Last term in Cambridge I had the privilege of briefly working with the Cambridge Society for Economic Pluralism (CSEP), a group which, along with equivalent groups around the country, has received a significant amount of press attention. A topic which arose during a discussion with one of its member (who is also a good friend) concerned the meaning of the adjective 'new' when applied to 'economic thinking' (as in the name of the well-funded Institute for New Economic Thinking). The phrase, I think, can be interpreted in (at least) two ways.
First, it can refer to the application of existing (or orthodox) methodologies to 'new' (or unorthodox) topics. So, for instance, we can construct a mathematical model, based on utility maximisation, marginal analysis, and general equilrium, to help explain inequality, or we can run an econometric regression to try to assess the impact of structural change on economic growth. The topics (inequality, structural change, etc.) are 'new' in that they have traditionally been ommitted, or at least sidelined, by mainstream economics; but the economics itself (viz., mathematics and econometrics) is the same old stuff.
The second interpretation, of course, is an authentically pluralistic one that explores, or at least embraces, alternative methodologies*. Just as the 'new' topics in the first interpretation are only new to economics, as other disciplines have been studying them for ages, these 'new' methodologies are likely to borrow from other disciplines such as sociology, history, and psychology. Particularly relevant examples include historical methods and 'political economy', which remind us that mainstream economics is in fact relatively 'new', having replaced the original version of the subject. In this sense, (part of) what we aspire to in our search for New Economic Thinking, at least in this second interpretation, is actually a return to the old.
In my experience, the first interpretation is the one that has predominated. There are countless possible explanations for why that is the case, the most obvious one being that it requires qualitatively less 'newness' than the second approach. With the first approach, we can use the same old proverbial hammer (maths and econometrics, which have in turn been 'hammered' into students of economics) to hit different things (inequality, climate change, and so on), regardless of whether the hammer is actually the best tool for the occassion. The second approach, by contrast, requires us to learn how to use new tools, and how to select which tools to use for different issues (to take the analogy perhaps too far, are we dealing with screws or nails, and accordingly, do we require a screwdriver or will the old hammer suffice?). As Chang (forthcoming) expresses it, authentic pluralism would entail the methodological flexibility of a 'Swiss army knife'.
This difference is particularly pronounced because the dominant economics canon - neoclassical economics - is defined by its methodology, rather than the issues to which that methodology is applied. Indeed, its main strength is that it is relatively easy to subsume 'new' issues under its umbrella - witness the omnivorous utility function. This is precisely why economists (such as the authors of Freakonomics) have attempted to explain 'life, the universe, and everything' through economics, by which they mean the particular methodologies of neoclassical economics (see Chang, forthcoming). By the analogy, you can hit anything with the hammer - what need, then, for other tools? Indeed, alternative approaches to economics are not even considered to be 'economics' proper by the ivory tower - they are usually disparagingly dismissed as forms of sociology, history, or some other 'less scientific' subject. Although there is no a priori reason why other economic approaches cannot coexist with neoclassical economics, this dogmatic attitude entails a paradox of tolerance: how can we have a methodologically pluralist economics, if the (currently) dominant approach does not even acknowledge the existence of other approaches within economics?
I therefore worry that the current demand for a revolution in economic thinking will be met with appeasment and co-option rather than a genuine 'paradigm shift'. This scenario would resemble the unfortunately common process, perceptively illustrated in George Orwell's 'Animal Farm', of new leaders promising change but ultimately reinforcing the underlying system. As the rise of 'institutional economics' demonstrates, this is by no means unprecedented in economics. If it happens, we can expect the attitude to be that of 'all approaches are equal, but some are more equal than others'.
What does it take to elicit an authentic paradigm shift? I suppose you'd have to ask Thomas Kuhn. Apparently, the recent financial crisis, which should have been associated with a crisis of economics, has not (yet) been a sufficient trigger of reform within the discipline. This is arguably because mainstream economics is so divorced from reality that what happens in 'the real world' has no bearing on its faith in abstract models. However, even if economists stubbornly insist on 'doing the same thing over and over again and expecting different results', perhaps policy-makers, who have to reckon with the real world, will be less insane. Similarly, initiatives like CSEP can help to channel students' disillusionment into coherent demands for curriculum reform. Thus, even if the 'supply' of economics remains 'inelastic', perhaps we can hope for a 'demand-led' transformation.
