Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. The Future of Economics (BBC Business Daily)The BBC radio program Business Daily had a good segment on the future of economics, with good discussions of Keynesianism and behavioral economics (though not quite enough on heterodox approaches). The main off note (to my mind) was the bit with Michael Sandel, with his emphasis on the "normative" foundations of economics. I don't think economics needs to rediscover its ethical foundations (in Adam Smith) as much as it's political foundations (in Marx). But otherwise I thought this was worth a listen.Listen to it here. Labels: economics, economics profession, heterodox economics Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Notre Dame to Dissolve Heterodox Econ. Dept.?Here is a pretty shocking story—the University of Notre Dame is planning to dissolve its department of Economics and Policy Studies, which houses the heterodox economists at the university. Below is part of an article from the Chronicle of Higher Education; there is also an online petition for ND students and alums who oppose the plan. What a moment in history to purge heterodox economists!Notre Dame Plans to Dissolve the 'Heterodox' Side of Its Split Economics Department By David Glenn | September 16, 2009 Early in this decade, the University of Notre Dame's economics department was bruised by a long series of quarrels over methods and ideology. So in 2003 the university's leaders came up with a Solomonic solution: They split the department in two. Some of the faculty members stayed in what became known as economics and policy studies, a heterodox department that made room for post-Keynesians, Marxians, and historians of economic thought. (Broadly speaking, that had been the character of Notre Dame's economics program since the 1970s.) Others moved into economics and econometrics, a more-mainstream department with an emphasis on quantitative tools. But this was not a divorce made in heaven. University officials now say that the experiment has not worked, and that they expect to dissolve the department of economics and policy studies within the next two years. A few of the department's 11 faculty members might be invited to join the mainstream department—indeed, one scholar already made the leap this summer—but most of them expect to be scattered into various other departments, institutes, and research centers at Notre Dame. For those faculty members, most of whom opposed the 2003 split in the first place, the news is a bitter pill. They say that the administration has failed to consult with them or with their students. And they say that it will be peculiar, at best, for them to move into other academic units when the university originally hired them because of their doctorates in economics. Above all, they say that the dissolution would represent an intellectual loss for the university. While Notre Dame once had an economics program that was distinctively shaped by currents in Roman Catholic social thought, they say, it will now be left with a neoclassical department much like the ones at almost every other major university. "In light of the crash of the economy, you would think there would be some humility among economists, some openness to new approaches," says Charles K. Wilber, a professor emeritus of economics at Notre Dame. "There's not a lot." Read the rest of the article. Labels: heterodox economics, Notre Dame Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Re-Examining Capitalism (Jamie Galbraith)National Journal Online had an interesting forum under the title Re-Examining Capitalism. Here is the introduction to the forum, from John Maggs:Do recent events suggest that the tenets of capitalism and free market theory need to be re-examined? The New York Times has suggested that not much soul-searching is happening yet at economics departments. Does the financial meltdown, the housing bubble, or the over-leveraging of businesses and consumers, point to fundamental flaws in market-based capitalism? Does it point to particular alterations? Here's Jamie Galbraith's response (it's from a few weeks ago--h-t to LF for letting me know about it): Responded on March 19, 2009 9:32 PM James K. Galbraith, Professor of Economics, University of Texas (This is all of his comment, but you can find the full forum here.} Labels: economics profession, financial crisis, heterodox economics, James K. Galbraith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Blame the QueenExcellent piece from the Guardian about how heterodox approaches to economics were locked out in the UK (the same was true here in the United States, of course). This is a rejoinder to Elizabeth Windsor's question: "Why did no one see it coming?" I wonder what Her Majesty will think of Ann Pettifor's answer. Hat-tip to Lynn F. for putting me onto the UK side of this issue.I blame the Queen for this crisis The man hired to lead the Royal Economic Society rejected any challenge to a blind orthodoxy that helped to cause catastrophe This week I was asked by the Guardian to address the Queen's question: "Why did no one see it coming?" I tried to answer the question by sharing some of the seriously flawed analysis and advice provided by orthodox economists—those that dominate both the economics profession and the economics commentariat. I found these economists guilty of providing not only the Queen, prime ministers and chancellors, but also the citizenry—including millions of investors—with dangerously misleading guidance. The accused include advisers to the Club of Rich Countries—the OECD—professors at prestigious business schools and writers for the Economist. The ones I cited offered very little forewarning of the catastrophe that has befallen the highly synchronised global economy—and millions of ordinary people. A key exhibit in my case against the economics profession is a letter written by professors Richard Portes and Fridrik Már Baldursson to the Financial Times as recently as 4 July 2008. They were responding to an earlier article by another professor, Robert Wade, headed "Iceland pays the price for financial