Article written by Leonardo Conte from Rethinking Economics Lugano in response to the debate between Diane Coyle, which can be found here and Howard Reed, which can be found here.
When you explain to your professor what Rethinking Economics does, it is common for them to say: ‘I agree on certain things, but not on others’. The issue is that the things they don’t agree with are rather fundamental. The first thing they find fault with is concerned with pluralism. According to them, economics is already pluralist enough in the sense that it already deals with different kinds of issues: from health, education, agriculture and development to wars, politics and elections. Many argue that the range of topics covered is becoming broader and wider over time, reflecting its well-established pluralism. As the Bloomberg View columnist Noah Smith puts it, ‘Economists study gender relations in the workplace, racial gaps, changes in labour contracts, early childhood education, minimum-wage policy, regional opportunity gaps, automation and the future of jobs, and a vast array of other highly important, immediately relevant topics’ (Smith, 2018).
Also, the benefits of railroads in 19th century India, the effect of modern technological change on jobs, and the effect of sugar taxes on obesity rates in the UK are some of the studies you can come across while reading recent research journals in economics (Coyle, 2018). According to some, ‘these examples should be enough to convince people that a lot of modern economic research is going in the right direction’ (Moran, 2018). However, I am sorry to tell you this is not what pluralism actually means. Epistemologically speaking, pluralism is the coexistence of different statuses, qualities or characteristics of an object of analysis. For instance, the presence of multiple points of view on a single topic as well as substantially diverse theoretical apparatuses for an area of analysis can be considered a pluralist approach. Therefore, that is something profoundly different from what Noah Smith, Diane Coyle and many other mainstream economics’ advocates claim. Thus, it is also far removed from the reality of economic research today, both in terms of theory and methodology.
The big concern with the theoretical framework, I argue, is that the sub-disciplines of economics actually apply the same bunch of theories to their particular issues. That is, health economics, development economics and environmental economics are nothing more than neoclassical economics applied to health, development and the environment. Thus, they pursue the aim of “pluralism” just by masquerading themselves with a thin layer of applied science. However, most of these disguised disciplines do not have anything new or different from what the standard mainstream approach claims. And I am not referring to the ‘libertarian caricature of economics’ cited by Mr. Smith. In fact, ‘mainstream economists are emphatically not all laissez-faire libertarians’, although ‘the textbook they are working from allows thinkers and commentators with an atomistic worldview to commandeer a privileged position in the debate’ (Reed, 2018).
But the debate here is not free market versus government intervention. Instead, it is about using the same theoretical apparatus to explain different issues. That is, in mainstream economics textbooks everything dealing with the economy is forced into one of the following: supply and demand, general equilibrium, moral hazard, information asymmetry, externality, perfect competition, marginal productivity, utility etc. In such a framework, there is no room for critical thinking on these subjects. When there is, it is still constrained within the narrow bounds of the mainstream (Moran, 2018). In fact, most of the “reforms” occurred in economics education have been about ‘adding modules to the basic template, leaving the core of the old discipline essentially intact’. As Reed continues, ‘this is insufficient, and treats the symptoms rather than the underlying malaise’ (Reed, 2018).
Economics’ narrow views are affecting not only the way it is taught, but also and particularly its research. A vicious circle takes place when only a certain kind of research is done, as it soon becomes the only one that is actually financed. This is often the case because the panel of reviewers of the top journal’s boards are often mainstream economists. As a result, both in economics classes and papers, adopting different views or approaches from other schools of thought than the mainstream one, becomes hasty and insufficient. Moreover, taking into account considerations drawn by other social sciences is usually prohibited in economics research. Instead, one single approach – the one reflected by the so-called neoclassical theory – is presented as the only framework of analysis for all of the outlined themes. Therefore, remember that when economics sells itself as “pluralist” by treating a broad range of topics, there is actually nothing more monolithic than the assortment of axioms used to analyse them.
A similar argument can be made about methodology, however requiring more subtle considerations. Economists often promote themselves as the most scientific of the social scientists, due to their massive use of advanced quantitative methods, often derived from the natural sciences. That is, economics is “scientific” because it uses the methodologies of physics, while other social sciences like psychology, sociology and political science focus more on the “social” aspects, preferring ‘a theoretical lens which looks at social and legal structures over individual choice, and an empirical method which focuses on qualitative details over statistical techniques’ (Moran, 2018). To reach the aim of scientific status, economists started to utilize mathematics extensively. Some argue that the models used by economists ‘are written with mathematical notation as a shorthand and to enforce logical consistency’ (Coyle, 2018). Well, maybe we ought to start debating what ‘science’ and ‘scientific’ really mean, exploring the forefront philosophy of science and applying principles derived from Popper, Kuhn and Lakatos to economics. But we won’t have time to do that. Also, we don’t really need to.
