Orthodox Economics: Descriptive, or Tranformative?

Like you, dear reader, I was transfixed by last week’s lovely debate on heterodox economics. One of the subtexts of that conversation was a simple question: Why can’t we all just get along? Nearly all the heretics conceded that orthodox economics is useful and interesting. The defenders-of-the-one-true-faith generally conceded that there are deep, unresolved mismatches between fundamental tenets of mainstream economics and how people actually behave. In fact, as the orthodox-but-still-hip Dani Rodrik suggested that the usefulness of orthodox economics comes from exploring precisely how and why neoclassical fairy tales don’t come true.

But if that’s the case, it seems odd that one admittedly broken paradigm would so ruthlessly dominate the profession. Why is it that, as Thomas Palley notes

Orthodox lefties (e.g. DeLong, Krugman, and Rodrik) believe the Arrow-Debreu framework not only provides a good starting point for thinking about the economy, [but that] it is the only point.

After all, there are a lot of flawed approaches to economics that we could use to help us think about what we cannot understand. Why is the neoclassical error so special that, as Max Sawicky points out

The duty of orthodoxy is clear: deny departmental positions and resources to inferior research programs and purify the top journals of incorrect thinking, all understood as maintaining high standards. After you deny them professional positions, standing, resources, and exposure, the only thing worse that could be done is to commit errant economists to mental institutions.

That characterization may be over the top. But even defenders of the mainstream concede that pursuing other approaches is an uphill battle. Here’s Mark Thoma:

If you choose the heterodox path, you will be on the outside, and you need to understand that going in. You might get lucky and gain respect over time, and if you make a really big splash economics departments may then start hiring people in the area, but don’t expect that because it’s unlikely to happen. At best, you might become part of a small group with common ideas and interests, but larger acceptance will be elusive (though not impossible). It will be harder to publish, your colleagues will wonder why you’ve drifted so far out of the mainstream, the work you do publish won’t get the respect you think it deserves either within your department or in the profession more generally — it’s likely to be a frustrating experience on a lot of fronts. That’s how it’s going to be.

Why? What’s so special about one broken framework that those who choose other approaches must toil like monks under a vow of obscurity?

There are lots of possible answers, many of which were hashed over last week. But it strikes me that perhaps we are all missing the point. Perhaps orthodox economics isn’t even trying to describe how the world works. Perhaps the project is really about how the world should work. If life can imitate art, why couldn’t life imitate a model?

Here’s a famous bit from Marx:

The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his “natural superiors”, and has left no other nexus between people than naked self-interest, than callous “cash payment”. It has drowned out the most heavenly ecstacies of religious fervor, of chivalrous enthusiasm, of philistine sentimentalism, in the icy water of egotistical calculation.

So, as a writer, this guy is a bit overwrought. But there is a powerful idea here. Marx does not claim that human beings are “naturally” given to egotistical calculation. Instead he claims that however “man” might have been, social change is possible that transforms him into what we now refer to as a “rational maximizer”. The assumptions of neoclassical economics are not a priori true in this view, but they can be made true.

Think about that. Mull it over. And while you do, let a photomontage play upon your inner eye. Here’s Adam Smith, with his beneficient invisible hand. Now David Ricardo is explaining why selfish nations trade, and how trade has no losers but makes everybody better off, and interdependent. Slip forward in time and admire the elegant theorems of Coase, Arrow, and Debreu. This is a happy story. This is a great story. If only Marx were right, if only human beings could become something like efficient, selfish, rational maximizers, then we can prove, prove, that we would end up with the best of all possible worlds, by a certain definition.

Viewed in this light, the vehemence of the orthodox project makes a certain sense. It is not interesting to harp on the fact that people are not as they ought to be, and therefore our theorems and models don’t accurately describe the world. We know that. We build models to make sense of the deviations, so we can correct the “market failure”, the human flaw. Our job is not to describe the world as it is, but to understand how it is different from what it ought to be, and to fix it. The “MIT Keynesians” are open to using government to remedy human error, while more traditional neoclassicals view the Leviathan as a wildcard too large and dangerous to risk. They imagine that some more decentralized process — something more like the dynamic Marx himself described — could effect the necessary transformation. Both groups agree, though, that the project is to make the hopeful logic of economics actually work in this messy and often hopeless world.

What would a “heterodox economist” have to offer here? Those weird lefties who, contra Marx, think that Homo Economicus is so unreal as to be irrelevant, who view the world through prisms of power, institution, race, caste, or gender, amount to nothing more or less than fatalists. It is not the accuracy of alternative descriptions that is at issue, but where they lead — conflict, grievance, and struggle. For heterodox economists the end of history is where it began, nature red in tooth and claw.

