Critiquing Economics: The Unholy Trinity

Ryan Decker is unhappy. He’s upset about a few things, but one of them is about what economists will say about economics when they’re crusading for changes to their discipline. In particular, an Alan Kirman slide from a talk where he remarks on the “relentless insistence [in economics] on the idea that . . . the economy will self organize into a state which has satisfactory welfare properties. . . . It has become an assumption.”

I’m going to use this example (and Ryan’s unhappiness) as a jumping off point to discuss some things about the state of economics, the (alleged) need for change at the heart of the discipline, and the way we talk about such things and how that helps or hinders the reform-economics discussion.

To get a key point across early, imagine that I changed my insertion into the above quote i.e. from “relentless insistence [in economics]” to “relentless insistence [by economists]”. Subtly, but importantly, the meaning and the significance of the statement has changed. Kirman’s previous paragraph references economic theory explicitly, which is why I chose my wording, but it’s worth reflecting on what changes in the interpretation if I use “by economists” instead of “in economics.”

Before I attempt to put anything Kirman said in context (I won’t say “Before defending Kirman” because he’s more than capable of defending himself on this score), I’ll make my central point now, and it’s this.

When we’re discussing the need for reform in/of economics, and the extant conditions necessitating such reform (the “state of economics”), we need to be clear about whether we’re talking about (i) the discipline of economics, (ii) the economics profession, or (iii) particular individual economists. These three things — the Unholy Trinity — are connected, obviously, but not perfect substitutes.

The Discipline

By economics as a discipline, I mean the intellectual enterprise that goes towards creating and utilising warrantable and useful knowledge. By lots of obvious measures, the discipline is healthy and vibrant. It’s characterised by plenty of activity (there’s a lot of research into, and application of, economics), and by considerable diversity. Publications in economics cover a wide variety of topics, using a wide variety of methods, approaches and techniques. If you’re a professional economist who has things to say, it’s likely you’ll be able to find some publication vehicle somewhere to present your views. There are many peer-reviewed options to publish many many types of analytical and critical writing. There are people who work in high theory using mathematics, people who analyse data using high-brow techniques, and people who write in literary form. The history and development of the modern discipline as told through its Nobel laureates indicates a rich and varied intellectual tradition.

In short, the economics discipline is a very broad church, encompassing (in terms of technique and method) and blending elements and techniques from mathematics, statistics, philosophy, accounting, history, marketing, finance, psychology, political science, sociology and systems thinking. How those elements interact, and which dominate the way the discipline tends to be carried out, are as much a function of how the profession operates as they are of anything intrinsic to the discipline itself.

So…

The Profession

By the profession, I refer to the set of activities, processes and institutions that comprise how (the discipline of) economics plays out in reality. This includes (inter alia) academic departments, scholarly journals, textbooks, research institutes, consulting firms, government agencies, banks, think tanks, newspapers, websites and blogs and whatever/wherever else economics is done and presented and talked about and argued over.

Academic departments operate in the context of national and international labour markets for academics, as well as in the market for undergraduate and graduate students whereby they compete for both numbers and quality. But they also operate in the context of universities which are in their own process of evolution, competing with other universities for students and for philanthropic support. Universities demand things of their academic departments, and this is a driver of departmental evolution at least as much as things internal to the discipline.

Let’s consider some stylised facts about aspects of the profession, starting with journals. By comparison with applied sciences (typically a few leading journals and a large group of respectable but less glamorous ones; high average citation rates for papers, with short citation half-lives), economics typically has a small set of very high prestige general journals, then a rapidly declining but long tail (PDF) of both field (specialist) and general journals. Over time, the distance in the distribution of “quality” between the top general journals and the second and third tier general journals has widened, with high-ranked field journals filling the gap. Citations rates on average are notably lower than in applied sciences; moreover they are more skewed, with mean and median rates distinctly different. This suggests only a (small?) subset of articles receive citations, and those that do tend to be relatively heavily cited over a period of a decade or more. In turn this suggests that a small proportion of peer-reviewed articles actually have a lasting impact on the discipline.

