Economic Fundamentalists v. Realists

Sometimes I amaze myself over how little I really know about economics. Too bad my economics education didn't include any real 'history of economic thought'. That, I've had to pick up on my own later. To illustrate my ignorance, yesterday Dani Rodrick focused my attention on what some call Renaissance (or 'Reality') Economics. You can find a history of the movement that spans several centuries here: The Other Cannon: The History of Renaissance Economics [DOC], Eric S. Reinert and Arno M. Daastøl .

After posting up what The Other Cannon Foundation labels contrasts between the 'standard cannon' of economic thought and 'the other cannon'(reproduced below), Rodrik says that he "cannot agree with their characterization of the conventional approach." Then he asks, "Is mainstream economics really stuck in the perfect information/perfect foresight mold? Ignores man's wit and will? It doesn't handle novelty endogenously? Cannot handle dynamics? And this is just the beginning." Rodrik concludes, "Sorry, but this is not the economics I recognize or think that I practice."

I'll take exception, and align myself — no surprise — with the "Other Canon". Rodrik and some other more mainstream economists are very much aware of broader framing for economic theory and practice, and they show it in their works. But far too many who have been schooled only via mainstream methods, texts, etc. fall too easily into the economics fundamentalists trap. So until more heterodox types, including those who might call themselves 'Renaissance', institutionalist, evolutionary economics, behavioral economics, ecological economics or 'whatever' are allowed into mainstream fora, I'll continue to align myself with those who choose to maintain the somewhat fictional divides between economists.

Following Rodrik's One Economics or Two?, readers chimed in, pro and con. Here is a sampler:

Prestopundit: Is it so hard to understand that situational learning in the context of changing relative prices is the linch-pin causal element in the explanation of economic order across time -- and that this causal element cannot be captured in mathematics or statistics?

Is it so hard to understand that people get blinded to real phenomena by their formalisms and statistics -- and they begin to mistake their "models" and socially constructed statistics for real world phenomena which their "models" could in no way represent?

You are a fool if you don't recognize that this happens in economics all of the time. …

And I won't even get started with econometrics.

Barkley Rosser: [I]n a book I wrote with David Colander and Richard Holt entitled The Changing Face of Economics: Conversations with Cutting Edge Economists(2004, University of Michigan Press), we identified "orthodoxy" as an intellectual category, "mainstream" as a sociological category (those in charge), and "heterodox" as being both, anti-orthodox intellectually and alienated from the ruling mainstream. This allows for a "non-orthodox mainstream," which I suspect Dani Rodrik may find himself having some sympathy with.

I see the term "neoclassical" as referring to an intellectual orthodoxy, one that is ossified and pretty well described by that list on the left, which does indeed look like a straw man if one thinks about research practices by many leading mainstream economists, but which is also very much present in the textbooks, and which does get enforced at many second-tier and third rate places (think Notre Dame, with its assault on the definitely heterodox economics department there).

Between those two lists, I definitely side with the right side, mostly. I do however note that not all heterodox economics is anti-mathematical (see my edited volume with Edward Elgar, Complexity in Economics, 2004). Also, some biological thinking is very neoclassical mainstream, think the Alchian-Friedman theory of why firms really do maximize profits and why speculative bubbles are impossible (duh), versus the sort of thing one finds current econophysicists and Santa Fe hanger-outers doing, which definitely draws from physics. Much of this is a matter of "what kind of physics" and "what kind of math"

No matter how one positions oneself as an economist, for 'progressive' types it is heartening to know that others outside narrow economic circles are focusing on the idea of "renaissance" or "paradigm shifts" in economics. Just the other day I got an email from the Institute for Alternative Futures highlighting a July 07 Trend Brief: Paradigm Shift Emerging in Economics [PDF]. This is one to watch. Alternative Futures note that:

Such a shift will have a substantial impact on many areas including regulatory framing, business strategy and development assistance. … However, there are still a number of forms that the emergence of new models could take. Within this context, the Institue for Alternative Futures is now developing comparative scenarios for this process as an initial step toward adapting organizations to the emerging realities of a next-generation economy.

More on 'The Other Cannon':

The 'Other Cannon' Organization introduce their program as follows:

Reconstructing the Theory of Uneven Economic Development

In most academic disciplines the canonical texts - those containing the 'truth' - are periodically revised. Economics, however, is almost totally unaffected by such revisionism. A fundamental problem of the ruling canon in economics has been that it essentially lacks a theory of economic development beyond seeing it as a process of adding capital to labour. The theory rests on what Schumpeter once called 'the pedestrian view that capital per se propels the capitalist engine'. There is an obvious connection between the lack of a theory of development as such and the lack of a theory of why the process of development is uneven. Recent economic models incorporating new factors and producing uneven growth have - mostly at the insistence of their authors - been barred from practical use in economic policy.

19th Century critics of the classical school of economics referred to it as catallactics, a theory of exchange rather than a theory of production. Still the theoretical focus of the profession is on Man the Consumer rather than on Man the Producer. This project aims to resurrect the alternative and production-based canon of economics - The Other Canon - which dates back to the pre-mechanical Weltanschauung of the Renaissance. A key feature of this theory is that it explains why economic development is uneven. The practical uses of The Other Canon lie in the economic policy both in the First, Second and Third Worlds. …

The 'Other Cannon' Organization lays out contrasting worldviews:

Two different ways of understanding the economic
world & the wealth and poverty of nations.

Comments

[c!]

That list at the end, while perhaps quite "night and day," was tremendously useful. Good to see you post again.

[c!]

And I wonder what suitable replacements for econometrics one can come up with. Perhaps I should have taken that econometrics course just to understand the built-in assumptions.

[Dave Iverson]

C!

I wouldn't recommend a course in "econometrics". I took one (well, more than one)in graduate school and was never more disoriented, confused in my life. I even passed a doctoral prelim in the subject area.

My guess is that my professors were no less confused than I. A clear case of members of the economics profession trying to show off new-found, second rate mathematical and statistical skills. But that was long ago, and in a backwater program.

Somehow, though, I suspect the tendency lingers.