Debunking Economics, Part XVI: The Search for Alternatives

The final chapter Steve Keen’s Debunking Economics is a brief overview of the major competing alternative economic schools of thought. The question posed is whether these schools present a viable alternative to neoclassicism and marxism, both of which Keen has already dismissed. He now goes on to evaluate Austrian, Sraffian, post-Keynesian and evolutionary economics, as well as Econophysics. I will look at Keen’s evaluation of these schools of thought and discuss his conclusions.

Austrian Economics

Keen’s view on the Austrian school is similar to that of myself and other post-Keynesians:  it shares many characteristics  with neoclassicism. These include but are not limited to: an exogenous money supply (ex. Lachmann and Schumpeter), Say’s Law, a variant of marginal productivity theory, reductionism and a government versus markets perspective. Hence, many of his earlier critiques – Sraffa’s work on capital, the excessive focus microeconomics, and post-Keynesian views on banking and the money supply – could equally be applied to Austrians. Keen himself thinks that Austrians deal with uncertainty, but (again, ex. Schumpeter and Lachmann) I’m not even sure this is true – for example, Hayek completely misused the term. Hence, criticisms of neoclassical models based on irreducible uncertainty may also apply to some Austrian arguments.

While Keen applauds Austrians’ analysis of capitalism as more dynamic than that of neoclassical economics, he notes that they do seem to retain the belief that capitalism has a ‘natural’ state that should not be ‘interfered with,’ and they actually seem to take it much further than their neoclassical counterparts. This is particularly apparent – also something that I have noted – with Hayek’s ‘spontaneous order.’ Though it is an interesting concept, it has been misused as an ideological tool against government, without considering the ‘spontaneous order’ that may evolve inside government, or the possibility the dichotomy between governments and markets may be a false one.

All in all, it’s hard to deny Austrians are part of the marginalist tradition, something Mises explicitly said. Hence, I don’t consider the school a truly ‘alternative’ way of thinking about economics, even if it has something to offer.*

Sraffian Economics

Keen praises Sraffa’s work as “the most detailed and careful analysis of the mechanics of production in the history of economics,” and notes the importance of the interesting conclusions that it brought to light. Nevertheless, Sraffa’s analysis is a static one that seems to be dependent on the existence of a long run equilibrium (here Keen quotes the Sraffian Ian Steedman as evidence). Due to the lack of dynamism in Sraffian models, Keen’s previous comments about dynamics and equilibria could be applied to Sraffa. Keen ends by noting the subtitle of Sraffa’s magnum opus: “Prelude to a critique of economic theory.” He suggests Sraffa’s main aim was to provide a basis with which to critique other theories, rather than present a positive alternative. I’ve no doubt Sraffian readers will disagree.

Econophysics/Complexity theory

This school of thought is characterised by the application of modern chaotic modeling techniques to economics. Hence, the models produced are far better suited to generating the kind of instability we observe in capitalist economies than are those used in neoclassical economics. Keen comments that the school isn’t really a direct critique or challenge of neoclassical economics, instead dismissing it outright and presenting an alternative.

Bearing the lack of direct engagement with economists in mind, it’s not surprising that the physical scientists suffer somewhat from a curse of being a mirror image of economists. Keen says that they have been rediscovering old insights such as IS-LM, then using them with other, incompatible models such as rational expectations. They also seem to have an ‘everything looks like a nail when you have a hammer’ problem, and are applying inappropriate laws, such as conservation to the distribution of wealth, or electromagnetism to immigration.

Perhaps econophysicists should be more willing to read through the history of thought – as I noted in my post on mathematics, this type of imperialism/arrogance in physicists is no prettier than in economists (commenter Blue Aurora told me that some econophysicists have been more willing to engage with the discipline recently, which is a good development). Despite these flaws, the tools of modern chaotic modeling are surely a promising area for the future of economics.

Evolutionary Economics

Keen’s discussion of this field is the first time I have been properly introduced to it, so I’ll be brief. Keen seems to think that evolutionary science is an appropriate and promising field, but one that lacks maturity. Many evolutionary concepts, such as adaption and survival of the fittest, are surely applicable to capitalist firms and product evolution. Having said that, economics lacks the equivalent of the gene to ground the evolutionary approach, so many evolutionary models are often forced to rely on analogy. Perhaps – and hopefully – the evolutionary school will be able to establish a coherent grounding in the future, but for now it is not a strong enough alternative to neoclassicism.

Post-Keynesian Economics

As this is the school Keen and I both most closely align with, you’ll not be surprised to hear the many advantages we think it has to offer: dealing with uncertainty; the relative lack of ideological commitment to any particular system; paying sufficient attention to money, debt and banking; more reality based models of the firm; freedom from reductionist constraints, and much more.

