Archive for September, 2009

Daniel Little has a post in which he writes about how heterodoxy can be useful above and beyond the current economic crisis. He writes,

We’re ultimately not as interested in the formalisms of market equilibrium as we are in an analysis of the institutions that define the context of economic activity. We want to know more about the ways in which features of economic organization and the basic institutions of our economy influence individual behavior…And we are often curious about how it might be possible to reform our basic economic institutions in ways that are more favorable to human development. In other words, we are often brought to think along the lines of some of the great dissenters in the economics tradition — Polanyi, Dobb, Marx, Sen, McCloskey, and Dasgupta (An Inquiry into Well-Being and Destitution), for example. (In a very contemporary and topical way, Richard Florida takes on a lot of these issues; see his blog, the Creative Class.)

It is therefore pleasing to find that some publishers like Routledge are bringing out serious academic works in what they refer to as “social economics”…

He then writes about a book by Bruce Pietrykowski, The Political Economy of Consumer Behavior: Contesting Consumption.

Pietrykowski has two intertwined goals in the book. First, he wants to provide a broader basis for understanding consumer behavior and psychology than is presupposed by orthodox economists. And second, he wants to help contribute to a broader understanding of the scope, methods, and content of political economy than is provided by mainstream economics departments today…

Here Pietrykowski draws on ideas from Karl Marx (fetishism of commodities), Amartya Sen, and other political economists who have attempted to provide “thick” descriptions of economic behavior…

Pietrykowski also takes on the discipline itself, as Little notes:

Pietrykowski begins with the assumption that the discipline and profession of economics is itself socially constructed and contingent; it took shape in response to a fairly specific set of theoretical and methodological ideas, it was subject to a variety of social and political pressures, and there were viable alternatives at every turn…

Pietrykowski argues that there is a great deal of path dependence in the development of economics as a discipline and profession; and there are identifiable turning points…

The discipline of “home economics” in the 1920s and 1930s is the example that Pietrykowski examines in detail…

Pietrykowski looks in detail at the way in which home economics developed as an academic discipline at Cornell University; and he documents some ways in which the discipline of economics was constructed in a gendered way to exclude this way of understanding scientific economics: “The decision was made that women involved in the emerging field of home economics were to be excluded from the AEA…. Economics was to be concerned neither with women’s activities in the home nor with women’s activities in the workplace” (28-29).

Pietrykowski develops his full analysis of consumption by focusing on three heterodox approaches to understanding consumption: home economics and feminist analysis, psychological and behavioral research on consumer behavior (George Katona), and Fordism and the theory of mass consumption…

After discussing these heterodox theories, Pietrykowski illustrates the value of the broader framework by examining three fascinating cases of consumption: the complex motivations that bring consumers to purchase the Toyota Prius, the motivations behind the Slow Food movement, and the choice that people in some communities have to engage in a system of alternative currency. These are each substantial examples of arenas where consumers are choosing products in ways that make it plain that their choices are influenced by culture, values, and commitments no less than calculations of utilities and preferences.

Between the theories and the cases, Pietrykowski offers a remarkably rich rethinking of how people choose to consume. He makes real sense of the idea that consumption is socially constructed (drawing sometimes on the social construction of technology (SCOT) literature). He demonstrates that models based on the theory of the universal consumer are not likely to fit well with actual economic outcomes. And he makes a strong and persuasive case for the need for academic economics to expand its horizons.

I find it interesting to notice that Pietrykowski’s account of the ascendency of neoclassical economics since the 1950s converges closely with prior postings on positivist philosophy of science. One of the explicit appeals made by neoclassical economists was a methodological argument: they argued that their deductive, formal, and axiomatic treatments of economic fundamentals were more “scientific” than case studies and thick descriptions of economic behavior. So many of the failings of mainstream economic thought today can be traced to the shortcomings of the positivist program for the social sciences that was articulated in the middle of the twentieth century.

