When I ask what the new methodologies are, people very rarely try to give concise explanations. Instead, they almost always direct me to one of the following:
1. A book
2. A paywalled journal article
3. A video link
Books, of course, must be bought, so the book and gated article links are basically a request that I fork over cash before I even learn the very basics of what the new methodologies are. Video links, of course, are almost always useless.
On those rare occasions when a heterodox person does link me to a PDF purporting to explain the new methodologies, the content of the document is usually just more criticism of mainstream methodologies (see here, for example). Suppose I already believe that mainstream methodologies suck, and that something better is needed, and all I want now is to see people's ideas for that something? These documents will be mostly useless to me. Critiquing the old is fine and good, but it is not the same as inventing the new.
There's an even more fundamental problem here. If you're going to introduce a new methodology into a discipline, you really don't want to keep it behind a curtain of mystery. You do not want to force people to do massive amounts of work or pay money in order to grasp even the basics of the new methods. That kind of obscurantism -- forcing people to commit time, effort, and money before they can be enlightened with the True Way -- is the behavior of a cult, not of an academic school of thought.
If you really think you've got something new and better, you publicize the hell out of it. You make slides explaining the basics. You write working papers - free and ungated -- showing how the new thing works, and why it works. You give examples. You draw pictures. You teach. You educate. The burden of publicization and education is on you.
Mainstream econ does this like crazy. Want to know how the Solow Model works? Here are some slides! Want to know how the AD-AS model works? Here are some slides! If they're not good slides, find another set of slides - there are many. If slides aren't your thing, try some lecture notes, or a textbook chapter, or a paper! All of these exist in bountiful abundance, for a price of $0. Mainstream macroeconomics has many serious problems, but it has done an admirable job of explaining its ideas publicly and clearly, for free, to anyone who wants to learn.
If you do not do this - if you instead choose to continually hold the details of your methodology just out of reach of the curious onlooker, if you taunt and insult people who become frustrated after repeatedly getting the runaround - then people will begin to suspect that you do not, in fact, have a new methodology. They will begin to suspect that you are instead running some kind of con.
So far, the main "heterodox" econ "schools" - Post-Keynesian, MMT, and Austrian - show every indication of having no new methodology whatsoever. Anyone who points this out will, of course, be greeted with a shower of insults from ardent followers of this "school". But when polite, patient requests for enlightenment and information have failed enough times, what else can we conclude?
I wrote a follow-up tweetstorm (series of linked tweets) about the further problems of the Post-Keynesians.
On Twitter, the guy who originally inspired this post (Phil Pilkington) helpfully pointed me to two sets of slides explaining certain aspects of "critical realism", a methodology of Post-Keynesian heterodox economics. Slide set 1 is about philosophy of science, and while it doesn't get into specifics, it is interesting. Slide set 2 is very jargon-heavy, and uses the word "ontology" a lot. It makes it pretty clear that "critical realism" is very similar to the jargon-dense, literary "critical theory" taught in literature departments. All in all, I'm not encouraged for the future of Post-Keynesian economics, but I really appreciate Phil linking me to the slides.
The pragmatarianism methodology has nothing to hide.ReplyDelete
All of which is pretty standard neoclassical economics, actually.Delete
Don Coffin, hi. Actually... when I put the standard economic puzzle pieces together... the picture I come up with doesn't have any voting in it. Let me show you my work...Delete
Batman vs Hitler
Do you agree that the only way that we can prevent Quiggin's Implied Rule of Economics (QIRE) from being regularly and consistently violated is to replace voting with spending? If you disagree... please show your work.
If you agree.... then doesn't it feel a bit unorthodox that the conclusion of standard neoclassical economics is that we should eliminate democracy? I've certainly never heard Noah Smith argue that we should eliminate democracy... have you?
I, for one, support the removal of all paywalls to Economic Journals.ReplyDelete
By the way, I'm pretty offended at being put in the same sentence as Austrians. That's like Cochrane and Krugman, or Prescott and Stiglitz being put in the same sentence together.
And usually with cults, someone benefits when you buy something. It's the journal they publish in that benefits, not Victoria Chic. Maybe they should put out a working paper of the same concept, but you know they also have to thing about publications, their career, citations, etc.
I actually think you might be right about a lot (all?) of the people who would go off on twitter about how they have a new methodology that will revolutionize economics. But I'm kind of dubious about using a comparison with the ubiquity of slides, lectures, and textbooks for mainstream economic theories as a rubric for judging the legitimacy of purported alternatives. I'm sure you realize that the production of that ubiquity was the work of many people over an extended period of time, supported by the demand for such presentations from the significant number of students who are not interested in the academic study of the economy as such but who find it useful (say, for careers) to take intro econ or even major in economics -- three things (people, time and outside demand) that are by necessity going to be lacking for an alternative that is being developed by (at best) a small group of like-minded people who are trying to carve out a niche for themselves in the academic ecosystem rules by the principle of publish (articles in peer reviewed journals or books in academic presses) or perish.ReplyDelete
I am flummoxed by the resistance of heterodox groups to have their works listed on RePEc. RePEc is built to facilitate dissemination for groups like those...ReplyDelete
A keyword search for "post-Keynesian" at RePEc yields 55,000 results. Some resistance!Delete
Or SSRN? A search on "Post-Keynesian" yoelds 304 hits, many of which are, in fact, merely "Keynesian" (as, for example, the fourth paper listed, "Keynesian Theory and the Aggregate-Supply/Aggregate-Demand Framework: A Defense"Delete
Here's my heterodox idea, which is testable, unlike Scott Sumner's monetarism and unlike most of orthodox economics which depend on 'expectations' as a fudge factor:ReplyDelete
1) the economy is non-linear, with an upward bias, not unlike the stock market
2) money is neutral. You cannot show the Fed has any effect on real variables, long or short term, to 95% confidence (the only study I saw showed an effect to 60% confidence, and I'm aware of Ben S. Bernanke's 2002 FAVAR paper that shows a 'statistical significance' to Fed policy shocks, but those are cherry picked shocks and btw the significance is small: about 3.2% to 13.2% out of 100% on a range of variables including GDP from 1959 to 2001)
That's it. Ball back in your court Noah Smith. Make a strawman and knock it down, but the facts remain: your profession has singularly failed to predict or even explain anything, outside of validating their backwards looking and closed theoretical macro models as internally consistent. And that includes your hero Samuelson.
On #2, maybe take a look at the Christiano Eichembaum Evans article in the Handbook of Macroeconomics?Delete
The nice thing is that you should be making a killing on it, since the markets do not believe that.Delete
I'm far from heterodox, but it's not unreasonable to feel a paradigm shift coming. We're undergoing serious advance in our tools -- and not just computers -- but also conceptual tools like network theory, evolution and search algorithms (how do they not model systems behavior better than optimization?), information theory, nonlinear dynamics. We also have been blessed with an internet driven data dump that would make the scientific revolution drool -- all Tycho Brahe did for Kepler was write down some numbers, while we are in the process of digitizing the majority of social life. Social systems like bitcoin rise in front of our eyes and let us observe experiments in core concepts like trust and information and value. The disintermediation of savings, spreading that core economic function across god only knows how many different channels, accomplishes the same thing, in that it gives us a peak at dynamics more fundamental that just what can be modeled with calculus, all due respect to my marginalist ancestors. I'm not sure a methodology paper is going to come out from some obscure corner and change everything in 20 equations. But I'd put even money on a grad (undergrad?) level textbook within 50 years that cobbles together just enough of the insights of the previous century that it changes the game. It will be ludicrously expensive.ReplyDelete
Agreed. I strongly believe that empirics, not hand-wavy Marxist verbiage or "critical theory", will be the thing that reforms econ.Delete
It will help, but not with Macro. Ultimately, you will have to be explaining aggregates with short history. Instead of reducing the dimensionality all the extra data will enable a gigantic expansion of possible theories with all the tools you mentioned. Unfortunately, it will still have the same aggregates to explain.Delete
Keen's Minsky is accessible, though I would call it an old rather than new methodology, and not one easy to extrapolate to the real world.ReplyDelete
I remember paying quite a bit for standard econ textbooks. I'm guessing you didn't have to when you were in school? But anyways, you should check out Bill Mitchell's blog. Its totally free and you can learn a lot about economics, both orthodox and heterodox.ReplyDelete
Now that I think about it, I spent about a thousand dollars on econ textbooks and probably close to 20 thousand just getting a B.A. in econ. At a state subsidized university. 25 years ago.Delete
And I think I have learned more real economics at billy blog than I did at school. For free. So, in my opinion, you might want to ditch that part of your argument.