The main problem with this school is the lack of coherency. It’s almost defined as ‘not neoclassical economics’ (and, Keen might add, not Marxism either). Post-Keynesiansism does not really have an agreed upon methodology, something that has worked against its status as a fully fleshed out alternative.

As a brief aside: personally I don’t see why class shouldn’t be adopted as the ‘official’ methodology of post-Keynesians. It is compatible with many of the core tenets of the school – for example, the idea that individual actions should be understood in their class context fits in with the post-Keynesian idea that microeconomics should have ‘macrofoundations.‘ Furthermore, there is also an element of ‘reclaiming classical economics’ to post-Keynesianism, and the classicals generally used class as a methodological starting point. Finally, many of the models – including Keen’s – already use classes as agents, so it seems like a natural progression.

Overall, it seems post-Keynesianism is simply less rigid and more reality-based than its neoclassical counterpart, and is more fleshed out than other alternatives, save a problem with a unified methodology.** Although I suggested that this methodology should be class, perhaps – and this something to which Keen alludes – the lack of a rigid methodology is a strength rather than a weakness. Viewed from this angle, post-Keynesian economics can accept and develop concepts from all of the alternative fields (as well as institutional economics, which Keen doesn’t mention). This also solves the ‘divide and conquer’ problem – part of the reason for neoclassicism’s dominance seems to be the splits between its rivals, which as you can see are many. Generally, I think cooperation between the alternative schools of thought may be the key to building a robust alternative to the curiously resilient school of neoclassicism.

*Obviously there are strong divides within the Austrian school. Rothbardianism is barely worth exploring, while Hayek and Mises have some insights but were fairly tainted by the government-market dichotomy. As I have noted above, Schumpeter and Lachmann seemed the most willing to abandon certain pretenses and come to interesting conclusions.

**Actually, judging from the constructive comments on my marxist economics post, I have more faith in marxist economics than does Keen. However, I will need to explore it more fully before I can come to a definitive conclusion.

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    • #2 by Unlearningecon on November 21, 2012 - 11:39 pm

      Honestly I found it hard to see his point past all the jargon.

  1. #3 by ??? on November 18, 2012 - 9:58 pm

    Is it really surprising that Post-Keynesianism has the feeling of incoherence? I’d say that it goes directly to the fact that they attempt to critique every single facet of economics, no matter how able they actually are to do so. It’s the defining characteristic of a crank in every field–someone who thinks that they have something valuable to say about every part of the discipline. Keen is better at making himself appear to not be a crank than, say, these guys (http://www.post-science.com/), but the principle isn’t that much different.

    Keen could learn something from Scott Sumner, a guy whose ideas made it to the mainstream (to an extent) because he focused on one very specific thing.

    • #4 by Eric L on November 19, 2012 - 6:29 am

      +1, and I’m not so sure Keen is that good at not making himself appear to be a crank. Witness his debate with Krugman, when he compared himself to Copernicus and Krugman to Ptolemy — the only way he could have looked any more like a crank would be to call himself Galileo instead.

      It is easy to find places where economists oversimplify the world. It is impossible to make any progress in theoretical economics without oversimplifying the real world. Post-Keynesians even over-simplify the real world! But you can go on and on about all the many simplifying assumptions used in economics that don’t quite match the real world. You need to focus your energy on a handful that don’t come close to the real world, and show that they have a big impact, by keeping as many of the assumptions of mainstream economists as possible while showing the implications of changing a few (ideally one) assumptions. Not because everything that mainstream economists assume is correct, but because it makes it clearer that a particular idea is quite consequential and needs to be taken seriously by those who would otherwise use standard assumptions.

      • #5 by ??? on November 19, 2012 - 8:12 am

        Well, he’s fooled a lot of people who seem like they should be smart enough to know better. People who aren’t taking, say, creationists seriously.

        The weird part is that Keen and his lot act like the ‘mainstream’ ignores them because of some disingenuous reason, when in reality it’s probably because 1. They appear to be cranks; and 2. Most modern economic thought is about small, focused contributions. Anything that attempts to be big and paradigm-changing is going to be, at best, looked upon with suspicion for this reason alone. For all the post-Keynesian talk about teaching the history of economic thought, it’s surprising that they wouldn’t have noticed the way the last thirty years of thought has developed.

        Of course, given Keen’s deft avoidance of ‘debunking’ the major breakthroughs of the last thirty years of economics (the credibility revolution, matching markets, BLP-style structural estimation), perhaps it’s not that surprising.