excess" (2 July 2008). This letter is of some significance because, as Guardian readers will know, Iceland experienced the deepest and most rapid financial crisis recorded in peacetime when its three major banks all collapsed in the same week in October 2008. Since then the Queen's ministers have combined with ministers of the Dutch government to demand massive compensation—equalling 100% of Iceland's GDP—from the largely innocent taxpayers of Iceland. The victims of Iceland's catastrophic economic failure include thousands of the Queen's citizen investors and many of her own civil servants—including the audit commission, 100 local governments, police forces, charities and the universities of Oxford, Cambridge, and Manchester. In their letter of 4 July 2008, Portes and Baldursson cite a great deal of evidence to contradict Wade's claim that Icelanders had borrowed as if there were no tomorrow, and that "Iceland's external liabilities swamp the central bank's ability to act as lender of last resort". The letter from Baldurrson and Portes claims that while "gross debt of Icelandic households ... was high ... their assets ... were over 750% cent of disposable income". These assets were, as we have since discovered, as solid as bubbles and burst dramatically in the week of 7 October 2008. The letter asserts that the Icelandic "Financial Services Authority is highly professional ... with higher capital ratios than their Nordic peers". Furthermore, they had "virtually no exposure to the toxic securities that almost all other banks did buy". Because the Financial Times is trusted by thousands of investors, I have no doubt that this letter comforted and reassured civil servants in the various organisations that had invested in Iceland's banks, as well as thousands of the FT's readers. Today these investors are obliged to rely on the British government's use of part two, article four of the Anti-terrorism, Crime and Security Act to obtain redress from Iceland's government—if not from the FT and Baldurrson and Portes. Now, any reasonable person might argue, these professors were just two of many that shared a blind commitment to economic and financial orthodoxy. It is unfair, some might say malicious of me to single them out. But my point is this: Portes was, until recently, the Queen's economist. As well as being a professor of economics at the London Business School, and holding many other important governmental advisory positions, he has for 16 years acted as secretary general of the Royal Economic Society. The Royal Economic Society grants its imprimatur to economists, and is therefore a powerful driving force in the field of academic economics. Under the leadership of Portes, the Royal Economic Society was disdainful, even contemptuous of economists that challenged the orthodoxy he championed. This was most clearly expressed in his valedictory report to the society in April 2008 where he dismissed heterodox economists for their "mediocrity". I have no doubt that the Queen is consulted about the appointment of the secretary general of the Royal Economic Society. Which is why I blame the Queen for the catastrophe that orthodox economists have helped to inflict on her citizens. Ann Pettifor was speaking at the first in a series of debates hosted by the Guardian on Capitalism in crisis. Part 2: The global economy: Can we fix it? is on Monday 2 March. For more information and to buy tickets to the debate click here Labels: Ann Pettifor, Elizabeth Windsor, financial crisis, heterodox economics, Queen Elizabeth, UK Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Left Economics Education Gets a NodEnvironmental activist Tim DeChristopher was in the news (and under arrest) last week after he disrupted a Bureau of Land Management auction of oil and gas leases on large tracts in southern Utah -- by walking into the auction and bidding on multiple leases. He won some leases, of course with no intention of paying up, and succeeded in bidding up the price on others.DeChristopher was interviewed on Democracy Now! on December 22. Turns out he is an econ major at the University of Utah, which is home to one of the very few economics departments in the United States with a significant heterodox/left presence. DeChristopher discussed the importance of his econ courses: The professors, especially, have been really supportive and have joined my team so far. And, you know, they kind of did their job beforehand. They kind of did their job in getting me ready for this and committing me to hold true to my values and in teaching me what was going on. In fact, the final exam that I took on Friday morning, one of the questions was about this oil sale and about, if only the oil companies were bidding on this land, are they actually going to be paying the real price for the production of oil? And, of course, the answer that the professor was expecting is no, they're not, because there's a lot of external costs that all of us have to pay for the production of oil that aren't included in those. So they did their part ahead of time in putting me where I needed to be. (Find out about other left and heterodox economics departments here.) Labels: Democracy Now, economics education, heterodox economics, University of Utah Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Join the Call To Promote Open Economic Debate at Notre DameA group of students at Notre Dame are campaigning to broaden the ideological scope of the economics department there. According to their open letterAt Notre Dame, economics is divided into two separate departments: “The Department of Economics and Econometrics, which is a neoclassical economics department committed to rigorous theoretical and quantitative analysis in teaching and research,” and The Department of Economics and Policy studies, which is committed to “issues relating to socioeconomic justice and ethics,” “openness to alternative methodological approaches,” and the “roles of history and institutions” in the “broader political economy.” It is our fear that, in pursuit of higher department rankings, Notre Dame will sacrifice the latter