Moreover, while the high-ranked journals have markedly higher impact factors, the impact of individual papers varies considerably in any edition of any journal regardless of prestige. Andrew Oswald argues that “The publication system in economics is full of error. It routinely pushes high-quality papers into medium-quality journals, and vice versa.” It would be better, he says, from a citations point of view, to publish the best paper in a middle-ranked journal than to publish the worst paper in a top journal.

But this may not be the case for an ambitious young academic seeking promotion or tenure at a leading department. The distribution of prestige in journal rankings is so skewed that one acceptance at a leading journal can be a huge career boost. (I knew of one newly minted PhD with an AER acceptance that, given the lags involved between acceptance and publication, was able to be parlayed into several consecutive job offers.)

An anecdote (with Australian relevance): Robert Solow won the Nobel prize for his work on economic growth, particularly as published in two papers in the Quarterly Journal of Economics (1956) and then the Review of Economics and Statistics (1957). Only recently has the Solow growth model been regularly and widely referred to as the Solow-Swan growth model, acknowledging a 1956 paper by Australian economist Trevor Swan that simultaneously presented a comparable growth model, published in the local Economic Record. Solow’s direct acknowledgment of Swan’s contribution stands in contrast to the apocryphal story that circulates of an eminent economist who said that if Swan had wanted credit for his role in developing modern growth theory he should have published his work in a proper journal. (Paul Krugman also credits the “Swan diagram” of external-internal balance as being a key tool for assessing international macroeconomic issues.)

A separate issue is that several of the leading economics journals are attached to top-tier departments. Whether those journals treat papers from within their department differently to papers from outside is an open question, one that can’t be compellingly addressed here. Other trends we’ll leave aside for this discussion include changes in average paper length, and changes in co-authorship patterns.

Moving from academic journals to academia itself, a particular feature of academic economics departments is the narrow range of heterogeneity between them. A standard economics department features micro theorists, macroeconomists, trade economists, econometricians, and a range of other specialists; health, labour, tax, development, environmental and other economists. Particular departments may have notable strengths; one may be known for its econometrics, another for its trade focus, another for its concentration of experimental/behavioural economists, and yet another for history of thought. But all major departments, while not doppelgängers of each other, have the same general range of skills and specialisations.

What really distinguishes one department from another is its place in the institutional pecking order. Just as with journals, department rankings are a big deal, and are closely tied to the rankings of the journals the academic staff publish in. At the top-tier departments, academics are expected to publish in top-ranked departments and to have their articles cited by others. In terms of the larger profession, to be a specialist who is well published in leading field journals is to be a big fish in a small-to-medium pond, likely to be employed at a respectable but not top-tier department, and more likely than not, unknown to the big players in the top-tier departments.

That’s not necessarily a bad academic life to have, but it creates some odd dynamics in how specialties (fields) evolve in the profession. A combination of the status-consciousness of academic economists, and the time-costs of keeping up with large and expanding literatures means that academics in top-tier departments spend a lot of their time reading the leading general journals and a few top ranked journals, and may not know what’s happening in the further reaches of research in that field.

Example: at one leading specialist conference I attended, a Rising Star from a top-tier institution who was dabbling in related research was invited to be a keynote speaker. They presented an elegant model with interesting results done in collaboration with other Big Names, and engaged in a spirited and insightful exchange with questioners in the audience. The rising star was quite apparently unaware of related research done by specialists (some at the conference) already published in field journals. The star went on to publish their research in a leading journal, to acclaim. As far as I can tell, the general reaction from the specialists was approving rather than resentful: this was how the system worked, and it was better to have a star in the profession interested in things your regular tribe was interested in, and happy to engage when the right opportunity arose. The rising star seemed to be happy to be there, and impressed with the interaction immediately after the talk.

A more contentious example: recently, two academics associated with top-tier institutions (one a professor, one a recent doctoral graduate) jointly wrote a survey on the young/emerging sub-field (their descriptions) of “X+Y economics”, representing the intersection of two fields with long and distinguished — and largely distinct — histories and literatures. This survey is on one level a commendable thing, but not because it is helping to pioneer an emerging young field, despite what the authors claim. There is in fact an existing journal that is exactly, in its name and mission, dedicated to the X+Y economics sub-field. It also has a mission to be global in focus, aiming to assist scholars from around the world to achieve peer-reviewed publication, and it has also been more explicitly inter-disciplinary than most comparable journals are. Thus it has featured not only some economics stars in its published roster, as well as some leading scientists, but also plenty of relatively young and/or unknown scholars from many countries. It has existed for several decades, and is well and truly established.