By the way, I write not to bury but to praise. I think Marx was right about the transformational nature of capitalism, about its capacity to hew egotistical calculators out of flesh, blood, and claw. I sit at my desk surrounded by health insurance forms, bank and brokerage statements, tax documents. My colleagues come from everywhere, from I don’t know where, I can’t keep track of whether a hundred years ago their grandparents tried to kill my grandparents or vice versa. The orthodox, or bourgeois, project has succeeded marvelously, and for all that has been lost (and much has been lost), I am glad of it. I’ll go with the neoclassicals or with the MIT Keynesians, whatever. Whatever works.

But (more Marx) orthodox economics contains the seeds of its own destruction if it fails to recognize the degree of its own delusion. When Ricardo’s lovely story is not in fact working out, we should admit that to ourselves. Our goal is to create the preconditions whereby our optimistic models would actually predict. If we have failed to do that, then clinging to the behaviors that our models prescribe may lead to outcomes, um, inconsistent with general welfare. We may have to fly by the seat of our pants for a while, and then try again to get it — that is, us — right.

Bloggers mentioned:

Update History:
  • 15-June-2007, 09:20 p.m. EDT: In light of this, added attributory links, for various allusions. “Leviathan” alludes to Thomas Hobbes, and “nature red in tooth and claw” is taken from In Memoriam by Tennyson.

3 Responses to “Orthodox Economics: Descriptive, or Tranformative?”

  1. Lars Smith writes:


    Who, in your opinion, are the good or great heterodox economists?

  2. Carolyn Kay writes:

    >>Perhaps orthodox economics isn’t even trying to describe how the world works. Perhaps the project is really about how the world should work.

    Yes, and there you have the essence of right wingism. It’s all about the way they think things OUGHT to be, instead of being about how things really are.

  3. Lars,

    First, my apologies for the slow response. Part of that is I’ve been busy, and part of it is that I just don’t know what to say. I really, until recently, viewed economics from a very “orthodox” perspective, and was an eager supporter of what I took to be the point of view of mainstream economists. The last few years have been troubling to me, because, as I see it, the things that were supposed to happen didn’t.

    I’m not an economist, just an interested autodidact, and though I hope someday to be able to, I can’t really opine about the merits or demerits of Sraffa and the Cambridge Capital Controversies etc. Quite recently, I’ve encountered posts by bloggers like Thomas Palley, essays by both Galbraiths, and other bits of so-called heterodox economics that strike me as willing to take notice important issues about which mainstream economics is willfully blind. I’ve also sometimes had “Austrian” sympathies, which I gather is considered a kind of heterodoxy of the right. But mostly I read randomly, and conjecture on my own.

    The piece these comments sit under is intentionally, but a bit unfairly, hard to pin down. At the same time as I make fun of orthodox economists as utopians and intellectual monopolists (and taunt neoclassical economists with an implication of Marxism), I claim to profess sympathy for a normative orthodox economics. I hope Carolyn won’t hate me for it, but that wasn’t mere rhetoric. At a gut level, my overriding social concern has always been how to both prevent genocide and mass violence while permitting rapid technological advancement and individual liberty. I glommed on to capitalist economics because it seemed like the best tool for that job. I’ve become a critic of its present dogmatism (in my view, obviously) not because I am offended by the imposition of such a sterile and isolating world-view, but because I don’t think the project is working. In fact I think the stage is being set for a period of potentially very violent crisis. It’s not that I dislike the orthodox project, it’s that I don’t see it as adapting to objective circumstances.

    Generally, I tend to be sympathetic to “reformist” orthodox economists, among whom I’d number Brad Setser and Dani Rodrik, for example. But I’m open to any and all ideas on how economics could be reformulated as a normative project that could actually work in the world, and I don’t think those guys are close yet. “Heterodox” economists may have a lot to offer, and I look forward to a deeper exposure. (I especially suspect that so-called “institutionalists”, and JK Galbraith’s focus on public goods could be helpful.) I also think very technical improvements to applied orthodox economics — improving how markets actually behave by altering security design, financial institutions, etc. — could go a long way, and that rightish economists are their own worst enemies when they defend deeply flawed markets as though they were ideal, rather than acknowledging flaws and striving to improve.

    A very vague and unsatisfying response to a simple and straightforward question, I know. Sorry!