"So far, the main "heterodox" econ "schools" - Post-Keynesian, MMT, and Austrian - show every indication of having no new methodology whatsoever"ReplyDelete
Good strategy. Club someone with another person. Debunk the other person and claim to have debunked both.
It's mainstream which is occult, not heterodox. I mean you guys make so much promises, it's demagoguery.
As for methods, you can follow the work of Marc Lavoie who has written across many topics, including "stock flow consistent modeling". It's no occult in any sense. Huge amount of work is done to keep the models self-consistent, for example.
Btw, Goldman Sach's chief economist Jan Hatzius uses Wynne Godley's models.
Here is the link if you are interested. http://bilbo.economicoutlook.net/blog/ReplyDelete
here's a link to an ungated paper on a particular branch of heterodoxy, which was written (I think) to be accessible to practitioners.
There are other ungated papers in the same tradition (neo-Kaleckian) on the ILO website.
I hope this helps,
P.S. I like your blog
So the heterodox schools have "no new methodology"? Easy answer to that. The above article has no new methodology.ReplyDelete
I have received quite a lot of silly comments over the years, but this one may in fact take the cake.Delete
Sir Noah, I would have to agree with you on that! Silly is an understandmentDelete
Your FACE has no new methodology!Delete
"If you really think you've got something new and better, you publicize the hell out of it. You make slides explaining the basics. You write working papers - free and ungated -- showing how the new thing works, and why it works. You give examples. You draw pictures. You teach. You educate. The burden of publicization and education is on you."ReplyDelete
Here's one that's trying!
Where's that coming up short in your opinion? What are your major criticisms?
Also a recent ArXive paper: http://arxiv.org/abs/1510.02435Delete
Thanks jed. I know about it. I even got a mention on the blog for some proofreading (essentially). ;)Delete
"Books, of course, must be bought, so the book and gated article links are basically a request that I fork over cash before I even learn the very basics of what the new methodologies are."ReplyDelete
But that goes without saying.
Noah, good post! I've seen a lot of "talking past each other" when post-Keynesians and mainstream engage on Twitter - maybe because their respective methodological frameworks are different.ReplyDelete
I'm trying to understand better what you're looking for. Are you expecting post-Keynesians to produce a methodological framework that can model and aggregate micro-agent behaviors such that the resulting macro outcome is consistent with inherently unstable economy?
There's a lot of garbage available within the universes of both "mainstream" and "heterodox" - they each include equal opportunity sub-cults and intellectual polluters in their own respective waysReplyDelete
But this has to rank superior to most anything else from "heterodox" - Godley and Lavoie - a book - but its free:
Goldman Sachs finds it useful, although I can easily imagine you denying or disparaging their methodologies.
Maybe a waste of effort to mention this on this blog, but the interesting first chapter of Lavoie's book "Essentials of heterodox and post-Keynesian economics" can be found for free here:Delete
Godley and Lavoie are a perfect illustration of what the problem is in a way. They do have a newish methodology, although it is more that they took a methodology from Tobin and used it for post-keynsian ideas with specific post-keynsian theories with post keynsian specifications. In fact Zezza, another prominent person amongst that group prefers to call it SFC-PK modeling for Stock-flow consistent post-keynesian modeling because the models they present are not specified in a way non-heterodox people automatically accept.Delete
Tobin wasn't heterodox and his SFC models weren't anything but a useful tool to maintain internal consistency and allow the modeler to be more specific in how assumptions are different from methodology. So when the people promoting SFC models look to the academic work there are 30 years of PK cruft to separate from the pure methodology.
Of course Tobin lost the war amongst NK types to the micro foundations revolution instead of his own response to the Lucas critique.
Noah, you said you were "taunt[ed] and insult[ed]" and then link to a perfectly civil conversation some guy had with you. Did you put in the wrong link?ReplyDelete
Second that. Is Noah a Scientologist?Delete
what is the methodology of mainstream macro? I'd appreciate a paper over a book, if anyone is interested to oblige...ReplyDelete
Book: Handbook of Macroeconomics, http://www.sciencedirect.com/science/handbooks/15740048
Big Thick PhD-level Textbook: Recursive Macro Theory, https://mitpress.mit.edu/books/recursive-macroeconomic-theory-0
More accessible textbook: Advanced Macro, http://www.amazon.com/Advanced-Macroeconomics-McGraw-Hill-Series-Economics/dp/0073511374
Intermediate undergrad level textbook: Charles Jones, Macro
Intro level textbook: Krugman, http://www.amazon.com/Macroeconomics-3rd-Edition-Paul-Krugman/dp/1429283432
Open Access intro textbook: OpenStax Principles of Macro, https://openstaxcollege.org/textbooks/principles-of-macroeconomics
thanks for the reply! seriously!Delete
I had the opposite experience when I first encountered Austrian economics, which you're throwing in your post as heterodox. Mises.com has free books, articles, blog posts, and videos. The fact that everything was free and they had all different forms of media was exactly what got me to keep going back there as a college student who enjoyed reading. When one argument by Mises didn't make sense, I could read Murphy explain it in a different way in a blog post.ReplyDelete
True. They are not in slide format like a departmental seminar. Is that really the optimal form of communication of ideas?
If you haven't read Human Action, you can't call yourself an economist. It would be like calling yourself a Christian and never have read any portion of the Bible.Delete
This comment has been removed by the author.Delete
^ This takes the other cake.Delete
^ This takes the other cake.Delete
This has to take at least second cake.Delete
If you want free articles on post-Keynesian Econ and MMT, the Levy Institute has a lot. You could browse the the library and see if anything looks of interest.
I know you do not want books, but the recent Marc Lavoie text on post-Keynesian economics offers the best overview of the subject. There are no comparable resources available for free - that I am aware of.
What are libraries for? You do not have to buy library books.Delete
I am someone interested in economic ideas in a (mostly) non-partisan way and in my experience it is extremely easy to find free resources on the internet to get a deep understanding of th ideas and methodologies of the various heterodox schools schools.ReplyDelete
Here is what a 30-secfond Google search came up with:
Austrians: https://mises.org/library (This has free version of most of the the main works by Mises, Rothbard and Hayek)
This is just 3 more or less random links, there are hundreds more!
This is fine and good, but this is a list of conclusions (ideas, hypotheses), not an explanation of methodology. I want to know how these ideas are generated or tested (or both), not just a list of statements about the world. But thanks very much, posting links like this is good practice!Delete
The hypotheses underlying mainstream economics also need questioning. I suggest Googling: "The Standard Definition of Money is in Error." If true, this possibility might bear on the field's erratic ability at prediction.Delete
Also, Aleister Crowley is worth a read, if only to open up possibilities above your likely too restricted, and also likely too rarely examined, assumptions on the nature of reality. I recommend "The Book of Thoth." The older edition with the color plates.
