Last week T-Simps wrote a post explaining his position on what he believes to be economic pluralism. In particular, he focused on the activity of Cambridge Society for Economics Pluralism (CSEP) and its attempts to push for a change in the economics curriculum. Isar Bhattacharjee later wrote a reply, where tried to “somewhat defend CSEP”… I must admit there’s one thing in T-Simps’s post that I completely agree with – Stata has to be taught more widely and from a younger age (more on that later). Other than that, I believe that instead of defending CSEP, one should start by explaining what the Society really stands for. Let’s have a look.
- Heterodox? Pluralist? Socialist? Whatever… -
Before proceeding to Paper 0, curriculum reform and other CSEP’s activities, my feeling is that there’s one thing that has to be clarified. Throughout his post, T-Simps uses terms “economic pluralism” and “heterodox economics” interchangeably, which I don’t think is entirely correct. The latter, in my opinion, makes it impossible for him to draw any reasonable comparisons with what he calls “the mainstream” (which he, by the way, does not define either). I’ve been willing to do this for a long time, so let me give a little introduction to what the above-mentioned terms really mean. To rephrase a famous definition, mainstream economics is what mainstream economists do – not more, not less. There are various ways to define the set of mainstream economists, but I think the widely used IDEAS ranking gives a pretty good proxy. If you were keen enough to follow the link, you would see that at the top you’ve got guys like Robert Barro, Joseph Stiglitz and Robert Lucas who are the iconic figures of neoclassical economics, which is considered by many to be the orthodoxy in economic theory… But here’s the trick that makes neoclassical economics an inadequate definition of the mainstream – given that our proxy for the set of mainstream economists is definitely time varying, so is the position of orthodoxy! Indeed, some 50 years ago Milton Friedman (orthodox, you say?) was talking about the inadequacy of the “conventional [old] Keynesian approach”, clearly writing from a non-mainstream position. O tempora, o mores… Another important thing to note is that our definition of mainstream economics is politically neutral, as it does not specify one’s adherence to a particular set of political persuasions. Indeed, as we have seen righties such as Barro and Lucas quite safely co-exist with leftie Stiglitz.
Anyway, let’s not get too distracted. The definition of non-orthodox, or heterodox, economics follows directly from our definition of the mainstream. Namely, heterodox economics is what mainstream economists do not want to do. Moreover, given our previous finding that the mainstream is time varying, so is the position of heterodoxy! In the contemporary setting, the mainstream is neoclassical and (broadly speaking) stands on the three pillars of fixed-point equilibrium, rational expectations and optimisation by representative agents. Therefore, once again in the contemporary setting, virtually anything that does not satisfy some of the above criteria would automatically classify as heterodox. Hence the position of Austrian, feminist, ecological, institutional and other schools of thought… Note that we have preserved political neutrality – leftie ecological and feminist schools co-exist with the righty-free market-liberal Austrian school.
But where does “economic pluralism” come into play you might ask? Here I would like to define two kinds of pluralism advocated by CSEP The most intuitive type of pluralism, referred to as intradisciplinary pluralism, manifests itself in trying to combine tools of both mainstream and heterodox approaches in trying to address economic issues. For example, neoclassical growth accounting methods can be enhanced by taking into account the issues of unpaid (female) labour and gender inequality researched by Feminist economists. Interdisciplinary pluralism, on the other hand, combines economic approaches with tools borrowed from other disciplines. The most obvious examples of the latter include such disciplines as Econophysics and Neuroeconomics. The former applies inductive and empirical techniques from physics, whereas the latter uses tools borrowed from neuroscience and psychology.
- So what? -
How can we link what we have just outlined to the arguments proposed by T-Simps? Let us go over the most important points.
I hope that it is now pretty clear that T-Simps was factually wrong on at least two accounts when he asserted that “emailing someone who posted a blog post from a mainstream perspective seems like a poor recruiting strategy for a group aiming to promote heterodox views”. Firstly, as already explained, CSEP does NOT have an explicit intention of promoting heterodox views – they only feature in our activity to the extent to which they help embrace the two kinds of pluralism described earlier. Secondly, if “someone who posts views from a mainstream perspective” carefully examines the definitions above, this “someone” will notice that there is no inevitable contradiction between mainstream and pluralist economics. For example, Alvin Roth (2012 Nobel Prize winner for work on matching and market design – orthodox enough?) recently praised Economics for “being very open for inputs from other social sciences”. Also, as some readers may have witnessed at the recent Marshall Lectures, Prof Roth calls himself an economist as well as an engineer, which is another point earned by interdisciplinary pluralism. As for intradisciplinary pluralism, Daron Acemoglu (currently 6th most cited economist according to IDEAS), whilst being mostly neoclassical in methodology of his research, extensively borrows insights from institutional economics and stresses the role of technology beyond the intellectually fraudulent neoclassical “production function” in understanding economic growth and development.
