[OPE-L] Economics Depts question fundamental assumptions

From: glevy@PRATT.EDU
Date: Fri Jul 13 2007 - 11:49:22 EDT

Fred Lee is quoted and heterodox economics is discussed in the
following article from _The New York Times_.

In solidarity, Jerry
Belfast, ME

NY Times, July 11, 2007
In Economics Departments, a Growing Will to Debate Fundamental

For many economists, questioning free-market orthodoxy is akin to
expressing a belief in intelligent design at a Darwin convention:
Those who doubt the naturally beneficial workings of the market are
considered either deluded or crazy.

But in recent months, economists have engaged in an impassioned
debate over the way their specialty is taught in universities around
the country, and practiced in Washington, questioning the
profession's most cherished ideas about not interfering in the

"There is much too much ideology," said Alan S. Blinder, a professor
at Princeton and a former vice chairman of the Federal Reserve Board.
Economics, he added, is "often a triumph of theory over fact." Mr.
Blinder helped kindle the discussion by publicly warning in speeches
and articles this year that as many as 30 million to 40 million
Americans could lose their jobs to lower-paid workers abroad. Just by
raising doubts about the unmitigated benefits of free trade, he made
headlines and had colleagues rubbing their eyes in astonishment.

"What I've learned is anyone who says anything even obliquely that
sounds hostile to free trade is treated as an apostate," Mr. Blinder

And free trade is not the only sacred subject, Mr. Blinder and other
like-minded economists say. Most efforts to intervene in the markets 
 like setting a minimum wage, instituting industrial policy or
regulating prices  are viewed askance by mainstream economists, as
are analyses that do not rely on mathematical modeling.

That attitude, the critics argue, has seriously harmed the
discipline, suppressing original, creative thinking and distorting
policy debates. "You lose your ticket as a certified economist if you
don't say any kind of price regulation is bad and free trade is
good," said David Card, an economist at the University of California,
Berkeley, who has done groundbreaking research on the effect of the
minimum wage.

Most economists are still devoted to what is known as the
neoclassical model. Philip J. Reny, chairman of the economics
department at the University of Chicago  the temple of free-market
economics  said the theory and methods were "taught to avoid
personal biases and conclusions that aren't found in the data." Like
any science, he said, the field changes course slowly: "It requires
evidence, and if evidence is there, it will accumulate and positions
will move." He added, "I personally have a lot of faith in the

But as issues like income inequality, free trade and protectionism
have become part of the presidential candidates' stump speeches, more
thinkers have joined the debate. In addition to Mr. Blinder, other
eminent economists like Lawrence H. Summers and the Nobel Prize-
winner George A. Akerlof have pointed out what they see as the
failings of laissez-faire economics.

"Economists can't pretend that the consensus for free markets and
free trade that existed 30 years ago is still here," said Robert B.
Reich, a public policy professor at Berkeley who served in President
Bill Clinton's cabinet.

Part of the reason is the growing income inequality and dislocation
that global markets and a revolution in communications have helped
create. Economists who question the free-market theories "want to
speak to the reality of our time," Mr. Reich said.

Meanwhile, critics have also pointed out the limits of standard cost-
benefit accounting to measure items like the cost of inequality or
damage to the ecosystem.

The degree to which economists wander from the mainstream varies

Dani Rodrik, an economist at the Kennedy School of Government at
Harvard, for instance, said, "I fall into the methods of the
mainstream, but not the faith," which he defines as the belief that
more markets and free trade are always good and government regulation
is always bad. Thinkers like these may come up with controversial
ideas but are hardly marginalized. Other economists, however, go much
further, and try to chip away at the field's underlying theoretical
foundations. So while Mr. Blinder, Mr. Card and Mr. Rodrik might be
considered mere heretics, this second group has earned the
label "heterodox."

Although the meaning of the term is slippery, Frederic S. Lee, an
economist at the University of Missouri-Kansas City who edits the
Heterodox Economics Newsletter, says it refers to those who reject
the neoclassical model, which Milton Friedman helped create, and
which Ronald Reagan championed when he took over the White House.

Mr. Reny and others point out that the increasing popularity in the
mainstream of behavioral economics, which looks at people's complex
psychological reactions to events, has offered a fuller picture of
how consumers operate in the marketplace. Still, Mr. Lee criticizes
neoclassical economics for maintaining that the market, if left
alone, would ultimately find a happy balance. He also takes the
discipline to task for relying on abstract theories and mathematical
modeling instead of observation and sociological analysis.

In Mr. Lee's view, for example, oil companies  not the natural
workings of the market  determine gas prices, and the federal
deficit is a meaningless term because the federal government prints
money in the first place.

According to his estimates, 5 to 10 percent of America's 15,000
economists are heterodox, which includes an array of professors on
the right and the left (post-Keynesians, Marxists, feminists and
social economists).

Heterodox economists complain that they are almost completely shut
out by their more influential neoclassical colleagues who dominate
most American university departments and prestigious peer-reviewed
journals that are essential to gaining tenure. There are a few
university departments where these iconoclasts are welcome, like
Amherst in Massachusetts, the New School in New York and Professor
Lee's home, the University of Missouri-Kansas City, but these are

The experience of Mr. Card's graduate students suggests how the
process can work. Mr. Card is by no means on the fringe, but he said
his research on the minimum wage in New Jersey "caused a huge amount
of trouble." He and Alan B. Krueger, an economist at Princeton, found
that contrary to what free-market theory predicts, employment
actually rose after an increase in the minimum wage.

When Mr. Card's graduate students went on job interviews, he said
other economists would ask questions like "What's wrong with your
adviser? Has he started drinking?"

This is why Mr. Blinder said he advises graduate students "not to do
what I do" when it comes to challenging the standard model.

Criticizing the approach that currently dominates the field, Mr.
Blinder said economists must look more closely at the real world
instead of modeling it in the lab. "Economics is insufficiently
scientific," he said. "Mathematics may be useful, but mathematics is
not scientific. It doesn't generate refutable hypotheses." In a
recent issue of The Nation, Christopher Hayes spurred an energetic
debate on the Web by suggesting that some precepts of heterodoxy were
being incorporated into the mainstream  even if many heterodox
economists were not.

Max B. Sawicky at the Economic Policy Institute in Washington, a
nonprofit research organization that is a bulwark of heterodoxy,
wrote in a discussion on tpmcafe.com that, "The duty of orthodoxy is
clear: deny departmental positions and resources to inferior research
programs and purify the top journals of incorrect thinking, all
understood as maintaining high standards."

This is the point where Mr. Rodrik, who has written extensively on
the downside of globalization, departs from both Mr. Sawicky and Mr.
Blinder. Although he acknowledged that inflexible rules about how one
makes an argument and what counts as evidence can create blind spots,
but insisted that once those rules were accepted, there was
tremendous openness inside the academy.

The problem is outside, where economists are expected to "regurgitate
ideas" about the glories of the free market. Most mainstream
economists think that voicing any skepticism or doubt
provides "ammunition to the barbarians," he said, and allows narrow-
minded people to "hijack any argument to suit their purpose."

Mr. Rodrik said he used to worry about this until he realized
that "on any issue, there are barbarians on both sides," so there was
no point in shading an argument to "suit one set of barbarians over
the other."

"And I've slept a lot better since."

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