Exactly. My experience is identical. On first or second contact, the reaction is to give it a chance. Innovative ideas always look crazy at first, right? But, you go into some depth in "heterodox" fields, and what you find is mostly negativity:ReplyDelete
1. Critiques of received economics that reflect a poor understanding of received economics.
2. Re-invention of the wheel.
After that, you don't want to waste any more time on this stuff, which of course means you're accused of being dismissive. Which you are - it deserves to be dismissed.
Yes. I have also been struck by how badly written most of it is. That's one great thing about the math in mainstream econ - it means that even really bad writers are forced to make their mistakes very obvious. If you bury nonsense in reams of text it's hard to find, but in an equation you can see it right away.Delete
Math is also used to obfuscate. Equations need to be interpreted, and may not show what they claim to show.Delete
Yes, there's an unavoidable barrier to entry - you have to learn math. Similarly, if I go to live in China, it's going to help to learn Mandarin. If you know the language, it's harder to hoodwink you.Delete
This is interesting, because there is another level of hoodwinkery. I can know math, or claim to know it, and tell people who don't know math, that mathematical economics is all hoodwinkery.Delete
Samuelson was fluent in math. Here's what he wrote in 1989...Delete
"The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive."
Was Mises fluent in math? Nope. Unlike Samuelson, Mises was fluent in economics. Here's what he wrote in 1944...
"The management of a socialist community would be in a position like that of a ship captain who had to cross the ocean with the stars shrouded by a fog and without the aid of a compass or other equipment of nautical orientation."
What about Adam Smith? Just like Mises, Smith was more fluent in economics...
"Where wages are not regulated by law, all that we can pretend to determine is what are the most usual; and experience seems to show that law can never regulate them properly, though it has often pretended to do so."
What about Noah Smith? Well...
A. Noah equally values all these comments on his blog entry
B. Noah does not equally value all these comments... but his valuations do no matter
Hey Noah! If your valuations do not matter... then how can society's limited resources possibly be put to more, rather than less, valuable uses (QIRE)? Do you even agree with Quiggin's Implied Rule of Economics?
So, people should learn mathematical economics? Why, though? What argument would you use to convince somebody to invest the time and resources?Delete
Stephen Williamson, mathematical modelling is a massive distraction. Name one major finding in economics (that correctly explains how the economy works that has been fed into policy) that has changed the world (for the better) that has come out of mathematical modelling.Delete
Learning Mandarin, however, is useful. You could go out to Chinese factories, banks, talk to government and get all sorts of documentation which could tell us what is actually going on. You could even talk to Chinese historians who have probably already done a lot of this work. They would tell you how the country grew so fast and why they have massive savings and why they prefer to invest in US treasuries even though there is likely to be large investment opportunities. And may be sociologists and anthropologists too who have hands on knowledge could tell you something. And you know what. You could do it without maths! In fact you could do it better without maths! Why? Because almost certainly the model is wrong and it will take you up the wrong track and make people spend years learning stuff that is basically useless.
Edward Lambert at Angry Bear has published a lot of free blogs, with charts and mathematical formulae about his theory of effective demand & labor share of national income, although this may be Paleo-keynesian and not post-keynesian. See also Robert Waldman, John Quiggin, & Steve Keen.ReplyDelete
You want chapters? Here's some chapters:ReplyDelete
Quote from your twitter link:ReplyDelete
"Good piece on where economics needs to go... and where it WILL go."
Err, how do you read a methodology into that? It could be anything: a philosophy, a framework, an approach, an ideology, a viewpoint, a theory, a set of different assumptions from current economics, whatever. Asking for a methodology from someone who does not claim to have one gives you no reason to complain when their lack of one is revealed.
I doubt those heterodox economists will mind if you use sci-hub to bypass the journal paywalls.ReplyDelete
I have not seen your blog for a while, Noah. Thank goodness too. You seem to like critiquing things you do not know much about. Please stick to critiquing the New Keynesian model - you are on firmer ground.ReplyDelete
What do you mean by a methodology? Why do you not name names of people who are saying they have a 'new methodology'. Do you mean they don't have 'a model'. No Post-Keynesians do not have a model, because that is not the way they work. So that is a red-herring if I ever heard one. Their methods are totally empirical. Like an historian, political scientist, psychologist or criminal investigator. They do not use models for very good reasons. (If you were wrongly accused of a crime, would you like the investigator to use a rational expectations model?) They might be aware of theories. But they are reference points - whether Marxian, Neo-Realist or whatever. They are not allowed to frame investigations. In other words they work like other social scientists.
I know these sorts of posts are very popular with your mates who are probably as ignorant as you are, if you think they are being read by so-called heterodox economists you are probably very wrong. I would be very surprised if any found their way here. Basically these are lazy posts. You do not know who heterodox economists are and what they do. (Again give us some names and examples of books etc you are talking about). Are you referring to Leijonhufvud?, Maddison?Heterodox economists are very easy to misrepresent. I am not even sure who exactly you are talking about. Do you mean basically everyone who does not like DSGE? Is this about this old red herring, "before you criticise a model you need another model"?
Well if you think that is true, argue with everyone from Coase to Chomsky to Habermas.
Why don't you get to work and write something substantial? Give us a good critique of Woodford or Romer. It is these people that need to be under scrutiny, this is where the influence and power is. And it is something I am sure you know more about.
Or better still, write a book or something in a journal. Hopefully something interesting. We're waiting.
Yeah no. Post-Keynesians do indeed have models, I think you may be thinking about Austrians which have largely shunned mathematics and modeling (although this has started to change recently).Delete
I suspect that something else is at work with Noah's dislike of PKE. Probably something to do with his long-standing fight and bickering with Steve Keen.
Actually, not really. I admire Keen for putting his stuff out there clearly and plainly. I think it didn't go over very well: http://jwmason.org/slackwire/case-of-keen/Delete
But I think Keen did the right thing, and other heterodoxers should follow his example.
We might be getting a situation where people are calling themselves post-Keynesians when they are not. Bit like New Keynesians calling themselves Keynesian.Delete
Who are the post-Keynesians? Basically it was the Cambridge School that did not embrace Samuelson. Kaldor, Robinson, Meade; you could also include Maddison, Minsky, Leijonhufvud, Godfrey. There are big differences between them (for example some would embrace mathematical modelling more than others), but also important similarities - such as a rejection of Walrasianism. Some of the comments on here, including I have to say the blogmaster really do enormous disservice to these people. I wonder if people here have read any of it. If they did, they might be surprised at how ahead of their time the early writers were, and how much knowledge has been lost - at a great cost.Delete
So what's the source of your disdain? I mean you realize that there are hundreds of times more conventional economists than PKs, and they're obviously operating from a significant institutional disadvantage (nor do they have all that financial support that Austrians now have and that Marxians used to have). Most people are completely in the dark as to what PKE even is, and that's something they should indeed improve as far as putting information about their theories and papers go. But does that really make them cultish? Or just incredibly disorganized?ReplyDelete
The funny thing about Keen is that, I believe, he gets a lot of flack from his fellow PKE brethren because somehow he became the most famous and most read. That obviously has a lot to do with his own self-promotion and relative transparency.
One other problem seems to be that neoclassicals and any non-neoclassical school is a complete difference in the jargon they use. Miscommunication and lack of comprehension is kind of widespread in this regard. Of course, I'd argue PKE is much easier to understand for the lay person (albeit still difficult), as I've tried to get friends (many who are PhD students of other fields) to read (neoclassical) econ papers, and they think it's written in a different language and incomprehensible. For that paper for example, it should be clear that Keen was discussing an accounting identity, but looking at debt and asset markets may be rather unusual for a neoclassical to think in terms of.