      • #6 by Unlearningecon on November 19, 2012 - 10:08 am

        Most modern economic thought is about small, focused contributions.

        It’s weird because the economists who admit the 2008 crisis was a serious problem for the discipline tend to cite this as a major reason for economists not seeing the crisis: noone was looking at the big picture. Keen’s models of the crisis don’t really have any major flaws other than they depart from neoclassical assumptions, but economists spit whatever bile they can at Keen because the model is so different.

        Keen could learn something from Scott Sumner, a guy whose ideas made it to the mainstream (to an extent) because he focused on one very specific thing.

        The fact that his arguments are incredibly mainstream and even sit pretty with the old RBC crowd has nothing to do with it? Sumner explicitly says he wants NGDP to be constantly increasing so it will take us into the supply-side fantasy world.

        Of course, given Keen’s deft avoidance of ‘debunking’ the major breakthroughs of the last thirty years of economics (the credibility revolution, matching markets, BLP-style structural estimation), perhaps it’s not that surprising.

        Everything Keen ‘debunks’ is:

        (a) Taught on UG & PG courses
        (b) Used by policymakers

        Having said that, he is primarily critiquing marginalism and there are of course parts of economics that are empirically driven and don’t have much to do with marginalism. But you should really provide brief descriptions of the things you reference rather than simply say their names in the hope of appearing more knowledgable than Keen.

        The major problem with your comments is that you have yet to offer a convincing refutation of the major post-Keynesian arguments. Cranks or not, fact is the argument cause problems for neoclassical economics.

      • #7 by Unlearningecon on November 19, 2012 - 10:00 am

        It is easy to find places where economists oversimplify the world. It is impossible to make any progress in theoretical economics without oversimplifying the real world.

        Man this is such a cop out. Lumping all assumptions together as ‘simplifications’ like Friedman’s incoherent essay is part of what got economics into this mess.

        You need to focus your energy on a handful that don’t come close to the real world, and show that they have a big impact, by keeping as many of the assumptions of mainstream economists as possible while showing the implications of changing a few (ideally one) assumptions.

        This pretty closely describes the approach of Keen so I’m not sure what you’re getting at (?)

        I think there is some crankiness in Keen’s rhetoric but I’m more bothered about his actual arguments.

      • #8 by ??? on November 19, 2012 - 1:40 pm

        If this book was about adding a banking sector to macro models, it would be one thing. But it’s not. It’s about “debunking economics,” which he doesn’t do particularly well.

        I’m going to ignore his claims about inconsistencies in firm theory. They’ve been refuted (for example, here: http://www.econ.canterbury.ac.nz/personal_pages/paul_walker/debunk.pdf) and if you still believe Keen on this then you’re in denial.

        Even beside these claims, it attempts to ‘debunk’ economics without engaging in any modern work that isn’t macro. The fact is, the vast majority of modern economics isn’t macro, and it’s definitely not micro theory. It’s empirical micro.

        I didn’t throw out those phrases as some assertion of authority, by the way. You could have very easily googled them. But I suppose I should ensure that you learn a little bit about economics before you ‘unlearn’ it.

        The credibility revolution is the term given by Angrist and Pischke to describe the change in techniques used in most empirical micro work that happened since around 1980. Since then, in most empirical micro fields, the focus has been on taking advantage of natural and quasi-experiments, and specific statistical techniques that can recover causal effects without necessarily invoking theory. The Angrist-Pischke paper is at http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.24.2.3.

        BLP is Berry, Levinsohn, and Pakes (1995), a paper that started a trend in modern industrial organization work. The work that Angrist and Pischke describe mostly focuses on estimating average effects in what’s referred to as a ‘reduced-form’ way. Work in the BLP tradition, on the other hand, sets up a stylized economic model of market interactions (say, a demand curve) that has several parameters. Then, data is used to estimate these parameters. The boon of this approach is that the structural model allows you to think about the effect of counterfactual scenarios (such as increased regulation, or the entry of a new firm). Nevo-Whinston’s (yes, the W in MWG) response (http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.24.2.69) and Einav-Levin’s report (http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.24.2.145) describe this approach.

        Now, you should understand that the work described in the above two paragraphs is maybe 80 to 90% of all modern work in economics. (if you don’t believe me, check out MIT’s job market candidates: http://economics.mit.edu/graduate/resumes) This is the stuff policymakers engage with. You dismiss its relevance as not being based on marginalism, but that’s not true at all. Reduced-form work is about average treatment effects, which is by its nature a marginal effect, and structural work is founded on fundamental economic theory. Keen’s lack of engagement with this material before declaring intellectual victory over economics speaks either to incredible ignorance, or willfully not mentioning things that he can’t feebly ‘debunk.’ Either way, he’s a crank.