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In this week’s America (h/t Felipe), Chuck Wilber, a professor emeritus in economics at ND, offers his take on how economists missed the “Great Recession.” In it, he directs much of his criticism at the pedagogy of economics.

Economics is a lot like theology, despite the former’s claim to be a science. Theology uses self-evident first principles from revelation or natural law and then, through the use of intermediate principles and judgments, evaluates real world issues. Economics uses an abstract model constructed from similarly axiomatic assumptions about how the world works, such as the principles that people are motivated by self-interest, that wants exceed resources or that resources are mobile and fungible. From these principles, economists then develop economic policies, with appropriate regard for real world exceptions to their models…

If a statistical test appears to falsify the theory being tested, the test is rejected and the economist tries different proxies until the test comes out the way he or she expects. The data will be massaged and the test redone until the results “prove” the theory. Why? Because economists believe the tenets of microeconomic theory the way theologians believe the core tenets of their faith.

Accusations of data mining plague the social sciences. But clearly there must be something deeper at work:

How do people become economists? David Colander writes in his delightful book, The Making of an Economist, Redux:

Were an undergraduate student to ask an economist how to become an economist, he would tell her to go to graduate school. She might demur, asking, “Wouldn’t it make more sense to go to Wall Street and learn how markets work?” Getting firsthand experience may sound like a good idea to her, but most economists would briskly dismiss the suggestion. “Well, maybe I should get a job in a real business—say, turning out automobiles.” The answer will be “no” again: “That’s not how you learn economics.” She might try one more time. “Well, how about if I read all the top economists of the past—John Stuart Mill, David Ricardo, Adam Smith?” Most economists would say, “It wouldn’t hurt, but it probably won’t help.” Instead, he would most likely tell her, “To become an economist who is considered an economist by other economists, you have to go to graduate school in economics.” So the reality is that, to economists, an economist is someone who has a graduate degree (doctorates strongly preferred) in economics. This means that what defines an economist is what he or she learns in graduate school.

Over the past 30 years or so the graduate economics curriculum has become more and more like a program in applied mathematics with a corresponding de-emphasis of economic history, history of economic thought, industry studies and industrial relations. This narrowing of focus gets reinforced as the student finishes the Ph.D. and gets a job in the academy. The greatest rewards go to those who make advances in theory and publish in the half dozen top academic journals. Few articles will be accepted by these journals that do not start with the standard abstract model and then derive some new “interesting” result. Publishing in public policy journals, by contrast, is considered much less prestigious and can even count against an aspiring academic by showing that one is not a serious economist. And of course, after receiving tenure this is what one knows how to do.

Under this view, the sociology of the profession is established very early on. I would argue it starts even earlier, at the screening process for Econ PhD. Anyone who knows me knows the mental hoops I was jumping through during my senior year to complete Real Analysis and Linear Algebra so that one day, I might be credentialed enough for grad school (and then I find out that some class named Topology is now the haute couture for prospective grad students). Grad schools want people who think in a very narrow way, and a narrow discipline results.

Next, Wilbur zooms back out to the crisis itself:

Between their narrow technical training and their bias toward free markets, most economists failed to see the coming perfect storm of economic recession and financial crisis. In fact they paved the way for it by urging the deregulation of financial markets, which in turn allowed the creation of all kinds of dubious new debt instruments, wildly increasing the leverage of bank capital, and even allowing huge Ponzi schemes to go undetected. When the extremely low interest rates set by the Federal Reserve were added to this, the “bubble” created in the housing industry was a natural outcome, and the spread to the financial sector was catastrophic…

Robert Schiller, an economist at Yale, thinks the failure to foresee the financial collapse is the result of fearing to deviate from the consensus of the profession. And he does not think that economists have learned the lesson: “The rational expectations models will be tweaked to account for the current crisis. The basic curriculum will not change.” Dani Rodrick, an economist at Harvard University said, referring to the free-market model, “We have fixated on one of the possible hundreds of models and elevated that above the others.” […]

