Via Crooked Timber (h/t Thoma), James Galbraith has an article (pdf) for the NEA Higher Education Journal in which he takes on mainstream economics as a whole. First, he points to a quote from Krugman’s much cited NYT Mag piece from September:
Of course, there were exceptions to these trends: a few economists challenged the assumption ofrational behavior, questioned the belief that financial markets can be trusted and pointed to the longhistory of financial crises that had devastating economic consequences. But they were swimmingagainst the tide, unable to make much headway against a pervasive and, in retrospect, foolishcomplacency.
To which Galbraith responds:
And yet, there is something odd about the role of this short paragraph in an essay of over 6,500 words. It’s a throwaway. It leads nowhere. Apart from one other half-sentence, and three passing mentions of one person, it’s the only discussion—the one mention in the entire essay—of those economists who got it right. They are not named. Their work is not cited. Their story remains untold. Despite having been right on the greatest economic question of a generation—they are unpersons in the tale…
Krugman’s entire essay is about two groups, both deeply entrenched at (what they believe to be) the top of academic economics. Both are deeply preoccupied with their status and with a struggle for influence and for academic power and prestige—against the other group. Krugman calls them “saltwater” and “freshwater” economists; they tend to call themselves “new classicals” and the “new Keynesians”—although one is not classical and the other is not Keynesian…
The two groups share a common perspective, a preference for thinking along similar lines. Krugman describes this well, as a “desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess.” Exactly so.
So why did economics fail to get it right?
The reason is not that there has been no recent work into the nature and causes of financial collapse. Such work exists. But the lines of discourse that take up these questions have been marginalized, shunted to the sidelines within academic economics. Articles that discuss these problems are relegated to secondary journals, even to newsletters and blog posts. The scholars who betray their skepticism by taking an interest in them are discouraged from academic life—or if they remain, they are sent out into the vast diaspora of lesser state universities and liberal arts colleges. There, they can be safely ignored.
Galbraith then takes a brief survey of the “nether wastes” of economics. I won’t summarize this whole section, but here’s what he says about the Marxians, whom Galbraith terms “habitual Cassandras”:
For this tradition, class struggle and power relations generally remain at the heart of economic analysis, and crisis is inevitable—sometime…The radicals also lack interest in policy: at the heart of things, they do not believe the existing system can be made to work.
Galbraith also looks at “bubble detectors,” post-Keynesians, and even economic “criminologists.”
His conclusion is firm and striking:
This work is significant in ways in which the entire corpus of mainstream economics—including recent fashions like the new “behavioral economics”—simply is not. But where is it inside the economics profession? Essentially, nowhere. It is therefore pointless to continue with conversations centered on the conventional economics. The urgent need is instead to expand the academic space and the public visibility of ongoing work that is of actual value when faced with the many deep problems of economic life in our time. It is to make possible careers in those areas, and for people with those perspectives, that have been proven worthy by events. This is—obviously—not a matter to be entrusted to the economics departments themselves. It is an imperative, instead, for university administrators, for funding agencies, for foundations, and for students and perhaps their parents.
Reading this article makes me even sadder about the missed opportunity for Notre Dame’s economics department to make itself truly cutting edge.