As a general rule, both orthodox and unorthodox economists are terrible at communicating in English. Noah is an exception, which is why his writing is popular.ReplyDelete
So we have a bunch of smart people who are generally bad at communicating, and give them blogs, where they can reach a wide audience. Unfortunately, that wide audience means the blog posts can turn preachy, and when there are disagreements, egos are hurt. Men who in person would have polite and productive discussions to improve their mutual understanding and identify both agreement and disagreement, will turn into shrill and snarky jerks in the safety of their blogs.
Sometimes it would be better if economists discussed disagreements privately (e-mail, phone call, lunch) in order to understand each other, before they start publicly throwing mud. Call it professional courtesy. That is particularly the case since many heterodox economists have come to the same conclusion - that we desperately need to increase fiscal spending.
Well, I have just finished attending the Eastern Economics Association meetings, which tend to have a lot of het economists of various sorts (although not too many Austrians who favor the Southerns for their get togethers). There were especially a lot of PK models being presented of various sorts, which is one of the problems for outsiders, that there are a lot of varieties of PKs, and most of the varieties were on display there (although not Steve Keen). But the MMT people were there, including Bernie Sanders' top economist, Stephanie Kelton. Tom Palley was there pushing varieties of neo-Kaleckian models (and he has real models, and they are reasonably available by googling, no firewalls). The Lavoie crowd was there (although not Marc himself), and they have models, although maybe less accessible, in books and firewalled articles.ReplyDelete
One group not mentioned that I have been a supporter of is the agent-based modelers, who have their own sub-group with a lot of sessions there. They all (or most of them anyway) have models, and they generally make them pretty accessible. I am a bit frustrated with what has gone on with them in that it looked like they might pose a real alternative to DSGE in macro. I think they have put forward a lot of good models, but these are probably getting less attention than Steve Keen's stuff or some of the various other PK things or even the non-models the Austrians put forward. Some of this is accusations that their models are too sensitive to parameter value choice, that they do not give definite answers to things. But I am also aware that, without sounding too conspiratorial or whiney, that there has been a really serious effort in various places to block them and their papers from getting published in good journals (few have scored in high journals, and I am aware of some good ones that have been turned down for what look like poor reasons at such journals), as well as at such places as central banks, where I know some are open to such things, especially the network related ones. Maybe ABM is just not going to make it, but I remain very unimpressed by the newer DSGE models that supposedly incorporate financial frictions. At a methodological level I see ABM simply having those piles of junk that continue to be basically worthless completely beaten. But they continue to seem to have a really hard time breaking through to broader attention.
I will also note that I participated in a very heavily attended panel with Duncan Foley, David Colander, and Ric Holt (Paul Davidson was also supposed to be there, but missed due to illness) on "How to be a Dissenting Economist." I suspect that we as a group did too much soft soaping, not saying that dissenters should just fight fight fight and insult and impugn and beat up on anybody who disagrees with them at every opportunity. Instead, I at least advised wannabe "dissenters" (the more difficult term "heterodox" did eventually arise) should "to thine own self be true" and figure out what their dissent is, then find a good place to be to practice and outlets that will let them express it.
I also advised people to try to be diplomatic and nice to others, that they might have a better chance of convincing others of the rightness of their views if they adopt such an approach, although being prepared to fight if necessary. But I argued one should be careful about the fights one picks. Needless to say, although nobody there really argued with this too much, I know that others in the past, such as the late Fred Lee, have argued otherwise and supported being more forceful against the establishment.
please post some ABM linksDelete
Rothbardian Austrian methodology demystified and deified at reddit.com/r/praxacceptanceReplyDelete
Use science hub!!!ReplyDelete
Just for kicks, since it got mentioned in that twitter feed you linked to, I looked up critical realism in Wikipedia. Here' the section on "critical realism and economics."ReplyDelete
Critical realism in economics
Heterodox economists like Tony Lawson, Lars Pålsson Syll, Frederic Lee or Geoffrey Hodgson are trying to work the ideas of critical realism into economics, especially the dynamic idea of macro-micro interaction.
According to critical realist economists, the central aim of economic theory is to provide explanations in terms of hidden generative structures. This position combines transcendental realism with a critique of mainstream economics. It argues that mainstream economics (i) relies excessively on deductivist methodology, (ii) embraces an uncritical enthusiasm for formalism, and (iii) believes in strong conditional predictions in economics despite repeated failures.
The world that mainstream economists study is the empirical world. But this world is "out of phase" (Lawson) with the underlying ontology of economic regularities. The mainstream view is thus a limited reality because empirical realists presume that the objects of inquiry are solely "empirical regularities"—that is, objects and events at the level of the experienced.
The critical realist views the domain of real causal mechanisms as the appropriate object of economic science, whereas the positivist view is that the reality is exhausted in empirical, i.e. experienced reality. Tony Lawson argues that economics ought to embrace a "social ontology" to include the underlying causes of economic phenomena.
I have been unable to determine what those "hidden generative structures" are (I poked around some) or how this approach proposes to go about finding them.
One can't generalise. There are valuable people everywhere and not everybody should be put in the same bag. But that link to the Twitter guy whose name changes every so often shows you are far from being 100% mistaken.ReplyDelete
It's not enough to have access to free sources and materials. You need to have an argument why should I bother? Why should anybody invest into reading anything heterodox? The answer typically is that they can explain some parts of Macro history. That's useless, however. Macro offers the best curve fitting opportunity ever encountered by Man. You need to show how you explain simple repeatable phenomena and how the mechanism scales up robustly and in a parsimonious way to Macro. If you invite totally new principles and mechanisms at every level of aggregation, then you should probably go play somewhere else.ReplyDelete
Kryzs that's false. There are cycles in all history. It does not mean however you do not do ground up (qualitative and quantitative) investigations of each case. You should not use models - or have your analysis dictated by them. That is basically the message of many heterodox economists across the spectrum- many in fact are historians or work in political science departments. Put another way, they are against deductive reasoning, especially if based on poorly defined, empirically unverifiable or even false axioms.Delete
No models = noise. Complicated models = noise. Even simple models are very susceptible. There are fundamental properties of small samples. The amount of information you can extract is very limited. The current macro models already have way too much structure. From what I have seen heterodox econ just wants to pile on more structure. It's doomed.There's nothing you can do.Delete
"This is fine and good, but this is a list of conclusions (ideas, hypotheses), not an explanation of methodology. "ReplyDelete
So, you do not want to talk about any other thing but methodology of heterodox economics?.
Methodology is accounting method. Since all economics is trying to be economtrics which is getting info from accounting: all informations are recreated from accounting; GDP is calculated from accounting, profit rate is calculated from accounting, employment and everything else (prety much) commes from accounting.
Heterodox economic methodology is avoiding problems of mainstream economics that has to translate accounting into models and representations of accounting as presenting the real world. Heterodox economics use explanations of accounting principles to avoid "lost in translation" problems of mainstream economics.
Accounting principle is that it all rows sum to zero, by deducing the logic of what it measures, accounting rows are explained.
Sectoral ballance sums to zero; means that private deficit is public surplus and opposite.
Issuing credit creates liabilities for the banks; it sums to zero- what that means is the explanation that heterodox give.
Heterodox economics use accounting methodology to explain how economic measuers are procured and what they mean in real world. Mainstream economics skip this step and goes imediately into selfserving explanations of numbers procured by accounting methods. It doesn't explain how those numbers came to be.
Since all econometrics are created by accounting method, isn't it logical to use accounting rules into explaining economy? Mainstrream is avoiding this by using historic myths on how money and banking came about instead how it is accounted for in present time. Mainstream is excluding all historic change to banking (like abandoning gold standard) and still include gold standard as aplicable.