I must not end without saying some positive things about economics and economists. There is much new work, even though still seldom included in the core curriculum, that is exciting and holds out varying degrees of hope for a regeneration of economics. Behavioral economics, evolutionary economics, happiness economics, economics of social capital and social norms, and the economics of asymmetric information all hold out hope of breaking through the twin constraints of methodological formalism and competitive equilibrium…

Even more encouraging is a growing recognition that economies require ethical behavior in addition to self-interest…[Adam Smith’s] understanding that virtue is a prerequisite for a desirable market society remains an important lesson.

Interesting stuff from a man who has spent much of his life thinking about the ethics of economics. He is yet another example of the potential that a heterodox economics department has.

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Moore on Moore

No subliminal messaging there, just some pun fun. Michael Moore’s movie, Capitalism, A Love Story, is premiering in theaters everywhere tomorrow. Naomi Klein interviewed him for The Nation, and one exchange struck me.

NK: All right. Let’s talk about the film some more. I saw you on Leno, and I was struck that one of his first questions to you was this objection–that it’s greed that’s evil, not capitalism. And this is something that I hear a lot–this idea that greed or corruption is somehow an aberration from the logic of capitalism rather than the engine and the centerpiece of capitalism…

Why is it so hard to see the connection, and how are you responding to this?

MM: Well, people want to believe that it’s not the economic system that’s at the core of all this. You know, it’s just a few bad eggs. But the fact of the matter is that, as I said to Jay [Leno], capitalism is the legalization of this greed.

Greed has been with human beings forever. We have a number of things in our species that you would call the dark side, and greed is one of them. If you don’t put certain structures in place or restrictions on those parts of our being that come from that dark place, then it gets out of control. Capitalism does the opposite of that. It not only doesn’t really put any structure or restriction on it. It encourages it, it rewards it.

I’m asked this question every day, because people are pretty stunned at the end of the movie to hear me say that it should just be eliminated altogether. And they’re like, “Well, what’s wrong with making money? Why can’t I open a shoe store?”

And I realized that [because] we no longer teach economics in high school, they don’t really understand what any of it means.

The point is that when you have capitalism, capitalism encourages you to think of ways to make money or to make more money. And the judges never could have gotten the kickbacks had the county not privatized the juvenile hall. But because there’s been this big push in the past twenty or thirty years to privatize government services, take it out of our hands, put it in the hands of people whose only concern is their fiduciary responsibility to their shareholders or to their own pockets, it has messed everything up.

I don’t disagree with any of this exchange, but I think it falls short of offering an insightful critique of capitalism. To be insightful, there would need to be some discussion of class, i.e. “who is in a position to make greedy decisions,” or “who is almost always affected by these greedy decisions?”

Immediately after this exchange, they broach the idea of democratically-run workplaces, which are the borderline-cliched favorite alternatives of many on the left. Even that brief discussion does not seem to take the class issue head on. I wouldn’t think Moore is afraid of the accusation that he is engaging in class warfare, so what’s the downside of speaking on these terms?

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The New York Times published an editorial on Tuesday on a case currently before the United States Supreme Court that, on its face is,

a fairly narrow campaign finance case, involving whether Citizens United, a nonprofit corporation, had the right to air a slashing movie about Hillary Rodham Clinton during the Democratic primary season.

In addition to posing a possible threat to the election system, this case highlights the greater question of corporate personhood- in other words, what rights and responsibilities should be given to corporations?  Historically, the United States has been very generous in granting rights and very reserved in demanding responsibilities of corporate entities.  The dangers of this combination are myriad (watch the movie online, read the book, or read a summary for an introduction to critiques of corporations).  As the Times editors write,

To us, as well as many legal scholars, former justices and, indeed, drafters of the Constitution, the answer is that their rights should be quite limited — far less than those of people.

