The New York Times describes classes around the country, at universities such as Cornell, Columbia, and Vassar, that are probing the economic crisis. The approaches are diverse:
Steven Fraser, a professor of American studies at Columbia University, has taught the cultural history of Wall Street for years, usually bringing his students up to the 1990s. But this fall, with thefinancial crisis providing an irresistible new coda to the course, he extended the timeline to include the drama, intrigue and pain of the past two years…
“The class is struck by the similarities between today and the darker periods of Wall Street’s past, for example in the Gilded Age” …
Sidney Plotkin, a professor of political science at Vassar College, has taught “Power and Public Policy” in one iteration or another for more than 30 years. But last month he began a new section of the course by exploring the housing bubble and Bernard L. Madoff, consumer borrowing and federal bailouts — and shining a Marxist light on the whole morass.
“Marx is the uninvited guest in the discussion,” Dr. Plotkin told the group of undergraduates assembled in Rockefeller Hall. “By looking at the financial crisis through the lens of a Marxist analysis, we begin to see how the American debate about power is shaped by Marxism.”
As for the students?
For students, taking a class that probes the gyrations of the economy — even through the prism of Marx — forces them to keep up with current events…
Although students may be energized by the relevance and immediacy of the subject, Dr. Plotkin detects a growing cynicism as well.
Meanwhile, ND is deciding behind closed doors to evict Marx, Minksy, and any other non-mainstream economics from the classroom. Thus, a generation of students will miss out on alternative perspectives and for those who might pursue economics as their own career, will be pigeon-holed into the mainstream- truly a liberal arts approach.
Academics is ruled by established narratives that are based on norms that are often hidden or unexamined assumptions and language that influences methodological approach through selection of criteria that determine the “lens” through which a subject is approached.
In Debunking Economics (2001, Australian economist and economics professor shows how orthodox economics and education in economics is neither evidenced-based, nor even compatible with evidence. Assumptions are chosen to make complex models work mathematically, for example, even though the assumptions are not borne out by fact or are even contradicted by it. But the models are elegant.
Professor Keen also observes that orthodox economists know full well that the models and explanations they give in Econ 101 are overly simplistic, but they do not admit this to students. As a result, if students do not go on to further study in economics, they are left with a basic misunderstanding of even orthodox economics. These errors are compounded by politicians and media whose understanding of economics remains on this elementary level.
Students who do go on to graduate work in economics get so indoctrinated that orthodox thinking becomes an established narrative in which they are so heavily invested that they resist change. Not only do they not challenge the presumptions of their discipline, but also they resist any change that would threaten their investment. This perpetuates dogma and serves to marginalize heterodox thinking and expression, as the current controversy to ND goes to show. The result is that the discipline becomes a rigid mechanistic ideology instead of being critical and creative, and therefore able to progress and transform itself organically.
This is true in virtually all academic disciplines in which an established narrative with its memetic norms and arbitrary assumptions prevails in the universe of discourse. Students who recognize this realize that they must seek truth on their own, along with doing the necessary to become credentialed. Those who are open minded and experimental go on to innovate their fields. Those who do not, are condemned to perpetuating the status quo, reaping their reward in terms of status and honors, which are in the end empty and meaningless.
However, in economics the stakes are much higher than they are some other disciplines, since economics plays a foundational role in policy-making. Students of economics therefore have a special responsibility to get it right instead of just following the beaten path, which has thus far led to economic hardship and social turmoil.
A solid liberal education should be teaching critical and creative thinking and encouraging student to break out of the mold. ND’s actions in discontinuing heterodox economics is therefore a giant step in the wrong direction.
In the absence of support from their university, Students need to take responsibility for their own education, not only in economics but also in just about every other field of study in which a rigid academic mindset rules, instead of open education that is dedicated to the pursuit of truth, let the chips fall where they may. After all, this is the liberal approach that liberated science and the humanities from the grip of ideology.
And you expect an open education at a Catholic institution why?
It is true that today, students must teach themselves, for their academic maestros are more interested in political correctness, promotion, and personal advancement than in teaching or seeking the truth. Economics is more degraded by academia than most humanities subjects because it is used as a tool by ideologues on each side of the aisle. When the theorists force economic theory to fit their ideological beliefs all intellectual rigor and honesty is lost, and that is what has happened.
I for one eschew most economic theory–as Tom Hickey comments above, the “models” used in their elaborate calculations are all subject to the garbage-in-garbage-out rule. Instead, I have used the case method to determine what economic policies worked in actual nation state settings because such reality based experience trumps all theoretical concepts of what “might” or “should” work.