I love how the comments verify your argument.ReplyDelete
I am not sure why one would say "Post-Keynesian, MMT, and Austrian" are the main heterodox schools. What about also Ecological Economics, Feminist Economics, Institutionalist Economics, Marxian Economics, and Feminist Economics? Even this doesn't encompass the whole diversity of non-mainstream heterodox economics. And many of these schools have mathematical models.ReplyDelete
Aren't Max Sawicky, Dean Baker, and Jared Bernstein heterodox? I'm sort of confused by this entire thing. There are entire universities with heterodox departments.ReplyDelete
I suggested to a few time to Noah a few to learn the accounting methodology. Seriously, learn accounting.ReplyDelete
It can be self taught. You are on campus and can take or sit in on a class. The older books in the library are shorter than the newer tomes.
I suggested to a few times to Noah to learn the accounting methodology. Seriously, learn accounting.
You are smart. You can do it. It might even be profitable for you.
"Understanding Financial Crisis Through Accounting Models"ReplyDelete
Dirk J Bezemer
University of Groningen
"There is an immediate link to accounting, organizations and society. Previewing the results, ‘accounting’ (or flow-of-funds) models of the economy turn out to be the shared mindset of a large subset of those analysts who worried about a credit-cum-debt crisis followed by recession, before the policy and academic establishment did. They are ‘accounting’ models in the sense that they represent households’, firms’ and governments’ balance sheets and their interrelations, and that accounting identities play a major role in the model structure and outcomes. If society’s wealth and debt levels reflected in balance sheets are among the determinants of its financial stability and of the sustainability of its growth, then such models are likely to timely signal threats of instability."
Oh, learn accounting from accountants or bookkeepers not economists.ReplyDelete
I have an idea. Find a sucessful business person, sucessful investor, or person who has ever been layed off, that has never taken an economics course. Finance and accounting are fine. Then explain to them the concept of equilibrium. Note their response. Go though their logic and response of the real world description they give you.ReplyDelete
Then ask yourself about what you have taught and teach. Would they accept the idea that you are in the dark?
Then ask yourself about what you have been taught and teach. Would they accept the idea that you are in the dark?
Look what events in history started after and continued durring when the word economics surpassed accounting in google´s corpus of books! 1929, 1938, 1941! Economcic depression, mass bank holidays, gold theft, and war.
The point above is that accounting is an old methodology. Not new.ReplyDelete
Noah, will you learn double entry accounting or bookkeeping?ReplyDelete
I think this post is basically correct. There is no heterodox methodology or methodologies. Heterodoxy imo is better thought of as a group of people and institutions rather than a body of thought. It doesn't describe an established alternative research program in economics but rather various overlapping attempts to develop one.ReplyDelete
That makes sense, but the critique also applies to specific heterodox "schools" like MMT, which are much more unified than "heterodoxy" as a whole.Delete
That said, if you want to know what heterodox economists are doing it's a much better bet to come to some panels at a heterodox-friendly conference (like the Eastern Economic Association, which I was just at this weekend) or talk to people at a heterodox school like UMass, New School, or UMKC. "Things random strangers send me on twitter" is a pretty unreliable way to learn about anything.ReplyDelete
Yep, definitely. There are probably plenty of people out there doing "heterodox" work that I'd enjoy, and "heterodox" is too large a label to make blanked statements about. So the critique in this post only applies to certain subsets.Delete
Sorry, should have been "blanket". Autocorrect!Delete
I think part of the differences can be explained by the fact that the mainstream conceive themselves as a 'natural science' (styled after physics), whilst the heterodox view themselves as a 'social science'. Hence why for the mainstream 'methodology = models' whilst for the heterodox they use a broader range of qualitative and quantitative methods.ReplyDelete
Which isn't to say that models are junk and broader methods are better - they both have their uses and can both be misused as well. But I'm not sure it's correct to claim that there is no methodology, just because a specific one isn't being used.
Nah. Econophysics is strongly represented at New School. And UMKC's latest hire, Ellis Scharfenaker, wrote a dissertation that "combines novel approaches from information theory, statistical mechanics, and Bayesian reasoning in developing the theory of competition as well as offering a new general technique for studying the macroeconomic properties of complex economic relationships through a statistical analysis of microeconomic data. Using Bayesian Markov Chain Monte Carlo (MCMC) methods I develop a mixture model that allows me to specify the prior distribution and a noise distribution from which I can filter firm level data..."Delete
Again, I don't think it's helpful to generalize about "heterodoxy" as a definite body of thought or approach. It's not one.
Oh sure, I didn't mean to suggest that heterodox groups don't engage in mathematical modelling. My point was just that there is, perhaps, a broader acceptance for what constitutes a methodology which is as a result of the fact that heterodox economics is not a homogeneous group.Delete
Yeah sorry Noah, but you have a very facile understanding of Post Keynesian economics, and there's no nicer way to put that. If you really want to give critiques of it, I suggest you do just a little more research into it, maybe read a bit of Marc Lavoie's intro book (I remember there being the first chapter out there somewhere), or Godley-Lavoie which is online ( http://dl4a.org/uploads/pdf/Monetary%2BEconomics%2B-%2BLavoie%2BGodley.pdf ), maybe watch a video like Tom Palley's ( https://www.youtube.com/watch?v=U3dK5VignKw ), or what I recommend above all is reading one of the books of someone like Kaldor, Kalecki or Robinson (I recommend something like The Scourge of Monetarism - which was perhaps the best contemporary debunking of Monetarism and still holds up extremely well today, especially considering that's what mostly began the development of the Endogenous Money theory - so perhaps Milton Friedman wasn't so bad afterall) http://www.amazon.com/The-Scourge-Monetarism-Radcliffe-Lectures/dp/0198772483 (yes, I realize that you'd have to blow 10-20 dollars for something. But isn't that what book publishing is supposed to be all about?)ReplyDelete
Anyways, the political "Conclusions" that you said Post-Keynesians all agree to is pretty much wrong. Higher wages are not always good if it leads to cost-push inflation, as in the late 60s and 70s, and generally PKs recommend to use an Incomes policy of gradually reducing wages, particularly through the bargaining process.
Government spending is not always good, particularly if it leads to too much inflation and if you're not borrowing in your own currency. Private debt is not necessarily bad, as it leads to further demand as well as entreprenurial and corporate investment, but excessive burden of private debt is very bad as it is debt owed to the financial sector, rather than public debt being owed to the public.
PKEs do take a wide array of other approaches, many of which are hard to model, yet make for good social scientific approaches, like historical path-dependency or institutionalism. Some reject neoclassical micro, some continue to use it. Some have a structuralist view of the monetary system, others (most) have a horizontalist approach. Some continue to an equilibrium approach, others (probably most) reject it.
Lavoie put these as the "core assumptions of Post-Keynesian Economics":
The principle of effective demand
• _ Both in the short and in the long run
• The importance and irreversibility of time
– Historical time
– Dynamics, the traverse
– Path dependence, multiple equilibria
– Tracking financial stocks
And Auxillary beliefs (widely but not universally shared)
• Fundamental uncertainty
• A Production monetary economy
• Alternative microeconomics
• Pluralism of methods and theories
• Distrust in unfettered markets, procapitalist
And of course there's a lot of disagreement, whether the wage-profit share drives growth, or more endogenous growth theory like what Kaldor developed.
Look I understand that you are being a bit biased here in that Post-Keynesian MUST be some crank theory of economics no different than those silly Austrians and Marxists. So you're trying to find 'evidence' and arguments out there that would confirm your belief, including the fact that yes, PKE tends to range from the left to centrists, and there's simply not many (if any) right-wing PKs (although there are some oldskool Tories like Skidelsky who are very sympathetic with the PKE approach, and whatever Bruce Barlett is today).