This Supreme Court, the John Roberts court, seems to be having trouble with that.

The structure of the corporation is, arguably, one of the contributing factors to our current economic crisis.  Any discussion of systemic solutions and prevention of similar crisis in the future must consider the role of the corporation.  As a society we tend to assume that our corporate system is identical to that of the rest of the world (not true) and that this structure is an absolute and unchangeable given (not true).

Do we have the will (political and otherwise) to question the role we have given the corporation and the serious consequences of that role?  Probably not.  Let’s do it anyway.

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A former ECOP faculty member gives her two cents:

Economists need to be broader, more self-critical, deeply knowledgeable about economic institutions. This is why it’s dumbfounding that the University of Notre Dame created an economics department filled — by intent! — of only neoclassical economists and banned their Ph.D. economists who are policy-oriented and non-orthodox from the department.I since left — happily, to head to the New School for Social Research — but I started my career on the Notre Dame faculty attracted by its mission to address problems facing humanity and thrived where neoclassical economists interacted with historians, policy economists, Keynesians, Marxists, philosophers, and other faculty deeply committed to the same goal.

Notre Dame students, faculty, and scholars everywhere question ND’s move. Orthodoxy and intolerance in the economics profession helped plunge the world into the deepest recession since the 1930s: It doesn’t take a rocket scientist — or even an economist — to recognize narrowness has a cost.

Here is a modest recommendation for this aspiring top-tier university: Put all the economists it hired for the economics department in an economics department and let ideas interact. After all that is what universities do and what economic thinking and economic regulation needs.

HT: Anti-Capitalism

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At first I thought that blog post title was a slight at our football team, which is underachieving for its fourth straight season. Alas, it is actually Daniel at Crooked Timber’s rather scathing take on ECOP’s closing.

Do you find yourself considering the financial crisis and thinking “well, neoclassical economists have certainly come through this one with their reputations enhanced! Anyone with a world-class heterodox economics department should certainly be thinking about closing it down right now, there’s no interest in that sort of thing!”. Well, if you do, then you’re almost certainly working as an administrator at Notre Dame University (or for that matter, the University of Notre Dame, thanks Ben in comments), because nobody else does.

I mean, what the byOurLady heck do they think they are playing at. Back in April 2008, the decision to place clear fresh water between the nice professional efficient market types in the “Economics and Econometrics” department, and the dirty f**king hippies in “Economics and Policy Analysis” might have made some sort of sense, in that while cynical and not very academic-freedom-y, it would have improved students’ chances of getting into prestigious economics graduate programs where they could write “counterintuitive” and “fascinating” job market papers about penalty shootouts and speed-dating (these being the only remaining social or anthropological questions not thoroughly answered by neoclassical economists, cf “Freakonomics”).

But today? With the whole field blown wide open and all sorts of questions of the role of economic analysis wide open to debate again? With Richard Freaking Posner coming out as a post-Keynesian? I suppose that if you truly believe that it’s impossible to time the market, this is one way to prove it.

Chris Hayes’ tweet was along the same lines:

Notre Dame is dissolving its heterodox economics department, since neo-classical econ has performed so well of late.

Pissed off like all of us, and these guys? Spread the word on our petition (which has surprising momentum at 698 signatures): http://www.ipetitions.com/petition/SaveEconomicsND/index.html

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More on that GDP Report

I meant to write about this report upon its release last week, but recent events have gotten in the way (and apparently the New York Times is a week late as well). In the article, Stiglitz states the over-arching problem as well as anyone could:

If you don’t measure the right thing, you don’t do the right thing.

Of course, the report is lacking in solutions, and if its authors have been paying attention to more heterodox fields like ecological economics, it doesn’t really add much new.

