolutionists who emphasis evolving systems without static equilibria. And this only mentions a few of the competing visions of how best to study the economy.

I do not suppose this is the place to dwell on the contentious additional point raised by Steve Kates but I would observe that there is a world of difference between traditional Keynesian, New-Keynesian, and post-Keynesians. The econometric models of my country’s Department of Finance and its Central Bank use updated and expanded Keynesian income-flow models. So, like it or not, updated traditional Keynesian concepts, insights and measurement categories are still useful in the work of applied economists.

Since as a text book writer, I am often accused of accepting the modern no-differences view, I mention below three of my recent publications that put forward alternative visions to the prevailing one. This is not only to set the record straight but in the belief that they might be of some interest to those who agree that creative criticisms of the prevailing view are needed.

I would also say that in going ahead, we should not throw the maximising baby out with the bath water of its overuse. Partial equilibrium, maximising models of some markets, such as foreign exchange and wheat, are useful.

Recent non-orthodox recent publications by Lipsey

“Does History Matter: Empirical Analysis of Evolutionary versus New Classical Economics” (with Kenneth I Carlaw), Journal of Evolutionary Economics, 2012.

“Some Contentious Issues in Theory and Policy in Memory of Mark Blaug,” in Mark Blaug: Rebel with Many Causes, M. Boumans and M. Klaes (eds.), (Cheltenham: Edward Elgar), 2013

“The Phillips Curve and the Tyranny of an Assumed Unique Macro Equilibrium” Simon Fraser University Discussion Paper, 2014

He may not agree with my anti-Keynesian views, but sees it properly as a legitimate perspective. More importantly, if Richard Lipsey sees the moribund nature of economic theory as a genuine issue to be considered, there are some very influential people who have seen the problem and are willing to add their names to the list of those who are dissatisfied with standard economic teaching and practice. I don’t know how much dynamite it will take to break up the logjam, but this is certainly a very much needed assist.

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