The top-tier authors did not reference any publications from this existing journal of X+Y economics. They appeared to be oblivious to its very existence. At least one highly eminent economist (now retired) who had been actively engaged with this journal for some time was quite clearly unimpressed by this. The two authors responded with the “we can’t read everything” defence.

Thus, in terms of the pecking order of who is doing what where, it’s unsurprisingly the case that research ideas and innovations move far more effectively down from the top-tier institutions and academics to the lower tiers than in the reverse direction. We could call this the “trickle down theory of economic research”; it’s not to say that creative research activity is not going on outside the top-tier institutions, but top-tier faculty members pay close attention to what is being published in the leading journals; in which they and their top-tier faculty colleagues are more likely to be published.

William Allen’s account of life in the UCLA economics department over several decades provides personal testimony of the increasing homogeneity of departments and the crowding out of distinctive “schools” where scholars had congregated and cross-pollinated to create a distinctive and recognisable brand of scholarship, typically with one or a few intellectual leaders. Allen views Armen Alchian as the intellectual force whose vision and style of doing economics was the gravitational force around which a number of other brilliant scholars orbited at UCLA. (A cohort of Australian economists, including some now internationally regarded academics, were trained via Alchian and Allen’s principles book University Economics and Jack Hirshleifer’s intermediate price theory text.) The principle of applying economics to everything — finding economics “behind every rock” — using basic principles and judiciously applied empirical data, was central to this approach, with technique and formalism always subsumed to the solving of a problem or the understanding of some phenomenon.

Unsurprisingly, this led to commonalities with the relatively free-market approaches of the Chicago and public choice schools of thought. (Harold Demsetz, Sam Peltzman, Arnold Harberger and James Buchanan were all part of the UCLA circle at some point.) But a wide variety of people with an eclectic range of interests spent considerable time at UCLA, with varying degrees of closeness to the Alchian core group, including Robert Clower, Axel Leijonhufvud, Michael Intriligator and Edward Leamer.

Allen’s lament is that over time, a new generation of scholars re-directed the department towards technical sophistication and difficulty (not to mention abstraction), and turned up its collective nose at the applied, intuitive, “real world” focus of the group that clustered around Alchian, that Allen labels the “Core”. Kevin Hoover’s comparison of Milton Friedman as an applied Marshallian, and Robert Lucas as a technical Walrasian, suggests that the Chicago department underwent a similar transition as Lucas became a dominating figure.

It’s worth noting that the evolution of economics departments to a more common mode of highly quantitative and abstract modelling did not just crowd out anyone “heterodox”; it also slowly but surely pushed aside many eclectic and distinctive schools that would be regarded as within the mainstream (it’s hard to envisage UCLA as non-mainstream!), but not part of where the mainstream was going. To the extent that (not all, but many) heterodox economists criticise “the mainstream” for formalism and abstraction, it’s worth noting and remembering that that’s much more a description of how the profession (and hence, the discipline) looks now than how it used to look.

I should stress I am not personally lamenting any particular lost era; the new stars of highly technical economics who came to dominate top-tier departments and leading journals after the time of the prominence of the Friedmans and Alchians may well have felt that the older guard were simply not up to understanding or appreciating the direction in which the discipline was moving. Mostly I wish to draw attention to a growing conformity of style in the way economics departments “look”, and possibly the way in which economics is taught and researched at leading schools.

Of course, other trends have been occurring in the discipline itself that have fed back onto the evolution of the profession. Increasing computing power, software complexity and availability of data have led to sophisticated empirical work becoming far more prominent, a move David Warsh attributes particularly to Martin Feldstein (then followed by Larry Summers). The turn to psychological exploration in behavioural and experimental economics has added much richness to our understanding of behaviour in both market and non-market contexts. Few departments now would not have academics whose work emphasised empirics, and academics designing and running lab and/or field experiments.

