Matt Zeitlin: Impetuous Young Whippersnapper

Chris Hayes article on the marginalization of “heterodox” economics by the “neoclassical orthodoxy” has made the rounds. If you want an indepth discussion, check out TPM Cafe’s great roundtable on it.

I think the discussion is a bit confused. What is the problem? Is it that economists’ methodology leads them to be in virtual lock step on such issues as trade and then scorn and reject dissenters like Alan Binder?

The issue here seems to be about what the proper scope for economics is, not whether mainstream economics is the best descriptive framework for economic acitivity.

Neoclassical economics, or just mainstream economists, is a set of tools. It’s a way to analyze the productive and consumptive activity and interactions of people. It uses certain terminology, ideas and theorems to do this. There is, of course, a ton of disagreement over nearly everything. With Keynesians and Neoclassicists, there’s debates about price stickiness and menu costs, for example. There isn’t a ton of debate about how to look at such problems, however. Economics, at its base, is a descriptive, empirical exercise, not a proscriptive one. Dani Rodrik nails it:

To me it represents nothing other than a methodological predilection for deriving aggregate social phenomena from individual behavior–and as such it is a very useful discipline for any social science. You say people have some preferences, they face certain constraints, take others’ actions into account, and go from there. Neoclassical economics teaches you how to think, not what to think.

He and Paul Krugman both take no issue with the methodology, they just reach different conclusions than many of their colleagues.

David Ruccio, heterodox extraodrnaire, wants to tear down the whole artifice, and take a dump on Adam Smith’s grave while he’s at it:

We do heterodox economics, or what some refer to as political economy—as against economics (which, as Chris correctly argues, has become identified with a tiny number of theoretical approaches). We write about rates of exploitation and the role of power in increasing inequality and the existence of patriarchy and structural racism. Not only do we want to argue that economic actors are sometimes irrational or guided by norms and values; some of us also want to analyze economic institutions and events without even starting from individual actors. Or efficiency. Or constrained optimization.

Ruccio doesn’t have a great explanatory artifice, at least one that compares to the mainstream. In a Kuhnian sense, the contradictions and anomalies haven’t piled up so that a new approach is necessary. Ruccio acknowledges that what he is doing is different, he doesn’t want to talk about what most economists talk about, he wants to talk about exploitation, structural racism, inequality etc. It should be no surprise that he is marginalized from the mainstream

But where do the more moderate left-liberals, the Galbraiths, Blinders and Rodriks fit in. They don’t want to burn down the building, they just have some concerns about the effects of, say, offshoring on the economic security of American workers. They suffer from a conceptual disconnect between economics and politics. Every economist knows that trade which exploits comparative advantages in production encourages growth in GDP and maximizes efficiency. Immigration too, besides George Borjas, most economists agree that relatively open immigration will encourage growth and raise the incomes massively of many people.

Where the mainstream methodology begins to affect policy conclusions is in the relevant moral community. Low skilled immigration from Mexico, for instance, raises the wages many times of the immigrants themselves, while lowering or at least stagnating the wages of low skilled American workers. Offshoring too, helps out Indian workers much more than it hurts Americans. And the approach of mainstream economics, looking at aggregate phenomena, will (nearly) always say that increased trade and immigration are good. But economists aren’t philosophers, they can’t necessarily determine, by way of their economic training, the best or must just way to distribute or encourage the distribution of goods. Their training as economists just tells them the most efficient way to increase the economic welfare of the aggregate whole of everyone.

This odd sort of aggregate comsopolitanism also drives much of the division when discussing inequality. The mainstream economist will be worried about aggregate growth and median income, but those who are more concerned with politics will have a broader discussion of the harms of inequality, discussing non economic goods for example. The mainstream economists aren’t necessarily wrong, it’s more of a “blind men and the elephant” situation.

PS – Alex Tabarrok and Bryan Caplan have good posts about trade and the relevant moral community, it’s good to see economists discuss these issues more forthrightly.