*I have not, in this blog, provided a full explanation as to why I think the second approach is 'better', or least more genuinely 'pluralist'. That would make the blog far too long. It may be the topic for another post.
First, it can refer to the application of existing (or orthodox) methodologies to 'new' (or unorthodox) topics. So, for instance, we can construct a mathematical model, based on utility maximisation, marginal analysis, and general equilrium, to help explain inequality, or we can run an econometric regression to try to assess the impact of structural change on economic growth. The topics (inequality, structural change, etc.) are 'new' in that they have traditionally been ommitted, or at least sidelined, by mainstream economics; but the economics itself (viz., mathematics and econometrics) is the same old stuff.
The second interpretation, of course, is an authentically pluralistic one that explores, or at least embraces, alternative methodologies*. Just as the 'new' topics in the first interpretation are only new to economics, as other disciplines have been studying them for ages, these 'new' methodologies are likely to borrow from other disciplines such as sociology, history, and psychology. Particularly relevant examples include historical methods and 'political economy', which remind us that mainstream economics is in fact relatively 'new', having replaced the original version of the subject. In this sense, (part of) what we aspire to in our search for New Economic Thinking, at least in this second interpretation, is actually a return to the old.
In my experience, the first interpretation is the one that has predominated. There are countless possible explanations for why that is the case, the most obvious one being that it requires qualitatively less 'newness' than the second approach. With the first approach, we can use the same old proverbial hammer (maths and econometrics, which have in turn been 'hammered' into students of economics) to hit different things (inequality, climate change, and so on), regardless of whether the hammer is actually the best tool for the occassion. The second approach, by contrast, requires us to learn how to use new tools, and how to select which tools to use for different issues (to take the analogy perhaps too far, are we dealing with screws or nails, and accordingly, do we require a screwdriver or will the old hammer suffice?). As Chang (forthcoming) expresses it, authentic pluralism would entail the methodological flexibility of a 'Swiss army knife'.
This difference is particularly pronounced because the dominant economics canon - neoclassical economics - is defined by its methodology, rather than the issues to which that methodology is applied. Indeed, its main strength is that it is relatively easy to subsume 'new' issues under its umbrella - witness the omnivorous utility function. This is precisely why economists (such as the authors of Freakonomics) have attempted to explain 'life, the universe, and everything' through economics, by which they mean the particular methodologies of neoclassical economics (see Chang, forthcoming). By the analogy, you can hit anything with the hammer - what need, then, for other tools? Indeed, alternative approaches to economics are not even considered to be 'economics' proper by the ivory tower - they are usually disparagingly dismissed as forms of sociology, history, or some other 'less scientific' subject. Although there is no a priori reason why other economic approaches cannot coexist with neoclassical economics, this dogmatic attitude entails a paradox of tolerance: how can we have a methodologically pluralist economics, if the (currently) dominant approach does not even acknowledge the existence of other approaches within economics?
I therefore worry that the current demand for a revolution in economic thinking will be met with appeasment and co-option rather than a genuine 'paradigm shift'. This scenario would resemble the unfortunately common process, perceptively illustrated in George Orwell's 'Animal Farm', of new leaders promising change but ultimately reinforcing the underlying system. As the rise of 'institutional economics' demonstrates, this is by no means unprecedented in economics. If it happens, we can expect the attitude to be that of 'all approaches are equal, but some are more equal than others'.
What does it take to elicit an authentic paradigm shift? I suppose you'd have to ask Thomas Kuhn. Apparently, the recent financial crisis, which should have been associated with a crisis of economics, has not (yet) been a sufficient trigger of reform within the discipline. This is arguably because mainstream economics is so divorced from reality that what happens in 'the real world' has no bearing on its faith in abstract models. However, even if economists stubbornly insist on 'doing the same thing over and over again and expecting different results', perhaps policy-makers, who have to reckon with the real world, will be less insane. Similarly, initiatives like CSEP can help to channel students' disillusionment into coherent demands for curriculum reform. Thus, even if the 'supply' of economics remains 'inelastic', perhaps we can hope for a 'demand-led' transformation.
*I have not, in this blog, provided a full explanation as to why I think the second approach is 'better', or least more genuinely 'pluralist'. That would make the blog far too long. It may be the topic for another post.
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