Lastly, having spent so much time on academia — where economic research is concentrated, and the profession reproduces itself through its teaching programs — I have left little time to talk about the non-academic profession. In banks, newspapers and finance/business websites, economists await the latest official data releases and central bank statements with at least as much keenness as academic economists await the latest research journals and monographs. In consulting firms and think tanks (of varying degrees of independence and influence) economists write reports to help advise clients (including governments) with business and policy problems and challenges. Such economists can pick and choose from tools, techniques and models in the discipline, without being responsible for development and refinement of same.

These professionals face a vastly different set of priorities, performance indicators and, hence, professional incentives than academic economists do; that said, fundamentally these economists occupy a frontline position in those areas where the discipline meets the actual world. But such economists are rarely at the “leading edge” of the discipline, nor are they politically unbiased or unbeholden to their paying clients.

I should also mention government economists, but that’s probably a separate enough topic to warrant its own discussion in a separate context. But it does get touched on briefly below.

Next …

Individual Economists

There are various individual economists with varying public platforms to make public announcements about economics, economists, policy and business. Non-economists might see them as more-or-less representative of the profession, utilising expertise developed at the frontiers of the discipline. That may or may not be close to how they’re perceived by others within the profession.

Paul Krugman is one such individual, with the status of a top-tier academic (appointments at Yale, MIT, lately Princeton) and a major prizewinner (John Bates Clark medallist, Nobel Laureate), and with a major platform at the New York Times. Some economists make a point of distinguishing Krugman The Research Economist, and Krugman The Public Polemicist.

So it’s possible to wonder how much Krugman represents an expert economist in his public writings (columns and blogposts), as opposed to a partisan writer expressing views consistent with a particular side of politics: advocating for “his team”, as it were.

It’s then worth noting that Krugman represents a broad faction of the economics profession, particularly when it comes to issues of policy responses to extreme events such as the GFC. But here, he most visibly does battle with other individual economists. His “adversaries” (those he often criticises, and who often criticise him) include John Cochrane, Casey Mulligan, Eugene Fama, Robert Lucas, and lately David K. Levine. These are luminaries of the profession, by any standard: academics in top-tier departments with major reputations. Of course, there are other leading figures who are closely aligned to Krugman’s view of economics and policy, such as Brad DeLong, Simon Wren-Lewis and Joseph Stiglitz.

Thus any view of which economist — or economists — provides a representative sample of the macroeconomics profession is going to be fraught. In the wake of the GFC, various individual economists, some named above, have been loudly decrying “austerity economics” with its focus on budget deficits (= bad), while others have been warning (year after year) of roaring inflation about to come, and blaming unemployment on structural factors exacerbated by policy uncertainty rather than any lingering deficiency in aggregate demand.

Macroeconomics is where individual noisiness is particularly pronounced; macroeconomics is highly contested, and the potential for policy intervention to improve or worsen things is profound, and varies both with the proposed policy action and with the individual worldview. But the problem of figuring out whether some individual economist’s views are a useful synthesis of a professional consensus is hardly confined to macroeconomics.

Just to give one example, if one was organising a conference on climate change and was seeking a leading economist to be a keynote speaker, the audience’s impressions of “where economics stood on climate change” could vary a lot depending on whether Nicholas Stern, Martin Weitzman or Richard Tol was chosen to speak.

Some speculations about how these things interact

One of the tricky parts in any assessment of economics, how it operates, and whether it needs radical reform or just continued evolution, is the question of the economics discipline as ideological first, and intellectual second (or worse). To me, questions of ideology around economics come most closely into focus when we talk about individual economists. Of course, economists tend to look generally pro-capitalism in that they seek to find a justification for defending government action in the economy, and absent such justification (typically, some claim of “market failure”) the default position is to leave things to the private sector.

To many working economists, this tendency to require some kind of hurdle to be passed before defending state action is just a practical step in an economy based on private ownership and self-determination. The way many in the profession work (in my experience), particularly those directly involved in policy work, is that they are open to persuasion that some intervention is warranted, but it needs to be justified both in principle (for example, some presumption of market failure) and in practice (e.g. some evidence that it satisfies a benefit-cost test).