Sorry but the way you try to simplify everything as "Post Keynesians must be like Stigler's Chicago School" may just be confirming your own bias that PKE must be wrong, because the mainstream has rejected it.
Orthodoxy?―NO, Heterodoxy?―NO: Scrap ALL this crap!ReplyDelete
Comment on Noahpionion ‘Occult Mysteries of the Heterodox’
Economics is a failed science. Orthodoxy has not produced anything of scientific value since Adam Smith (2014) and Heterodoxy has been unable since Veblen to develop a superior alternative (2011). The core problem of economics is that there is nothing to choose (2013).
Economics claims to be a science. This is a serious case of self-delusion. Science is well-defined: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994, p. 31). The fact of the matter is that neither Orthodoxy nor Heterodoxy fits the bill. Accordingly, what we actually have is what Feynman famously characterized as cargo cult science.
There is absolutely no need for anyone to invent a new methodology. Science has been defined already by the ancient Greeks as formal and material consistency. Economics has never satisfied these standards. Worse, economists violate scientific standards on a daily basis. There is no exception: Walrasian, Keynesian, Marxian, and Austrian economics is provably false.*
The fact that Orthodoxy produces lots of free educational stuff is by no means a merit. Just the contrary, because this stuff is provably false: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern, 1941, pp. 369-370)
Boiled down to the essentials Orthodoxy’s methodological position is “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point ” (Krugman). Clearly, everything based on maximization-and-equilibrium is scientific garbage.** No matter how many slides and videos are produced ‘like crazy’ for dull econ101 students, it remains garbage in all eternity.
Orthodoxy has been refuted on all counts. What currently parades as economics is a heap of ill-founded opinions. What Orthodoxy and Heterodoxy have in common is scientific incompetence.
The most urgent task for every economist is NOT to produce fancy slides of brain-dead economic models like crazy but as Joan Robinson defined it: Scrap the lot and start again!
For both orthodox and heterodox economists, though, it is already too late. The only thing they can do for the scientific progress of economics is to shut up and retire.
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL http://ssrn.com/abstract=1966438.
Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL http://ssrn.com/abstract=2207598.
Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2511741.
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT: Edward Elgar.
Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political Economy, 49(3): 361–393. URL http://www.jstor.org/stable/1824735.
* See post ‘How the intelligent non-economist can refute every economist hands down’
** See post ‘Economists’ three-layered scientific incompetence’
If everyone writing or thinking about economics "shuts up and retires," then there will be nobody doing any economics and itt will not be moved forward by scientific progress or by anything for that matter. Or are you proposing a takeover by econophysicists or some such outside "scientific" group? If not, this looks like the worst sort of crank crackpottery.Delete
In case you have not seen this yet Prof. William Black at UMKC has responded hereReplyDelete
I will not attempt to convince you to read it.
Follow link, press control-f and enter the word accounting.Delete
Noah, when are you going to learn accounting? The language of oraganizations that are going concerns.
Accounting has been a traditional technology for more than 5000 years. It has proven its value and is used everywhere.
Venice most likely got accounting from India.
I suggest learning accounting is a much more valuable activity than leaning more economics with ou accounting knowledge. Certainly, it has more return on investment and utility for the individual. Economics seems more useful for government and organizations.
When are you going to learn accounging?
If you do not want to start maybe learn about the history and uses.
Jane Gleeson White´s book ,"Double Entry: How the merchants of Venice shaped the modern world - and how their invention could make or break the planet" , might wet your appitite.
Any time spent reading more econoics gets in the way of learning accounting.
Review of White´s book:
This is an outstanding gem of a book I'm glad I took a chance on. Out of all the babbling and noisy books on history, this is the one that really gets the closest to the actual backbone of what's driven civilization and generated the history we all know. Could it be that the choice of something as seemingly banal as a number system and method of keeping track of inventory and transactions -- in other words, accounting -- could have underlay everything we know in history.
Yes indeed it could. Read this book!
Not sure why you responded to me with this comment. I was just pointing out the response from a heterodox economist.Delete
Understanding accounting of course has value.
I must reply however that if you believe that a number system or double entry accounting somehow underlays everything we know in history, or perhaps is the meaning of life itself, then I really do feel sorry for you.
It was not a reply directly to you but pointed out one of the hetrodox methodologies used and mentioned in the article.Delete
By posing as a reply here, it would be in the right place for other readers. And on the subject. Even though, it might have ignored other relavent parts of the article.
Then learning the interesting methodology and its vlaue was advocated.
I then referenced a book and some one else´s review of the book that might peak one´s interest if one was unmotivated to learn accounting.
I had an interesting Twitter exchange today that may cast light on this issue. Mainstream econ employs a scientific methodology by virtue of its insistence on micro-foundations and explicit modeling of assumptions, key actors, interactions and constraints. However, where mainstream fails the scientific test is in its use of unscientific micro-assumptions about utility, time preferences, money, agent behavior, equilibrium, etc. Such assumptions are unscientific in the sense that they are not subject to falsification.ReplyDelete
Post-Keynesians, on the other hand, rely on aggregate modeling. They claim that micro-foundations are subject to “reductionist fallacy”. In other words, interactions among micro-agents give rise to emergent, non-linear effects that cannot be reduced to the behaviors of individual agents. Such method is not necessarily unscientific, the study of gravity being a great example. However, unlike predictions about gravity, predictions about the economy are not subject to falsification.
This leaves macro econ in a predicament. Since macro predictions are unlikely to ever be falsifiable, the only hope for econ to become a true science is the advent of a new paradigm that calls for both a scientific method and falsifiable micro-assumptions.
This comment has been removed by the author.ReplyDelete
The unveiled mystery of economic blatherReplyDelete
Comment on Noahpionion ‘Occult Mysteries of the Heterodox’
(i) Science is about true/false and methodology is about how to ascertain the truth/falsehood of a theory/model. There is no mystery in science, just the contrary, it is the very opposite of mystery.
(ii) Logical and empirical consistency are the criteria of a true theory/model. Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-the-art testing.
(iii) Orthodoxy and Heterodoxy got the axiomatic foundations wrong.
(iv) Orthodoxy is built upon the following hard core propositions: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub, 1985, p. 147)
These premises are provably false. Because of this, the whole theoretical superstructure from Jevons/Walras/Menger to DSGE is false. Not to realize the axiomatic falsehood of orthodox economics proves the scientific incompetence of proponents and opponents alike.
(v) Keynes formulated the premises of the General Theory as follows: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (1973, p. 63)
This elementary two-liner is conceptually and logically defective because Keynes did not come to grips with profit and therefore “discarded the draft chapter dealing with it.” (Tómasson et al., 2010, p. 12). As a result, all I=S models including the Keynesian multiplier are false (2014).
(vi) Neither Keynesians nor Walrasians have grasped the fundamental difference between profit and income. Because of this fatal conceptual defect, their theories/models are false. And because the profit theory is false economists do not know how the economy works. From this follows that economic policy proposals are scientifically unfounded and therefore useless or even harmful.
(vii) Keynesians are since more than 80 years in the dark. Sorta-kinda neoclassicals are since more than 140 years in the dark. Because they have disqualified themselves neither Keynesians nor Walrasians can be taken seriously. The same holds for Marxists and Austrians.
Because of their incompetence, economists are a scientific nuisance and a menace to their fellow citizens. They can significantly increase the welfare of humanity by simply shutting up.
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL http://mpra.ub.uni-muenchen.de/20557/.
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL http://www.jstor.org/stable/1805586.
You clearly have no idea what you're talking about and lack the credentials to be opining on these matters.