department in favor of the former. You can read the full letter and sign the petition here. Dollars & Sense covered a similar struggle by undergrads at Harvard a few years ago. Look here for a list of progressive economics teaching resources. And please check out all of D&S's fantastic economics textbooks and readers. Labels: classroom resources, economics debates, heterodox economics Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Dull Compulsion of the Economic (#3)A series of blog entries by D&S collective member Larry Peterson.In the last few weeks an interesting debate has been going on, primarily in the blogosphere, about the relationship between so—called heterodox and orthodox economics. The debate was set off by an article posted by The Nation in which Chistopher Hayes surveyed the history of a relationship characterized for many years by utter dismissiveness on the part of the orthodox towards the rebels (Paul Krugman has gone so far as to characterize the kind of work of economists acclaimed by the heterodox, like John Kenneth Galbraith, for instance, as, essentially, not even wrong; an apologia of sorts, by Galbraith's son, James, is here), and taunts of reaction, narrow-mindedness, and hostility to empirical evidence on the part of conventional economics by the heterodox. But he also noted that this standoff is beginning to ease. He mentions, too, the strange role of behavioral economics in mediating this relationship, and leaves us with the sense that there is much dissatisfaction with the status quo on all sides. I'm going to provide links to the subsequent debate, which should, in turn, fill in some of the contours in the picture of the development Hayes tracked in his Nation article. Much of the relevant discussion can be surveyed here, but I'd also add Dani Rodrick's contribution (see his May 30th entry and Brad DeLong's). Since I am a proud member of URPE (the Union for Radical Political Economics), it probably won't surprise many people where I come out on many of the issues brought up in the debate. But I would like to discuss two specific aspects of the debate which seem most important to me. The first concerns the place of methodological individualism in the dispute. Just about every conventional Econ 101 textbook contains in chapter one four basic assumptions of economics, of which that of methodological individualism is almost always given the most prominent place. My desk-reference (REA's Economics Problem Solvers) defines methodological individualism thus: "Societies are composed of individuals. All actions by societies are really the actions of many individuals. Consequently, economists place great emphasis in the study of individuals" (p.1-B). Such a schematic and in ways tautological rendition is often all that beginning students will encounter by way of the presentation of one of the fundamental assumptions of the entire discipline of economics. But, as Marx outlined so well in the Grundrisse (see especially pages 266-274 in the Penguin edition), the exchange of labor for wages involves different presuppositions which structure the logic of the exchange for the different individuals involved, and which become specifically relevant to initiating the exchange based purely on the socially mediated relation of class, rather than a more abstract one involving the self-interest of individuals. You can't engage analytically with the phenomenon unless this relational element provides the context in which individual decisions, intentions and incentives are shaped. Heterodox economics has unearthed many such asymmetries in what were considered basic and elemental economic relations throughout the years. The other topic I'd like to discuss briefly concerns behavioral economics. Behavioral economics, which has attempted to import the findings of cognitive science and even neuroscience into economics, by both interrogating some of economics' basic assumptions—especially that of rationality, another one of the big 4 mentioned in intro texts—and attempting to structure experiments which might provide a firm empirical basis for economic behavior, has thereby attained a stature that many of the orthodox cannot but respect, notwithstanding its attacks on the rationality assumption. After all, studies on live human subjects—on real individuals—were precisely the sort of thing orthodox economics couldn't achieve (there are few ways to introduce controls in studies, particularly if the subject matter involves interactions in free markets); and that contributed to the orthodox insistence on modeling and the excessive reliance on mathematical abstractions of which the heterodox have long complained. My concern with behavioral economics is that while it relaxes the rationality conditions, it seems to be reinforcing that of methodological individualism, particularly inasmuch as it is precisely consumer behavior that is most amenable to neurological—type experimentation (it's a lot easier to wire up a subject and test her reactions when presented with choices between receiving objects and giving up tokens rather than, say, evaluating job offers for real cash or learning new tasks; and such studies are difficult to structure over long periods of time, which, after all, provides much of the sense of economic decision making). And while behavioral economics is fast becoming more sophisticated (it has shown how subjects tend to prefer punishing freeloaders rather than maximizing values in replays of game settings), I fear that these very gains may prompt its practitioners to cast elements of economics, like labor economics, under the inappropriate guise of that which can more successfully be studied using its methods, like consumer behavior. And even then, given the role of advertising and whatnot (as John Kenneth Galbraith would have insisted), we must be very careful in attributing this kind of behavior to individual choice alone. Labels: behavioral economics, Brad DeLong, Christopher Hayes, Dani Rodrick, heterodox economics, James K. Galbraith, John Kenneth Galbraith, Paul Krugman, URPE Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