It is a separate, explicitly political, step to make claims in general about how big the state should be, or to set goals involving explicit reductions in the size of the state or the scope of its role. It is from individual economists that such statements are most openly heard about the preferred size of government, or of the strengths (or limitations) of allowing markets to operate with as little hindrance as possible.

Harvard’s Dani Rodrik captures well the tension between the careful contingency of “the discipline” versus the retreat to standardised and simplified prescriptions that individual economists engage in. Which is to say, he makes the point more than once that economists whose academic work shows the difficulty of establishing general results can still come down on the side of simple policy prescriptions. “You get trade theorists who have built their entire careers on ‘anomalous’ results who are at the same time the greatest defenders of free trade. You get growth and development economists whose stock in trade are models with externalities of all kinds who are stern advocates of the Washington Consensus.”

(Both Rodrik and Robert Solow make similar points about free trade policy positions being adopted by economists who espouse more nuanced stances in their professional research.)

It’s also tricky knowing how to tell “the discipline” from “the profession” sometimes too. In particular, it’s not always easy to tell when “discipline developments” stop and “dynamics of the profession” start. Brad DeLong provides an example of how current New Keynesian models became the “accidental workhorse” of macroeconomics. The model was first introduced simply as a thought-experiment demonstration, but it has become virtually the standard tool in macroeconomic theory.

Of course, two interpretations of such an outcome are possible, each involving an interpretation of the process that led to the outcome. If one is inclined to think that economic research is one where better ideas and superior models eventually prevail (as judged, particularly, by what is featured in the leading peer-reviewed journals), then the adoption of the NK model as a workhorse of macroeconomics is, well, what it is. Which is to say, it’s the revealed-preferred model of choice of the best and brightest specialist researchers in the profession. In a variant of the “irrelevance of authorial intent” argument from the humanities, the NK model became a workhorse because it was the best available model, regardless of the original intentions of its developers. Who cares what its creators meant for it to be? It took on a life of its own.

The more cautious (cynical?) view of economic research regards developments in the discipline not as the results of optimised “truth-seeking”, but simply the outcomes of an imperfect and highly path-dependent process that prioritises and privileges certain modes of inquiry and method based on internal professional approval. If a particular approach to modelling is approved of, and adopted, by enough people over a period of time, it can crowd out alternatives, and individual incentives to maximise publication likelihood constrain experimentation with alternative methods. (See below when we return to discussing Alan Kirman.)

If it hasn’t dawned on the reader already, the description of the discipline I gave above is mainly a static one in which the current state of “knowledge” (and the associated use of tools and methods) is described, and its vigour and variety noted. Once talking about the profession, however, one is more or less necessarily talking about the dynamics of the economics research, advice and communications process. Oh, yes, and teaching. And to understand features of how the profession works is to shed light on aspects of how the discipline evolves.

Teaching economics

If we think teaching in economics needs some kind of serious reformation, if not a revolution, because we think that changing how we train incoming members of the profession of economists is a necessary condition for improving the discipline of economics, it’s important to acknowledge how much inertia is in that system. OK, that sentence is a mouthful; my apologies. But in the post-GFC movement concerned with critiquing and reforming economics, there’s a widespread focus on the education of economists, which means looking at curriculum issues.

To reform tertiary education in any discipline requires a commitment from a department about its core curriculum, rather than just a decision by an individual academic to broaden or alter the main elements of a core unit of study. And that’s only the first part of the coordination problem; appropriate textbooks have to be sourced that move beyond conventional approaches. If not yet written, they will need to be; if already written they need to be adopted. This will often be for units that are part of a core sequence where an individual’s latitude to deviate from the accepted orthodoxy is limited. (I do not use “accepted orthodoxy” to mean an ideological line; it may simply be providing methodologically-consistent foundations for material to follow.)

To give a few examples of ambitious and challenging books:

  1. Ned Phelps’ ambitious principles text Political Economy, which has (as far as I know) not been much adopted or revised in subsequent editions, despite early praise.
  2. Sam Bowles’ graduate micro text, relatively ignored relative to the technical manual by Mas-Colell, Whinston and Green that seems to be the industry standard.
  3. The British macroeconomics text by Snowdon and Vane that takes seriously the ideas that (i) there are multiple approaches to macroeconomics that could usefully be classified as “schools of thought”, and that (ii) the historical development of ideas and the various approaches/schools is important to understand in order to contextualise where things are at now.