First, this statement:
"What Post-Keynesians seem to have in common are *conclusions*. Private debt is bad, Govt spending is good, pumping up wages is good, etc."
is amazingly wrong. PK is a big tent just like NK is. There isn't one set of standard conclusions. If I had to pick three "types" of PK they would be:
1) Paul Davidson's Fundamantalists.
They all overlap on certain things, but come to very different conclusions on others.
Second, your assertion that "private debt is bad" means you didn't even begin to remotely understand what PK is. If there is one big insight from PK it's that banks are not merely intermediaries as they are mainstream economics. PK spends a great deal of time focusing on banks and financial institutions in the economy. This is why we predicted and understood the financial crisis while the ridiculous mainstream models were useless.
Thirdly, what is your school and where is your relevant research? As far as I can see you don't even believe in a specific type of "mainstream" economics. And you have no relevant public research yet you criticize others for not publishing.
Why don't you spend less time arguing with people on Twitter about things you don't understand and spend more time building a CV. Then you might be worth listening to. Until then, stop trolling people who have actually published useful research on the economy.
Is double entry bookkeeping or accounting a required part of the normal education carriculum in Italy? Is it required for economics or a prerequisit for economics?ReplyDelete
Is knowledge of accounting considerd part of a well rounded education in Italy?
Here are some slides on how to construct Godley tables and SFC models:ReplyDelete
By the way, does anybody else feel like the comments that actually provide examples of heterodox methodology are being ignored (Brian Romanchuk, JKH, Kain)? Meanwhile the comments that post inadequate replies are noted and answered. This looks very suspicious to me.
The reason why Noah didn't respond to any of the relevant questions is he has no idea what Post-Keynesian economics is. Rather than explore this topic like a real scientist would, he has glossed over it and badly misunderstood what he's criticizing. It's not suspicious. Noah is not a serious academic. He's an internet troll who has published no relevant academic work. He's just a pawn for Paul Krugman and other New Keynesians saying the dirty things they refuse to say because they have reputations to maintain.Delete
Ignored with percision.Delete
How to rise above MoronomicsReplyDelete
Comment on Noahpionion ‘Occult Mysteries of the Heterodox’
Economists do not understand how the market system works. Every interested non-economist gets this intuitively after reading one of the popular textbooks: “What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse.” (McCauley, 2006, p. 17)
Because of this, every thinking economist finds himself by default in the heterodox camp. But here only one obvious fact is agreed upon, the rest is blank: “As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction.” (Nell, 1980, p. 1)
Construction, though, never happened. What we have is an incoherent multitude of individual approaches. Heterodoxy never rose above naive empirical/historical/partial/sociological commonsense analysis and did not succeed in formulating a general theory of how the monetary economy works. Keynes took on the task, but After-Keynesians lost focus and did not finish it.
So Noah’s key statement is spot on: “Critiquing the old is fine and good, but it is not the same as inventing the new.” (See intro)
True indeed, and well-known for a long time: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug, 1998, p. 703)
Accordingly, the current state of economics is this: Heterodoxy has failed to fully replace the fundamentally defective Orthodoxy or, in the jargon of methodology, to perform the inevitable paradigm shift. Strictly speaking there is no economics at all, only confused blather (2013; 2014).
What, then, follows from Noah’s justified critique? The right thing to do is to leave Orthodoxy and traditional Heterodoxy behind and to move on to constructive Heterodoxy, that is, to perform the required paradigm shift and ― after more than 200 years ― to make economics a science.
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL http://ssrn.com/abstract=2207598.
Kakarot-Handtke, E. (2014). Economics for Economists. SSRN Working Paper Series, 2517242: 1–29. URL http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2517242.
McCauley, J. L. (2006). Response to "Worrying Trends in EconoPhysics". EconoPhysics Forum, 0601001: 1–26. URL http://www.unifr.ch/econophysics/paper/show/id/doc_0601001.
Nell, E. J. (1980). Growth, Profits, and Property, chapter Cracks in the Neoclassical Mirror: On the Break-Up of a Vision, pages 1–16. Cambridge, New York, NY, Melbourne: Cambridge University Press.
Noah is not helping himself with this bunkum: "'critical realism' is very similar to the jargon-dense, literary 'critical theory' taught in literature departments."ReplyDelete
Those interested in methodology and Post Keynesian theory should read Tony Lawson. (I wonder if Philip P. is aware of this book.) But one could read a lot of other substantial stuff in Post Keynesian economics, as well. Some above have given suggestions.
I particularly like reading Sraffians, myself.
Anyways, the original post is very silly. Worldwide movements in heterodox economics have been around for, say, a century. Much introductory material is available. I still like Eichner and Kregel's 1975 article in the Journal of Economic Literature. Of course, a scholar seriously interested in the subject would want to know what has happened since.
I also was curious about Post-Keynesian economics and its methodology. So I ordered Marc Lavoie's short intro book. Cost me £15 secondhand. Read it in a couple of hours. Very helpful. Much of the same information is available FOR FREE on Lavoie's website, with SLIDES. I really don't see what the problem is, unless it's the old Upton Sinclair pathology:ReplyDelete
The Sinclair quote is precisely right. Noah has more to gain by aligning himself with the mainstream economists. He works at a mainstream institution and would probably like to climb the ladder to a more prestigious firm on day. The only way he can do that is to suck the teet of the mainstream economists. If he had any original thoughts he'd realize how inept mainstream economics actually is, but as you noted, his source of pay relies on him not to be heterodox.Delete
What if the prestigious (financial) firm wants to make more money than losing money?Delete
Anon 4.01 you shut-up or you say the things people want to hear. Where have you been?Delete
Here's a response to your post and twitter storm: http://www.the-human-predicament.com/2016/03/unravelling-some-occult-mysteries-of.html
Just one more orthodox absurdityReplyDelete
The major problem of economics is not that the subject matter is occult but that economists are stupid.
From the Palgrave Dictionary every student of economics can know: “A satisfactory theory of profits is still elusive.” (Desai, 2008, p. 10)
Let this sink in: Neither Classicals, nor Walrasians, nor Marshallians, nor Marxians, nor Keynesians, nor Institutionialists, nor Monetary Economists, nor MMTers, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor EconoPhysicists, nor RBCers, nor New Keynesians, nor New Classicals ever came to grips with profit. Therefore, ALL these approaches fail to capture the essence of the market economy.
It is self-evident: an economist who cannot tell the difference between income and profit has nothing worthwhile to say about how the economy works. Economics is at the level of medieval physics before the concept of energy and the difference between potential and kinetic energy was properly understood.
In fact, it is even worse. Not to understand a physical or social phenomenon is the natural state of human beings. But to offer an explanation that is false on the face of it is to violate well-defined scientific standards.
An orthodox economist subscribes to this set of axioms:
HC1. There exist economic agents.
HC2. Agents have preferences over outcomes.
HC3. Agents independently optimize subject to constraints.
HC4. Choices are made in interrelated markets.
HC5. Agents have full relevant knowledge.
HC6. Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states. (Weintraub, 1985, p. 109)
This set is unacceptable as the foundation of economics. Some economists have clearly seen this and drawn the logical conclusion: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al., 1990, p. 362)
And here is the crux: neither orthodox nor heterodox economists have until this very day any clue about ‘what it might mean’.
Orthodoxy is unacceptable and indefensible. Before he even opens his mouth, the orthodox economist has disqualified himself as scientifically incompetent. So, Noah is, to begin with, not at all in the position to criticize Heterodoxy for a lack of methodologically sound foundations.
To top the absurdity, instead of refraining from spreading the provably false orthodox approach and to do his own research Noah complains about not to be spoon-fed with the true economic theory for free. To recall, the first thing every econ101 student learns as the gospel of Orthodoxy is that there is no such thing as a free lunch.