For our purposes, it is enough to make two precise points about the relationship between economics and physics. First, the use of mathematics does not imply logical consistency. Instead, logic is a branch of philosophy, which does not always use mathematics to express its statements and does not need it in order to develop consistent arguments. Among the other social sciences, there are totally consistent theories that do not use mathematics and are often more logical than the ones developed by economists. Secondly, it is sufficient to explore some basic history of physics to understand why economics does not really use its “rigorous” methodology. For instance, physicists are able to study the behaviour of gases without necessarily knowing about theirs parcels’ position and velocity. That is, they use macroscopic laws to understand the behaviour of macro units of analysis. However, economists are not able to do that at all. Instead, they prefer to base all of their knowledge about the economy on the so-called ‘micro-foundations’. As a result, economists still lack a proper understanding of many macro issues (The Economist, 2018).
Having totally neglected the macroscopic approach might be one of the reasons for the serious failings of modern macroeconomics, and the weakest aspect of economists’ methodology. Unfortunately, quantitative modelling has become so fundamental that any theoretical insight have to be put into an economic model in order to be accepted by economists. Nonetheless, this approach leads to the paradox where the methodology is considered to be more important than the content itself, so that standard economic methods are often used to say something that is basically already known (Moran, 2018). This necessarily stifles creativity and the production of new knowledge overall. As Cahal Moran argues, ‘research incentives typically mean adhering to at least one of these techniques, despite the plethora of other techniques available’. As a result, ‘mainstream economics papers often deal with what seem like exciting questions, but give ultimately disappointing answers because they follow the same old methods’ (Moran, 2018).
Another important issue is the conception of value judgments (or lack of) within the mainstream approach. In this regard, there are two points to be raised. Firstly, some claim that ‘neoclassical economics pretends to be ethically neutral while smuggling in an individualistic, anti-social ethos’ (Reed, 2018). The ‘awry, malign and psychopathic’ mainstream approach based on the neoclassical architecture certainly ‘airbrushes out the negative consequences of a destructive behavioural mind-set–selfish individualism’, regarding such behaviours ‘not only as inevitable, but desirable’ (Reed, 2018). In fact, economics does not make any difference between normative and positive analysis. For instance, ‘profit-maximisation in mainstream economics becomes not merely a description of what does happen in a capitalist economy, but a template for what should happen’. As a result, students acquire that ‘mental virus’ embedded in mainstream economics, ‘behaving more in line with its selfish predictions that those who have studied other topics’ (Reed, 2018).
The second point recalls what I already mentioned in the previous paragraph. That is, most of the economists believe that using objective “scientific” mathematical models exempts them from value judgments. However, they miss the point that the choice of model you make strongly affects the conclusions you draw, both by determining what to model and by modelling it in a certain way (Moran, 2018). Therefore, choosing a model is an implicit way to give value – meaning importance – to certain variables rather than others. As a result, economic models only deal with phenomena that can be quantitatively measured, completely neglecting that which cannot. Thus, default frameworks (rational choice models, linear regressions etc.) actually do represent a choice – a very precise one – which highlights some variables disregarding others that – even if not measurable – are often fundamental to understand the evaluated issue.
On top of that, some argue that economists’ core work has recently become much more empirically grounded and data based (Coyle, 2018). However, this tendency might even be worse for the development of the discipline. Firstly because the lack of grounded theory is the pillar for any science to be considered as such. Secondly, an increase of empirical work on a broad range of topics actually reflects a systemic crisis that economics is currently facing. Every discipline has a specific set of topics that represents the “object” of its studies. This is true for the natural sciences as well as for the social ones; while physics studies the laws of the nature, psychology studies the mind and human behaviour. However, the same cannot be said for economics where studies on money, employment and wealth are only a fraction of economists’ work. This only proves the deep identity crisis that economics has been going through for decades.
Summing up, some recognize the shortfalls of the discipline in addressing its issues and blame the economists, not economics (Rodrik, 2009). Others, instead, state that the problem is economics, not economists (Moran, 2018). While the former are often well-established economists unwilling to expose their research to criticism, the latter are typically students, tired and annoyed by modern economics’ narrow approach where the ‘reliance on a single framework is hamstringing the research of capable, conscientious and critical economists’ (Moran, 2018). As Noah Smith also recommends, grounded preparation in epistemology and ethics would be necessary – if not fundamental – to economists’ education. While the former would be useful in order to assess the meaning and validity of models, the latter is rather relevant for systematic discussions of many economic problems (Smith, 2018). In conclusion, econ critics are not ‘stuck in the past’. It’s economics that needs to be fundamentally changed.