In the last 4,000 years almost every conceivable economic system or program has been employed and the results are there to be seen. One of the major lessons of that history is that no economic progress ever occurred without the efforts of free common people at the bottom making things happen. A related lesson is that the planners and intellectuals at the top rarely did more than get in the way. see http://www.thecommongenius.com for an elaboration of this case approach
Bill Mitchell has just put up a brilliant blog entry that illustrates what I am referring to above. This post is about how modern monetary theorists (MMT aka Neo-Chartalism) and the BIS bankers get how the modern monetary system works in relation to macroeconomics, but the orthodox macro guys, including “Keynesians” like Paul Krugman, don’t. Take a look. (Hint: You can’t do credible macro or set policy that works without getting this straight.)
http://bilbo.economicoutlook.net/blog/?p=6617&cpage=1#comment-2341
Observer: “And you expect an open education at a Catholic institution why?”
I graduated from Georgetown University with a BA (61), MA (72) and PhD (75) in philosophy. The phil dept at GU was one of the most open in the US at the time, when the vast majority of universities were under the influence of Quine. Sklnner was similarly “the man” in psychology at the time, but GU didn’t have a psych dept then.
GU was one of the only schools that taught Anglo and Continental philosophy at the time, and several top Europeans were on the faculty. The education was completely open in my opinion. The various professors were set in their particular ways of thinking, but all major ways of doing philosophy were represented. There was even some opportunity to study Marx, which was somewhat surprising, given the political situation at the time (this was the Vietnam era). The title of my master’s thesis was, “Evolution or Revolution: Toward a Theory of Social Change.” It was really a license to explore, and I did. Not straight stuff at all.
Good Riddance! Now we won’t see P. Obama lap dog economists from ND signing their souls away by endorsing poverty encouraging socialist policies that involve income redistribution. You could still teach your students about these now proven wrong relics and please include Keynes in a economic history course.
Thanks for your insights, Bill and Tom.
Tom, am I correct in thinking that ND philosophy is similarly diverse?
The MMT stuff is interesting as well. Nick Rowe, who blogs at Worthwhile Canadian Initiative (a more mainstream blog) had a post on this a couple months ago. http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/11/a-monetarist-theory-of-neochartalism.html
I find the monetary stuff interesting but it often seems to go over my head.
You’ll be glad to know that students at ND are continuing to take their education in their own hands. Two seniors are leading a one-credit seminar next semester called “Beyond Economic Man.” Hopefully this type of course can be a regular thing.
Bill, your research looks interesting. It seems like a good complement to what you’d find in Guns, Germs, and Steel. Diamond’s wide-ranging approach seems weakest when it comes to addressing political and economic systems.
Nick, I haven’t kept up with various going’s on in academic philosophy lately, since I am no longer teaching. My point was that a major Catholic (Jesuit) University had no trouble being diverse in subject matter then. ND shouldn’t now. Indeed, heterodox economics seems to me to be more in line with the present pope’s socio-economic agenda than orthodox economics. So I am encouraged to hear that students are taking the bull by the horns.
Please trust me and take the time to read L. Randall Wray, Understanding Modern Money (1998) available online at Google Books. It written for the non-economist, so it’s a quick read if you are beyond Econ 101. At least read the intro to the chapters, where Wray gives the main points.
I can state categorically even from my rudimentary knowledge of economics that it is not possible to properly grasp macroeconomics without knowing how the financial system actually works in practice, in terms of national accounting and stock-flow consistency. The biggest difficulty that folks trained in economics have in getting MMT is its simplicity. The key is that government stands in a vertical relationship to non-government and provides the economy with net financial assets. The horizontal nature of banking means that balancing assets with liabilities always nets to zero, so that the horizontal non-government banking system can either increase nor diminish net financial assets. That is to say, all commercial banks can do is extend credit, they cannot issue currency.
A big advantage is that MMT is not theoretical the way that orthodox economics is, so it doesn’t depend on assumptions, the Achilles hell of economics. MMT just describes how a modern monetary system actually works to facilitate commerce, with government providing base money as a public utility. Ideally, the government (Treasury and CB acting in tandem) would manage this base so that nominal aggregate demand neither outstrips real output potential, resulting in inflation, nor drop below the level needed to maintain full employment with price stability. This requires close coordination of monetary and fiscal policy. MMT shows how to do this.
Bill Greene is correct here. The intellectuals have got this really screwed up with their devotion to models instead of looking to how things actually work in practice. The macro guys are just wrong about a lot of pretty simple but important things like increasing bank reserves to increase lending and the money multiplier because they don’t understand money and banking operationally. See Bill Mitchell’s two excellent blogs posts, one yesterday and one today, on this. Bill takes the macro guys to task by analyzing a BIS working paper (the bankers get it) in terms of MMT.
http://bilbo.economicoutlook.net/blog/?p=6617
http://bilbo.economicoutlook.net/blog/?p=6624
Correction: at the end of the third paragraph, “can either increase” should read “can neither increase…”
Nick, you would find my research the polar opposite of Diamond’s. My subtitle is “Guts, Grit, and Common Sense,” which is a sort of rebuttal to Diamond’s “Guns, Germs, and Steel.”