      • #9 by Unlearningecon on November 20, 2012 - 3:42 pm

        The new edition devotes a substantial amount of time to establishing an alternative, so I wouldn’t say it’s not at all about adding a banking sector to macro models. Having said that, I think Keen does plan an entire book on that issue.

        I have seen Chris Auld’s review before and I don’t believe it in any way ‘refutes’ Keen’s main point. Auld even concedes that a change in production by a firm under PC will have a tiny effect on price. He says this is too small to worry about, but he doesn’t seem to realise that Keen is talking about the cumulative effect of lots of tiny changes. It follows that the total effect on price will be the same as in a monopoly market, so the MR and demand curves will diverge in the same way and there is no supply curve. The ‘cumulative effect’ is the exact same logic economists use when discussing long run equilibrium under PC so I don’t see the problem.

        If you want to argue that firms in PC act as if they are price takers, that’s logically sound but it also amounts to an assumption that they aren’t quite profit maximisers.

        In any case, I was more referring to the CCCs (which are not just about reswitching), endogenous money, markup pricing, uncertainty, SMD etc.

        I think Keen’s aim is to debunk economics as taught and popularised. If economists want people to pay more attention the their actual work – and I agree that it doesn’t necessarily suffer from the same flaws as the stuff Keen is talking about – then they should stop making public pronouncements about stuff like rent controls based on econ101 models. Obviously econometrics is far more careful about assumptions, more empirically based and has few ideological implications.

        But it’s hard to deny the neoclassical stuff Keen is talking about doe snot hold large sway within the profession or in society.

      • #10 by ??? on November 19, 2012 - 1:41 pm

        By the way, UE, again you claim knowledge of what in economics graduate students learn and what policymakers use. Given that you’ve admitted on other occasions that you’re an undergraduate, I’m rather skeptical.

      • #11 by Unlearningecon on November 19, 2012 - 2:07 pm

        I possess several textbooks that graduates use or that may be used by graduates (MWG, Varian’s older one, Reny & Jehle) and though some of the technical parts are over my head, the material is the same stuff Keen is critiquing.

        I am also aware of the DSGE models used by the IMF and many central banks. According to Simon Wren-Lewis, they were often so far from reality that they had to be contorted to the extent they had internal inconsistencies before they became relevant.

      • #12 by BFWR on November 19, 2012 - 6:45 pm

        “But you can go on and on about all the many simplifying assumptions used in economics that don’t quite match the real world. You need to focus your energy on a handful that don’t come close to the real world, and show that they have a big impact, by keeping as many of the assumptions of mainstream economists as possible while showing the implications of changing a few (ideally one) assumptions. Not because everything that mainstream economists assume is correct, but because it makes it clearer that a particular idea is quite consequential and needs to be taken seriously by those who would otherwise use standard assumptions.”

        This is precisely true. Now how do we do that? The answer is understanding that human wisdom is the ethical integration of human thinking and human actions, and so the condensations of human wisdom will show us what to base not only economics
        and finance on, but all of human systems. It is no coincidence that our species designation is homo sapiens, i.e. wise and discerning man, and the fact that we need to utilize wisdom to
        guide BOTH our personal actions AND our human systems.

        I assert that the ideas, values and experiences of Faith as in Confidence, Hope, Love and Grace are the most basic condensations of human wisdom and so should be the basis for all human systems, most urgently those of economics and finance. This is not some fuzzy idea actually. One can craft temporal universe policies that accurately reflect these ideas, values and experiences in a fairly easy and straightforward way. For instance, the idea of a citizen’s dividend is the perfect monetary reflection of the concept and experience of Grace, the free gift. It is again, no coincidence that utilizing a debt jubilee to eliminate much of our personal debt (a modern version of which Keen has advocated for at least a year (and which I have been advocating for about 5 years) also reflects the importance of Grace in keeping our system balanced, truly free instead of just free in name and operable for the long term. We just need faith, that’s right faith as in confidence, that utilizing wisdom will enable us to proceed in the best possible fashion. Don’t be confused by these condensations of wisdom, they are not
        religious strictures in any parochial sense. They are universal human aspects of our innate spiritual/psychological nature.

        All we need is Faith (confidence) beautifully expressed as the very valid human psychological experience in the following quote:

        ….for verily I say unto you, If you have faith as a grain of mustard seed, you shall say unto this mountain, Remove from here to yonder place; and it shall remove; and nothing shall be impossible unto you. Matthew 17: 20

      • #13 by ??? on November 19, 2012 - 10:43 pm

        I guess it’s my fault for following up a lengthy comment with snark, thus giving you the opportunity to not actually respond to the long comment. It seems you don’t really need to learn economics before you unlearn it.