Indeed, logic has never been the strong point of economists and this is why they are since more than 200 years behind the curve: “We are not yet out of the wood; in fact, we are not yet in it.” (Schumpeter, 1994, p. 7)
This applies to Orthodoxy in general and to Noah in particular.
Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, pages 1–11. Palgrave Macmillan, 2nd edition.
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, MA, London: MIT Press.
Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford University Press.
Weintraub, E. R. (1985). General Equilibrium Analysis. Cambridge, London, New York, NY, etc.: Cambridge University Press.
I probably should not waste my time even responding to you, but I shall simply note an obvious screaming contradiction in this particular comment.Delete
On the one hand you declare that "economists are stupid." But then you cite a bunch of economists to support your claim. I have to aak: were those economists that you cite also stupid?
It is widely known that the universal quantifier ALL may in some cases lead to a paradox (see Wikipedia https://en.wikipedia.org/wiki/Liar_paradox). You are perfectly right to remind me of this.
By consequence, the statement ‘economists are stupid’ has to be replaced by ‘economists are stupid ― except those who assert that economists are stupid’. A good example is provided by Hausman:
“If one takes seriously what Popper says about falsifiability and the critical attitude, then the methodological practice of economics is not only mistaken, it is stupid and intellectually reprehensible.” (1992, p. 275)
This applies to Orthodoxy in general and to Noah Smith and you in particular.
Did you really read the Rodrik book? Multiple models, not "a model". Many schools, not one. There are plenty of heterodox ideas in the Core Project. Which is a textbook. http://www.core-econ.org/ReplyDelete
So, for all the Stock-Flow Consistent people I think the following is an older but good outline of the methodologies of Yale (Tobin) and Cambridge (Godley) and how they differ and why they think they may be important.ReplyDelete
The only thing is that the methodology doesn't really mean all that much unless you also buy into the behavioral specifications that relate to how the stocks and flows are important. The real good is it allows the behavior to be specific in its assumptions and relations without really changing the basic macro models everyone knows about.
Of course too many take the methodology of SFC models as an easy way to criticize mainstream macro even though the problems are sometimes trivial even in an SFC approach or even fixed. The real criticism is arguing over the behavioral specifications that limit the possible equilibrium.
The most useful aspect of SFC models is there very specific description of time instead of a general equilibrium point of idealized math.
Please do not tie Tony Lawson and Critical Realism too closely to Post Keynesian Economics. Yes, Paul Davidson did pub some papers by him in the JPKE, and he is accepted in PK circles. But, he is really a peripheral figure. Go look at one of the several Handbooks of PK econ out there, such as the two edited by John King, or others. Tony does not appear. It is bad enough that there are many PK schools competing vigorously with each other will all sorts of historical and intellectual resonances there ascribing. But it is seriously inaccurate to somehow make Tony Lawson's version of Critical Realism into THE Post Keynesian methodological perspective. This is seriously wrong.
Yeah I for one did not know anything about Critical Realism until reading those slides. They're interesting enough, and there are certainly parts I agree with (the "descriptive" aspects, and System-Agency dichotomy), but ultimately seems more appropriate for a PK branch on Political Science. Ultimately Post-Keynesians have to be strongly Empirical, or what is probably more accurate given their worldview, some form of Post-Positivism. Critical Realism doesn't seem to care enough about mathematic models or strong empirical testing, at least from what I've read from the slides.Delete
The slides I skimmed looked to provide a methodology but didn't provide any results. Where's the results of this method? What would the results look like?ReplyDelete
If the result is not a model of some sort, I don't know what the goal is. I don't care if the model is theoretical or empiricle, but the result should be a model.
Some of the conclusions of Post-Keynesian ideas look plausible and reasonable. Perhaps the model is kind of like Greenspan's model -- his brain. Ask him a question and let the oracle speak.
Seriously, I'd be interested in knowing more about Post-Keynesian ideas. If you ever find those papers or slides you're looking for, let us know.
Here's a quick train of thought that might be in line with this Post-Keynesian methodology, but I don't know that. I know very little about Post-Keynesian ideas.ReplyDelete
This is regarding minimum wage.
For many, many years, the US economy hummed along without deep recessions while the minimum wage was higher than $15 in real terms. It seems pretty reasonable to say that an economy doesn't need to shed jobs to pay a higher minimum wage. If the current economic policies of the US are such that a raise to $15 would cause higher unemployment, then to make a sound argument against the raise in wage a person must identify what has changed. Why now but not then?
There are some answers to this. Some people think it is productivity and the knowledge economy, but this is pure conjecture. There's no proof of that.
The other possible cause is trade. The structure of US trade is fundamentally different than it was then. We've optimized our trade policies for 2 things: 1) capitalist profits and 2) global efficiency.
This shouldn't be controversial. Many academic arguments for our current approach to trade are based upon global efficiency. The error in thinking is that the most efficient use of labor globally within the global political structures might actually put an upward force on global unemployment and a downward force on wages.
There are a lot of places that policy can push. Why not start by pushing on the one that matters, a fair wage? We know it is possible because we did it before. If something else needs to be changed in our trade policies to prevent higher unemployment, then it should be done.
But of course this doesn't maximize capitalist profits. What matters to people.
There is a model here, but it is going to take a long time and a lot of people to get it right.
From Orthodoxy, to Heterodoxy, to SysdoxyReplyDelete
Orthodoxy has failed on all counts and has no future. This is the point of departure of all new economic thinking.
Because every theory is defined by its foundational premises, a.k.a. axioms, there is, as a matter of principle, no need to refute every single proposition of the elaborated theoretical superstructure, it suffices to ‘throw over’ (Keynes) the axioms. Yet, this is not enough. The negative/destructive first step must be followed by a positive/constructive second step. As Blaug put it: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (1998, p. 703)
First step: economics has to throw over the orthodox set of axioms which is defined by these six hard core propositions:
HC1. There exist economic agents.
HC2. Agents have preferences over outcomes.
HC3. Agents independently optimize subject to constraints.
HC4. Choices are made in interrelated markets.
HC5. Agents have full relevant knowledge.
HC6. Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states. (Weintraub, 1985, p. 109)
Note that we follow here Keynes’s methodological insight as laid down in the General Theory: “The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight ― as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.” (1973, p. 16)
In other words, the methodological revolution in economics consists in the switch from behavior-centered bottom-up, i.e. subjective microfoundation, to structure-centered top-down, i.e. objective macrofoundation.
Accordingly, Keynes went on to define the new set of foundational propositions: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (1973, p. 63)
Unfortunately, at this critical juncture an error slipped in because Keynes did not come to grips with profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al., 2010, p. 12)
Because of this, Keynes’s two foundational macroeconomic equations (Y=C+I, S=Y-C) have to be replaced. The most elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm and is given by these three objective structural axioms:
A1. Yw=WL wage income Yw is equal to wage rate W times working hours L,
A2. O=RL output O is equal to productivity R times working hours L,
A3. C=PX consumption expenditure C is equal to price P times quantity bought/sold X.
The investment good sector comes in at a latter stage. So, what we have with A1 to A3 is the pure consumption economy as the most elementary economic structure. This structure is the core of what Keynes called the monetary theory of production and it fully replaces the silly real exchange models.
After-Keynesians either got stuck at IS-models which are provably false (2011) or fell back to maximization-and-equilibrium, i.e. HC1 to HC6, or both as in the case of the maximal confused Krugman (2014).
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Noah: "Suppose I already believe that mainstream methodologies suck, and that something better is needed, and all I want now is to see people's ideas for that something?"ReplyDelete
If you are actually interested, here is a metaphor to help you conceptualize one new idea, and here is some analysis in support of that idea.
It's a leap. But "The difficulty lies, not in the new ideas, but in escaping from the old ones".