I am not endorsing these (or any) particular books, or saying that adopting them will somehow “fix” whatever needs fixing. But ambitious books treating economics as a (contested?) body of thought, not just a set of tools to be learnt without context, have been written at times, seemingly without great success.

Straw-manning

Finally (!!) we return to the point where we started, with a noted economist with a background in theory saying mean-sounding things about economics. How awful!

It’s probably fairer to position Kirman, who knows his stuff, as talking about the profession rather than the discipline, per se, when he chides “economics” for being obsessed with the positive welfare properties of human self-organisation. Ryan is annoyed that Kirman is acting as though economists doing research aren’t actively interested in all the various ways markets fail, and aren’t actively researching the sources, and implications, of these various market failures.

First off, economists, like many other people, tailor their speech to their audience, saying things that they presume their listeners will respond to. Academics giving seminars or giving keynote addresses often make strong claims about what distinguishes what they’re about to say from what has gone before. “Mainstream economics tends to ignore [insert one or more of: disequilibrium / transactions costs / institutions / history / pervasive uncertainty / natural capital / interdependent preferences / the psychology of human behaviour / a variety of other things], but today I am going to show why it matters.”

I was at, a few years ago, a public address in Sydney by Jeff Sachs of the Earth Institute, when he was launching a university sustainability institute (which, as a side issue, no longer exists). He made great play during his talk of the fact that the economics profession at the time of his PhD studies (Harvard, mid-late 1970s) was ignoring environmental and resource issues. He managed to restrain himself from crediting himself with bringing environmental issues into the profession but the message was clear: we (economists) didn’t used to get it, but now we do! Your sustainability concerns are safe with us. We now care about what you care about (or at least, I do!).

What he didn’t mention was that the AER had published John Krutilla’s seminal “Conservation Reconsidered” article (late 1960s); no lesser figures than Yale’s William Nordhaus and James Tobin had been asking questions about how to measure economic growth when considering environmental and resource impacts (published by the NBER 1972); and multiple heavyweights in the profession (including Bob Solow, Joe Stiglitz, Partha Dasgupta, Geoff Heal, and Vernon Smith) published papers looking at exhaustible resources in a special issue of the Review of Economic Studies (1974). Solow devoted his AEA Presidential Address in the same year to the economics of resources, and Dasgupta and Heal’s seminal text on resource economics would appear later in the decade. Meanwhile, Swedish economist Karl-Goran Maler’s groundbreaking text on the theory of environmental economics also appeared in 1974.

Was Sachs straw-manning the economics profession and its concern with environmental and resource issues? Yes and no. He gave it no credit whatsoever, which was obviously overly harsh. But it’s possible that at the time, in one of the great universities with one of the great economics departments, not much attention was paid to environmental/resource issues. It’s possible that a graduate student had no options in terms of studying these issues seriously, because the profession at large was still coming to grips with what was a new set of issues, and they had not yet been fully institutionalised. The discipline was moving in the direction of recognising the relevant issues, but the profession (in terms of units of study, majors, and textbooks) was only slowly catching up.

Second, note Dani Rodrik’s observations that what economists do “in theory” (including their work in theory!) where anomalies, pathologies, and quirks reign supreme, differs from what they prescribe in practice: free trade, deregulation, economic liberalisation. If Rodrik is right, then criticising Kirman because the economics literature is full of market failure analysis is beside the point: in practice, economists in large numbers support laissez faire, and there’s not much use being in denial about this fact.

Third, I need to address something Ryan says about how the argument switches from whether economists study market failure, to how they study market failure. He seems to feel it’s somehow disingenuous, and that it goes to something sinister in the motives of those who critique “the mainstream.”

The kicker for Ryan is a response on Twitter as follows:

“2 approaches:
1. Assume benchmark state is perfect markets and distort your models until they resemble reality.
2. Assume economy is complex and adaptive and watch its history, derive analogies to disequilibrium systems.”