      • #14 by Unlearningecon on November 20, 2012 - 12:01 am

        Dear god man, did you ever consider that I’m out and about and was more able to respond to the shorter comment quickly? That I wanted to give sufficient attention to the longer post?

        Seriously, keep up the attitude and you’re gone.

      • #15 by ??? on November 21, 2012 - 8:12 am

        “I think Keen’s aim is to debunk economics as taught and popularised.”

        You’re moving the goalposts here. This isn’t a book about pedagogy. It’s about “debunking economics.” There’s some good points that can be made about pedagogy, but as far as I can remember (helped by Amazon’s preview options, I don’t have a copy) he just mentions pedagogy near the beginning to say that courses indoctrinate their students. The rest of the content doesn’t discuss this at all.

        The Auld comment: The point is that Keen relaxes one of the standard perfect competition assumptions (that there is a continuum of firms) and then shows that the results change. Keen spends a LOT of time on this, when the answer (that Auld gives) is “duh.” When you relax the assumptions, your results change.

        There’s two things that Auld doesn’t mention that he should: The first is that PC is mostly a mental tool in that it’s a stepping stone to markets with finite firms, and the second is that PC is empirically irrelevant–structural market analysis doesn’t use it at all. Again, if this was a commentary on pedagogy, it would be one thing, but with statements like “We do need an adequate analysis of how industry functions, but neoclassical economics does not provide it” and “this critique…removes one of the two essential pillars of their approach to modelling the economy” that’s clearly not what he’s saying. He’s saying that the way we model markets are incorrect because of the ‘flaws’ he’s found, when he hasn’t discussed how practitioners actually model markets.

        Ironically, he also keeps coming back to an example with 1000 firms. But that’s not empirically relevant, either. You just don’t see markets that are that big, and certainly not with homogenous goods. By the way, dropping the assumption of homogenous goods also nullifies P=MC!

        Now, one of the reasons that ‘perfect competition thinking’ catches on with people is that it’s much easier to work through than more complex cases. Clearly you have never attempted to teach an undergraduate micro class if you haven’t noticed this. There’s things we could do as a profession to fix this–be more explicit about its empirical irrelevance–but a paradigm change seems like an extreme solution. Supplanting perfect competition with ‘perfect-competition-except-with-finite-firms’ doesn’t seem like a particularly good fix to me, either–what difference does it really make pedagogically, other than being somewhat harder for students to understand?

        And for practitioners it’s even more irrelevant. Look at the work Varian/Athey are doing at Google/Microsoft (respectively), for example. Keen’s characterization of micro theory has no relation to such work.

        By the way, saying that you know what graduate students learn because you’ve flipped through nontechnical parts of MWG and Jehle/Reny is just as incorrect. I can’t remember the last time I read MWG–it’s a first year book! Most of the coursework that informs research comes in the second year. I realize that saying you’ve read MWG impresses people who are terrified of math, but it doesn’t show that you have any bearing on modern research. Same as when you say “Obviously econometrics [I assume you mean empirical work?] is far more careful about assumptions, more empirically based and has few ideological implications.” You are making the exact same error which I pointed out originally–this is the majority of economic research! It’s fine that you don’t know this, you have time to learn.

        But it’s inconceivable that Keen, as someone who has completed a PhD and is faculty at an academic department, has remained ignorant of the majority of economics work (probably including a great deal of his department peers!). It can’t be anything other than willful misrepresentation to score points. That’s why the response to him is so vitriolic.

        Sadly, he will continue to spin this vitriolic response as persecution, and low-information readers won’t be able to tell the difference. It’s unfortunate that cranks like him hit the internet much quicker (and better) than legitimate scholars, it’s really led to a dearth of good public scholarship.

        This reply has taken far more time than I really ever wanted to use in considering this work.

      • #16 by Unlearningecon on November 21, 2012 - 10:08 am

        Thanks for a constructive response.

        I’m not moving the goalposts – I still stand by the idea that this book blows a hole in many concepts and frameworks used by economists, and these have a lot of impact on the real world. Apart from finance and central banking, development is an area that stands out for me, where models such as Solow Growth have been used and clung to with pretty poor results. The reason Keen doesn’t attack each and very model is that the forefront of economics is incredibly specialised and it would not be worth it to attack specific approaches.

        The Auld comment: The point is that Keen relaxes one of the standard perfect competition assumptions (that there is a continuum of firms)

        I don’t understand this. Keen merely says that even an infinitesimally small firm will have a small impact on price?