The second problem with T-Simps’s arguments manifests itself in his heart-felt fear that “those who want to dismantle the focus of the existing curriculum on Maths and analysis and make it more discursive risk destroying these valuable signalling or human capital improvement functions”. The trouble is that CSEP is not campaigning against maths and it’s rather foolish to presume that pluralist economics is necessarily non-mathematical and descriptive in its approach. Again, one could rather loosely think of a pluralist curriculum as a mixture of neoclassical and heterodox approaches, as well as some interdisciplinary elements. If we suppose that any neoclassical economics necessarily involves maths and rigour (for a discussion see Tony Lawson’s paper) then an accordingly weighted pluralist curriculum would necessarily inherit the required rigour. Moreover, maths and rigour could also come from the heterodox side. For example, Doyne Farmer, one of the pioneers of Econophysics – a borderline pluralist-heterodox theory, advocates for a more empirical and inductive approach to economics that could enhance our understanding of deductivist mainstream theories by testing the robustness of their assumptions and results. The latter would involve more empirical rigour and a stronger interaction between the two sides of the theory-empirics spectrum.
Let’s move one. Another hypothetical critique of a more pluralist curriculum that T-Simps raised revolted around the idea that “[mainstream] economics degrees produce excellent results for graduates”. However, as correctly pointed out by Isar in his post, “the current statistics for employability are in a world where nobody is provided the broader CSEP learning” and “we don’t know the counterfactuals with any certainty”. T-Simps’s quasi-empirical approach opens up space for endless speculations, as the impact (if any) of a pluralist curriculum is simply NOT in the data considered! Let me offer another statistic with opposite but equally meaningless implications. According to UNISTATS, 57% of Cambridge Economics graduates end up in employment after 6 months after graduation, with the equivalent statistic for Land Economy students being equal to 65%. Does this mean that Economics Tripos should have geography and law courses? The answer is that we can’t say from the data offered, as we should be controlling for a whole range of parameters in order to make valid comparisons. A rather amusing thing is that if T-Simps really wanted to provide a legitimate empirical assessment of the impact of introducing a pluralist curriculum, his optimal strategy would be to support CSEP! Indeed, future employment data would include people who have studied a different curriculum, or the treatment group, which in a panel setting could be compared to a control group of the old-curriculum guys with a difference-in-differences estimator giving us a proxy for the impact of CSEP’s (and other societies’) work!
In my opinion, the best we can do with no access to future data is to look at what employers of economists think about pluralism. The Government Economic Service, which is the single biggest employer of graduates as economists, stresses that “in order to be useful to any government” economists have to be “intellectually pluralistic” and that “ what is certainly wrong and unscientific is to defend one’s own view relentlessly with hostility to other approaches”. Moreover, they also emphasise that “economic models are to be used but not believed” as “at best they only offer partial insights, so applying different perspectives can actually be more revealing than consistency”. Their words – not mine.
Finally, a brief comment on the proposition that economics curriculum should not be “butchered by internally contradictory and false views”. If one were to implement the above suggestion the result would be that pretty much all of macroeconomics would not be taught (at the very least, discussing internal consistency and power of microeconomics merits another post). On the one hand, neoclassical microfounded macro shines with internal consistency but the extent to which it represents the reality is quite questionable (in particular, after the recent crisis – this again merits another post). For example, making Real Business Cycle models fit actual data requires extensive data manipulations (also known as HP filtering); moreover, even neoclassical authors such as Robert Barro more or less admit that their theories have absolutely no relevance to real life (as was the case with Barro empirically rejecting Ricardian equivalence predicted in his famous “Are government bonds net wealth?”). Even central banks are now highly doubtful (to say the least) about the power of mainstream DSGE models and start thinking about alternatives such as agent-based modelling. On the other hand, I am not saying that all of heterodox theories are a precise description of reality and a policy-making panacea. The thing to take out is that in the consistency-relevance space, orthodox theories are not strictly dominant and therefore do not deserve the monopoly they currently hold.
- Where do we go from here? -
I think there are a few things that are worth pointing out for summarising purposes. The first one is that one has to be very clear about the precise definitions of terms such as “heterodox”, “pluralist”, “mainstream” etc. When defined properly, not all of above concepts are mutually exclusive and inevitably contradictory. As we have seen, the latter condition proves crucial when it comes to analysing the potential changes to the economic curriculum and the extent to which such important things as rigour are to be sacrificed. The second point is that one really has to have some awareness of the limitations of both sides – otherwise we will keep making same mistakes again.
I am open for further discussion.
Michel Ghassibe, President of CSEP.