The report is more critique than prescription. It elucidates in general terms why leaning exclusively on growth as an economic philosophy may yield unhappiness, and it suggests that the incomes of typical people should be weighed more heavily than the gross production of whole societies. But it sidesteps the thorny details of slapping a cost on a ton of pollution or a waylaid career, leaving a great mass of policy choices for others to resolve…

Indeed, the difficulty comes in turning these general principles into new means of measurement. The report notes that its authors concur on the big picture, but diverge on the methodologies to be employed when it comes to factoring in the value of a better education and cleaner skies.

My guess is that they would make much better headway if they would collaborate with those outside the mainstream, like Herman Daly, for instance, who have been thinking about these issues for decades.

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As of this afternoon, at 2:40 EST, our petition is at 434 signatures and is continuing to grow. In fact, it is number fourt on iPetitions’ “Today’s top petitions” list (behind Michelle Bachman’s anti-ACORN petition- let’s step it up!) Keep on sending it to anyone you know who is interested- the external faculty response has been fantastic, but we can do a lot better in the undergrad community. If you’ve already signed, consider tweeting it, making it your facebook status, and emailing everyone you know. If you haven’t signed it, then sign it right now.

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If our petition is micro-level, this new petition, which quotes Paul Krugman’s important article, is macro-level.

Signatories of this plea support the following words by Nobel Laureate Paul Krugman:

“Few economists saw our current crisis coming, but this predictive failure was the least of the field’s problems. More important was the profession’s blindness to the very possibility of catastrophic failures in a market economy … the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth … economists fell back in love with the old, idealized vision of an economy in which rational individuals interact in perfect markets, this time gussied up with fancy equations … Unfortunately, this romanticized and sanitized vision of the economy led most economists to ignore all the things that can go wrong. They turned a blind eye to the limitations of human rationality that often lead to bubbles and busts; to the problems of institutions that run amok; to the imperfections of markets – especially financial markets – that can cause the economy’s operating system to undergo sudden, unpredictable crashes; and to the dangers created when regulators don’t believe in regulation. … When it comes to the all-too-human problem of recessions and depressions, economists need to abandon the neat but wrong solution of assuming that everyone is rational and markets work perfectly.” (New York Times, September 2nd, 2009.)

Of course, one could argue that this petition is weak in that it does not have a specific ask. Nevertheless, the whole point of it appears to be signalling that people want change in the economics discipline, to prove  that the chorus for change is growing even louder.

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The group of students and alumni responsible for this blog, Open Economics ND, has launched a petition seeking to save and strengthn the Department of Economics and Policy Studies at Notre Dame, which has recently been handed a death sentence. Signing this petition will ensure that the administration cannot close the department with impunity. The petition reads:

A Petition to Save and Strengthen a Liberal Arts Economics Education at Notre Dame

Dean John McGreevy and the Administration at the University of Notre Dame have recently announced plans to dissolve the Department of Economics and Policy Studies. This will effectively eliminate pluralism and alternative perspectives from the economics education offered at the University of Notre Dame.

The mission of the Department of Economics and Policy Studies is to teach economics and to conduct research in a distinctive way that is: “Committed to values and socio-economic justice. Open to alternative theories and approaches. Interested in devising effective policies. Providing students with solid training in economics that matters.” (http://econpolicy.nd.edu/about)

We – the undersigned students, alumni, faculty, and supporters of a liberal arts economics education – oppose the decision to close the Department of Economics and Policy Studies and call for a strengthening of the liberal arts approach to economics education at Notre Dame.

Please sign the below petition, spread the word, and if possible send an email to the Dean John.T.McGreevy.5@nd.edu and Provost tburish@nd.edu . Let them know who you are and express your disapproval of “the decision to undermine a liberal arts economics education at Notre Dame.” Please also send a copy of your message to OpenEconomicsND@gmail.com so that we can keep track of the campaign and inform you about the results.
This department’s closing is a local symptom of a global problem. Take action: please sign the petition, tweet it, blog it, and send it to everyone you know who is concerned with the future of the economics discipline.

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