        If you agree perfect competition is unrealistic, the solution is simple: abandon it. Seriously, it serves no use. Business economics can be taught without perfect competition or even Cournot/Bertrand (which bear equally little resemblance to reality). It’s far better to look at management structure, mark up pricing etc. than imaginary marginal costs where capital and labour are presumed to be clay-like.

        I realize that saying you’ve read MWG impresses people who are terrified of math, but it doesn’t show that you have any bearing on modern research.

        I’m not trying to impress anyone, but if you are basically disowning these books why are you not shouting more loudly for the entire curriculum of economics to be change from UG to PG level? Would engineers be happy if even undergraduate engineers left university with so many assumptions in tact and went on to work in industry?

        Same as when you say “Obviously econometrics [I assume you mean empirical work?] is far more careful about assumptions, more empirically based and has few ideological implications.” You are making the exact same error which I pointed out originally–this is the majority of economic research! It’s fine that you don’t know this, you have time to learn.

        No, this was precisely my point. Personally I’d distinguish between economics and econometrics, though. I know many do both but there is a clear divide between the abstract theory papers and the empirically driven ones that use a few tools from theory.

  2. #17 by Steve on November 18, 2012 - 10:40 pm

    Real wisdom integrates thought and action, always, otherwise it is not wisdom. Basing our systems on the most generally accepted condensations of true human wisdom, then crafting policies that accurately reflect those condensations and making sure that those policies remain accurately bound back to the wisdom is what we need most urgently in economics and finance, but in all human systems. We are homo sapiens. not homo economicus or even homo scientificus.

    “We shall not cease from exploration,
    and the end of all our exploring
    will be to arrive where we started
    and know the place for the first time.”
    TS Eliot

  3. #18 by spatchcock on November 18, 2012 - 11:55 pm

    I read this a couple of years ago:

    and if I remember correctly (and understood correctly), the unit of selection (i.e. gene) within an evolutionary economy is argued to be the ‘business plan’.

    • #19 by Unlearningecon on November 19, 2012 - 10:12 am

      That’s interesting, although from the sounds of things it can only really deal with the private sector.

      • #20 by spatchcock on November 19, 2012 - 10:36 am

        Yeah, maybe, From what I recall, the notion of a ‘business plan’ was quite broad and esoteric and could apply to ‘ways-of-doing-things’ outside the private sector, but of course the selecting agent (the environment in the evolutionary analogy) is the market.

  4. #21 by Will on November 19, 2012 - 12:21 am

    There is a pretty large overlap between “evolutionary” and “institutionalist” economics, no?

    “Finally, many of the models – including Keen’s – already use classes as agents, so it seems like a natural progression.”

    Interesting point. Two of the things I like about Michal Kalecki’s models are that: a) they highlight the circular flow dynamic; b) they retain the category of class, distinguishing workers from capitalists and rentiers, and wages from profits. His case demonstrates the lack of clear borders for Post Keynesianism, though, since they can at once be called Marxian and Post Keynesian.

    • #22 by Unlearningecon on November 21, 2012 - 4:40 pm

      I guess schools of thought should not be considered as separate as they are on the internet.

      From a methodological standpoint you could split into ‘marginalist,’ which includes Austrian and neoclassical economics, class-based analysis, and then the less abstract schools like evolutionary and institutional.

  5. #23 by W on November 19, 2012 - 1:00 am

    “We shall not cease from reading Leijonhufvud`s,
    and the end of all our reading of Leijonhufvud`s
    will be to arrive where we started
    and know the place for the first time.”
    TS Eliot

  6. #24 by Roman P. on November 19, 2012 - 3:23 am

    There is also French Regulation school (I believe I have first seen a mention of it in the writings of Marc Lavoie), but it is sadly very obscure in the English-speaking countries (and I can’t read French).

  7. #28 by Magpie on November 19, 2012 - 10:16 am

    And speaking of Steve Keen:

    “Tell University of Western Sydney They are Dopes for Planning to Dump Steve Keen”. Naked Capitalism

    http://www.nakedcapitalism.com/2012/11/tell-university-of-western-sydney-they-are-dopes-for-planning-to-dump-steve-keen.html

    I think the UWS could be shooting themselves in the foot: getting rid of the most high-profile faculty member.

    And it’s not the first time Australian universities show themselves so blind. John Harsanyi, 1994 “Nobel” Economics recipient, is another case.

    Whether one shares Harsanyi’s teachings or not, the man was a luminary: Australian universities could be boasting a “Nobel” recipient in Economics.

    • #29 by Unlearningecon on November 19, 2012 - 1:17 pm

      Yeah I’ve seen that. Seems the market has spoken!