The Western European nations had already achieved world supremacy by 1500, before their colonial adventures in the New World. Like most current history books, Diamond’s toes the PC line that there was nothing distinctly superior about Western Civilization, all cultures being equally praiseworthy, and it was only through violent oppression and luck that the West ended up numero uno. Of course nothing could be further from the truth.
The West’s supremacy came from the series of what Revel calls “laboratory societies” dating back to Phoenicia, ancient Greece, and Florence. These exceptions to world-wide empires and monarchies had given a few locales in Europe occasional bursts of prosperity caused by the economic freedom provided their citizenry. It became obvious long before Adam Smith was born that free enterprise made the difference between widespread affluence and economic stagnation.
Enlightened English and Flemish rulers in 1500 were already competing, with subsidies and incentives, to lure experienced weavers to their nations so their textile trade could blossom. I coined “The Radzewicz Rule” to explain how, the common people, given security and an open economy, will produce prosperity. It is a simple algebraic equation that explains why some countries rose and others didn’t. (you can google it)
The unique thing about that history is that the Industrial Revolution and all the economic magic that has flooded the West with affluence and leisure came without intellectuals pulling the strings, no central bankers, and little theory. Economic theory is primarily devoted to explaining what the common businessmen have accomplished. The other more recent role of economics has involved the attempts at fine-tuning what the people are doing by central bankers, and we all know how poorly that is being done!
I just ordered your book, Bill. Look forward to reading it.
Nick, that was a great debate on Nick Rowe’s place. I was following it as it unfolded. There were some real heavy hitters there, with whom I was familiar from MMT blogs.
However, it was hardly introductory MMT and if you didn’t have some knowledge of MMT before or hadn’t worked in finance, it could have been hard to follows sometimes, since it was pretty detailed. I’d recommend reading Randy Wray’s book first. It’s simple and covers the bases well.
The debate at Nick’s blog did illustrate, however, that Nick was trying to translated the MMT-speak (national accounting and stock-flow consistency) into macro-speak and having a tough time getting it. MMT requires a different way of looking and a different universe of discourse to get. As I said, it’s not based on models and assumptions, but on how money and banking actually works.
Did you catch the follow up thread? It’s good, too, but gets technical.
Money, banks, loans, reserves, capital, and loan officers
http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/11/money-banks-loans-reserves-capital-and-loan-officers.html
I’ll have to revisit these threads after reading Wray. Good thing the links are all in one place now.
Addendum: I made a claim above that it is not possible to understand macroeconomics properly without an understand of MMT, which is based on national accounting practice and stock-flow consistency. However, I neglected to substantiate it. Clearly, I should have, since its justification is not obvious.
Here is some evidence to substantiate that claim from Bill Mitchell’s blog. The first link provides background on MMT and stock-flow consistency. The following three links give recent examples from current events, comparing macro theory with MMT and actual banking practice and economic conditions. They show that macro theory gets it wrong and MMT gets it right. This has huge implications for policy-making.
Stock-flow consistent macro models
http://bilbo.economicoutlook.net/blog/?p=4870
Building bank reserves will not expand credit
http://bilbo.economicoutlook.net/blog/?p=6617
Building bank reserves is not inflationary
http://bilbo.economicoutlook.net/blog/?p=6624
Lost in a macroeconomics textbook again
http://bilbo.economicoutlook.net/blog/?p=6645
Many years ago, I invented neo-Chartalism and even wrote a book about it (FREE MONEY). Then I discovered it already existed (sigh) when Professor Randy Wray asked me to speak before his group at UMKC.
Subsequently, I have been in correspondence with Randy and with Warren Mosler, both of whom have helped me refine my own beliefs.
I differ from Randy and Warren in a couple of areas. They tend to focus on full employment. I focus on money and growth.
They believe federal taxes are necessary to create demand for fiat money. I suggest some taxes may be necessary, but there are sufficient state and local taxes to do the job, so federal taxes are unnecessary, even harmful. Randy may be coming to my side on this one. Not sure.
Our biggest difference is the treatment of inflation. I say that money is a commodity, and increasing demand requires increasing the reward for owning it, i.e. increasing interest rates. They say increasing interest rates actually causes inflation, by increasing prices.
Their solution is to reduce money supply by increasing taxes, which I say would (and often has) cause a recession. Since inflation can co-exist with recession, I say their solution actually would cause a stagflation.
You can see another side to the discussion at http://rodgermmitchell.wordpress.com/2009/09/07/introduction/
Rodger Malcolm Mitchell