Ryan states:

“The sleight of hand leaves me with questions about motives. The problem with the critics of macroeconomics is not that macro is perfect as is. It’s not. The problem is that they so often start with inaccurate portrayals of what people in the field actually believe and do.”

So, we don’t know what Kirman had on his slides before or after the one shown on Twitter that made Ryan so unhappy, which might have made Kirman’s methodological alternative clearer. But the tweet quoted above isn’t disingenuous. It’s about your analytical starting point. In my parable about three different pool tables (one “mechanistic”, and two featuring variations on self organising systems), Kirman is essentially contrasting Table 2 with Table 3. The most simple form of Table 3 has very easy-to-manage external conditions, with rational forecasting agents (pool balls). One could then tweak the conditions of the table to start exploring what happens when agents’ individual optimisation does not lead to aggregate optimal outcomes, which we could label market failures.

Sure. But the default that underpins this mode of analysis is individually optimising behaviour that leads to socially optimal (in some sense) outcomes: what Kirman describes as “satisfactory welfare properties”. Kirman’s work in complexity is in the spirit of Table 2 in my pool parable, and it’s important to note a key difference, which is that there is no presumption here of satisfactory welfare properties. He’s proposing a different way to do economics than is currently in the mainstream of the profession, and that’s not trivial, and it gets to the point expressed in his slide. The default mode of operation in economic modelling is to build models where something resembling the first fundamental theorem of welfare economics doesn’t hold because of some feature(s) of your model you have introduced precisely to ensure this.

Kirman wants to do something different, which is effectively to build a model from the ground up, and to see what happens. This is what complex systems analysts do. And there are debates about microfoundations, and about internal and external consistency in modelling strategies, which are relevant here, and which I will have to come back to because this is already far too long. But it’s not disingenuous of Kirman to have in mind that there’s a default mainstreamed way to do economics that is considered publishable and “respectable”, and then there’s a new approach, which is still considered to be on the margins, and that he thinks the latter holds much more promise.

I’m not saying Kirman is right. He may be. There’s more than one way to skin a cat, and to build a model. But what I am saying is I can see how his point is valid in terms of a methodological approach he is following that has yet to be recognised as within the mainstream, even broadly defined. I don’t think he’s being disingenuous, and I don’t think the response Ryan got on Twitter involves sleight of hand or dubious motives. If you want to argue that the one slide that’s been shared on Twitter is oversimplified/overstated, and hence misrepresenting economics, well, maybe slightly, but that’s how I felt about Jeff Sachs a few years ago. But I could still see why what he said could be defended.

Endnotes and caveats

  1. I have not talked much about “heterodoxy” in economics, as such. This raises more issues than I can deal with here, and deserves its own post(s). Kirman, whatever he identifies as now, has a clear history in the mainstream discipline as a theorist, which is not always the case with self-identified “heterodox” economists. It’s possibly a matter of debate whether the typical complaints offered up by heterodox economists about the mainstream are criticisms of the discipline itself, or of the profession that has set up boundaries around what is considered “inside the tent” rather than outside. Perhaps a bit of both. A subject for further exploration later.
  2. There’s a whole debate to be had about what constitutes “knowledge” in economics. What does theory tell us, what do particular models tell us, how good is our capacity to empirically assess our theoretical work, and how does this stack up to various other disciplines? I haven’t addressed this here but it’s relevant not least for assessing whether some commentator is being “unfair” to economics.Similarly, arguments about the formalisation of economics, and the use and misuse of models will have to wait.
  3. As in the point above, disciplinary comparisons are worth keeping in mind in these discussions above. One thing about talking about “the profession” of economics is that many economists are keen to join in such conversations; at least, I’ve had such chats in tea rooms, pubs and at conferences. In these conversations, economists indulge in what might be thought of as “the sociology of economics,” noting with varying degrees of approval or otherwise the kinds of things that have been discussed above.
  4. I have not mentioned the role and impact of research evaluation exercises, of the sort that have played out in Great Britain and Australia, in measuring/encouraging performance according to a set of metrics, and hence encouraging conformity of departments, all of whom end up competing for resources on the same terms (journal rankings, citation rates, and so on). Some pessimistic remarks on the state of academic economics in Australia are to be found here, and the UK here.
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