  8. #30 by SR819 on November 19, 2012 - 7:32 pm

    The reason why Economics is disliked by other social scientists is the attitude most mainstream economists display towards alternate ideas, and we’ve had a few examples in this thread. Any theory that doesn’t conform to the ideological assumptions that underpin most of economics (rationality, dichotomy between markets and governments, unquestioning belief in the mantra of “growth is good”, no questioning of the historical circumstances under which private property rights developed, acceptance that Labour is simply a factor of production, etc etc) is considered cranky or pseudoscience.

    Mainstream neoliberal economists claim that those who oppose the subject don’t understand it, or misrepresent it. However, there’s no question that most of the criticisms aimed at economics is justified. Although you could argue that economists study market failure, this is very much taught as a special case, and that in general markets clear. Moreover, even when they accept that there is a disparity between demand and supply, economists generally look to blame regulations or labour market institutions like Unions or the NMW, rather than even test the hypothesis that disequilibrium is a fundamental property of market societies. It is an inescapable fact that economics is ideologically biased to the right. Survey after survey has found that the political views of economists are well to the right of most social sciences, and the only areas where they are in tune with the rest of academia is in their social views. Not only that, studies by people like Rubinstein and Frank has found that economics students are more selfish and competitive that students of other disciplines, and get moreso as a result of their studies. And after all this evidence, do you really think Economics doesn’t serve an ideological purpose?

    The worst thing about the subject is its complete lack of understanding of how science actually works. In the opinion of economic “scientists”, economics is a science because they use “advanced” mathematical techniques (techniques that are actually not advanced at all, and a first year Maths student would find elementary). However, one of the fundamental ideas of science is that theories should never be accepted, rather they should continuously be scrutinised and examined against the data, and if the empirical data conforms to the predictions of the theory, the theory should cautiously be considered the “best” one for the time-being. Economists, on the other hand, have accepted theories about the minimum wage, the slope of the demand curve, TFP, the causes of increasing economic inequality etc even though the evidence explicitly rules against the theory. How can a subject be considered a science when it chooses to ignore evidence when that evidence goes against their ideological preconceptions?

    I’ve looked into the other economic schools of thought (especially Post Keynesian), and even though they are superior to the Neoclassical school, I think what we really need is to unify the social sciences, rather than have separate subjects specialising in their own area. For example, subjects like socioeconomics, economic geography (not the Krugman inspired one), economic anthropology are, IMO, much more useful avenues to go down if we want to understand about the political, social and economic world around us.

    • #31 by FransCarekFRANCE on November 19, 2012 - 9:10 pm

      Perfect post,bravo

      And yes we should unify the social sciences….sociology,Anthropology,History of economic thought and Logic\base philosophy should be required in every curriculum…Adam Smith,Marx,Pareto,Keynes,Sraffa and all true giants were Sociologists and/or Philosophers too…to understand something complex like the economists you must deal with a interdisciplinary approach,not the one-dimensional “autistic” ultra-reductionist joke market-as-GOD-cult that is modern economics

      Instead,from my experience, most economists hate the very idea to open their field to other social sciences and to discuss of issues like power relations or ethics

      modern economics is scary

      • #32 by Steve on November 20, 2012 - 4:59 am

        Unification may be a good thing, but I’d say we need integration in every human body of thought even more. And no matter if you’re going to unify or integrate what you need to do is look deeper for a unifying/integrating ethic….like a non-sectarian, non-parochial commitment to human wisdom. What is the deepest most universal understandings of wisdom? Why they are the ideas, values and experiences of confidence, hope, love and grace. These are basic, basic unifying aspects of human existence, human reality, human potentiality. Man needs systems that enable these things, not inhibit them…like now. You can’t go deeper than confidence, hope, love and grace. You can’t find better basics than these same. You can’t discount or overestimate wisdom….its too real, too potent, to powerful. Wisdom is the ultimate unifier and integrator. Wisdom, it’s where it’s at.

      • #33 by Unlearningecon on November 20, 2012 - 3:43 pm

        Perhaps unification is not really what is needed. What is needed is a flexible whole that accommodates many different approaches and has specialists.

    • #34 by ??? on November 19, 2012 - 10:38 pm

      You know, I’m in an interdisciplinary department, and I have yet to see any of your supposed antipathy from other social scientists. I get the sense that the ones you describe are a rather small minority whose prestige is predicated on the idea that economics is terrible (like Jonathan Schlefer).

      You complain about economists claiming misrepresentation. Well, what’s wrong with claiming that when it’s actually happening? As I stated above, Keen claims to have debunked economics when he has failed to address the the majority of what economists do. How is that anything but misrepresentation?

      The rest of your post hits the usual tropes, but there’s one last thing in particular–market failure is not taught as ‘a special case.’ You would be hard-pressed to find an economist who claims that market failure isn’t the norm for most scenarios. Pretty much every interesting economics paper is about market failure. You would have to never have looked at a journal to not know this.

      If you don’t want economists to claim that you’re misrepresenting them…maybe you shouldn’t misrepresent them?

      By the way, how is relative political affiliation an actual criticism? Being right of other social sciences just means that economics is 2:1 or 3:1 democrats:republicans in the U.S., rather than 6:1.

      • #35 by Roman P. on November 20, 2012 - 1:07 pm

        “Pretty much every interesting economics paper is about market failure. You would have to never have looked at a journal to not know this.”

        Now that’s a stretch…

        Also, I don’t understand your critique of S. Keen. Pretty much 90% of the whole book is a compilation of the well-known results of the other (often neoclassical economists). Want to refute it? Start with devising polinomial algorithm for choosing amongst combinations of n goods, or maybe refuting Sonnenschein, Mantel and Debreu and their results on the uniqueness and stability of the GE. That’s a Nobel here, easily.

    • #36 by Unlearningecon on November 20, 2012 - 3:29 pm

      Great comment.

      In the opinion of economic “scientists”, economics is a science because they use “advanced” mathematical techniques (techniques that are actually not advanced at all, and a first year Maths student would find elementary).

      Having done first year maths, I can verify this is pretty close to the truth. In fact you more than cover the kind of stuff UG economists do within the first term.

  9. #37 by Roman P. on November 20, 2012 - 1:34 pm

    Just remembered. There also were Post-Walrasians who mostly analyzed disequilibrium phenomena. Though, this school is also pretty obscure and dead. I am not even sure that Prof. Leijonhufvud shouldn’t be categorized as a Post-Keynesian now, judging from his most recent papers.

  10. #38 by Robert on November 21, 2012 - 4:41 pm

    “The point is that Keen relaxes one of the standard perfect competition assumptions (that there is a continuum of firms) and then shows that the results change.”

    A discussion on this point just misses most of Keen’s book. Anyway, the above comment is false.
    The assumption of a continuum of firms is inconsistent with the downward-sloping portion of the U-shaped cost curves that appear in the textbook exposition of perfect competition. Aumann explicitly says on the first page of one of his papers, in which he makes the assumption of a continuum of agents, that that assumption is inconsistent with the textbook treatment.

    In other words, to assume the existence of a continuum of firms is to talk about another model than the textbook presentation of perfect competition, which is the model that Keen is attacking. But I don’t expect any better discourse ethics from some economists.

    As to what is taught, Keen’s paper co-written with Fred Lee contains a survey of microeconomics textbooks.

  11. #39 by Isaac "Izzy" Marmolejo on November 21, 2012 - 6:58 pm

    Unlearning,

    Hayek did at times misuse the word uncertainty, and thus was misled how expectations shape up in economics. In fact this criticism was already said by the Austrian Paul Rosenstein-Rodan, who said that expectations was a ‘major flaw in Hayek.’ Though, like Lachmann, Rosenstein-Rodan is seen as an ‘ex-Austrian’ or one that used to have Austrian insights but not anymore. He might actually interest you, especially his work on Development Economics, though he also did much work on time and uncertainty too. “The Role of Time in Economic Theory” is indeed one of the best Austrian insights on time

    • #40 by Unlearningecon on November 21, 2012 - 11:33 pm

      Thanks for the comment. That paper sounds interesting although the beginning reminds me of the post-modernist essay generator.

  12. #41 by Matías Vernengo on November 28, 2012 - 2:02 pm

    This might be too late, but at any rate here are my two cents on the Sraffian bit. Note that static analysis is not a defect. Keynes GT is static. It tries to show that unemployment equilibrium (yes his point is about equilibrium) is possible even with price and wage flexibility. His Treatise, which was dynamic, accepted Say’s Law, but the static GT had Effective Demand. One point for static analysis, in this case. So the use of static or dynamic analysis depends on the object of study. Second, there is nothing that forces one to use Sraffa only in a static setting. Yes the determination of long term normal prices (with a uniform rate of profit) is static, but the notion that prices are determined by supply conditions, while demand determines quantities is perfectly compatible with dynamic models. See for example, the Sraffian supermultiplier models and the several dynamic applications of those.

    • #42 by Unlearningecon on November 29, 2012 - 10:39 pm

      Thanks for a good comment. It is true that many post-Keynesian concepts were built on static analysis, but the thing I often find about them is that they are all quite compatible and together form a coherent, consistent framework.

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