Monday, June 17, 2013

A collection of thoughts on neoclassicism/heterodoxy/mainstream economics

A few days back Noah Smith wrote a piece on the overuse of the term "neoclassical" to describe anything mainstream for which he got a lot of undeserved criticism from the heterodox crowd. I have a few scattered thoughts on this that I figured I'd share.

First and foremost, definitions are what we decide they are - so the worst thing about the heterodox push-back isn't that any of it is wrong per se, it's that they're wrong for browbeating Noah for using by far and away the most widely used definition and asking, for clarity's sake, that people use that definition when it's appropriate. I couldn't agree more.

In my view "neoclassical" economics is economics that cites optimizing behavior as the principle explanation of human choice under conditions of scarcity. "Self-interested", of course, is not always "optimizing" (although it can be) so we usually date neoclassicism to the marginal revolution rather than what we usually call the "classics". Of course there are hints of marginalism (and therefore proper optimization) earlier and that's fine - these things can be fuzzy. Neoclassicism does not mean hyper-rational actors. Neoclassicism can include things like game theory (that just introduces a strategic framework to the optimization problem) and even behavioral economics (I'm thinking of things like hyperbolic discounting - but probably a lot of behavioral economics can be imported into an optimization problem, though it doesn't have to be).

Neoclassicism shouldn't mean "mainstream" because there was a time when "mainstream" wasn't neoclassical and it might very well not be neoclassical again. "Mainstream" has sociological, not analytic meaning.

This, I think, is basically along the lines of what Noah said.

This isn't the only definition one could use to describe these ideas. Most notably Keynes (borrowing from Marx) called the classics and the marginalists "Classical". Again there's nothing inherently wrong with that, most people just decided that there were more useful ways to divide and sub-divide, and so no one uses Keynes's terms any more.

Matias Vernengo has some good stuff and some bad stuff to say about neoclassicism, but what most struck me was how he bristles at the way Noah used the term "heterodox":
"So Noah Smith thinks that I, Lars Syll and Steve Keen, and other heterodox bloggers (in which he adds Austrians; you see why they should teach History of Thought?* For a discussion of the meaning of heterodox economics, including why Austrians are not so, go here) use the term neoclassical economics as a pejorative term."
The only people who use "heterodox" the way Vernengo uses "heterodox" is fellow Post-Keynesians and Marxists. It's not how the JEL uses the term (they include Austrians) and it's not how most historians of economic thought use the term. Noah (and my) definition of heterodox has a lot going for it for that reason alone, but even if  you were to come at this issue with a blank slate I think it makes more sense. Austrians, like Post-Keynesians, have several elements to work that few mainstream economists use, think are the best way of doing the science, or even know about in a lot of cases. That is what heterodoxy is. "Heterodox", like "mainstream" is a term with sociological rather than analytic meaning. Some (not all) Austrians can be described as neoclassical. Same with Post-Keynesians (Joan Robinson did a lot of great neoclassical work for example - Kalecki did similar things but with non-neoclassical [one could probably say "classical"] exposition - they got along because of a common heterodoxy, but their analysis was in two distinct traditions). That doesn't really matter - they're still heterodox (just like a lot of non-neoclassical behavioral economists are mainstream). There's no litmus test either - lots of people work in both traditions and there's a lot to respect in both.

If Matias wants to use a different definition that's fine. I work with a lot of Post-Keynesians in my department and you all know I think they have some important things to contribute. Among them, when I hear "heterodox" I know how the term is being used and it all works out fine. But one thing they don't do (and something I don't think Matias should do) is lecture everybody else about how they need a class in the history of economic thought when they use a different definition.

Matias seemed to agree with a lot of what Noah had to say about neoclassicism, but he preferred to distinguish neoclassicism for its conclusions about "endogenous distribution". This doesn't make sense to me at all. Obviously what Matias calls "endogenous distribution" emerges in neoclassical economics, but it seems to also emerge in most Post-Keynesian economics (it just doesn't emerge in the same way - often, though not always, factor prices are given and it is the wage share that emerges endogenously - but that's still the distributional outcome). He also mentions "minimal government that protects property rights" as going hand in hand with neoclassicism, which I guess might be true if it is understood very broadly and very weakly, but I don't think these sorts of normative claims have much of anything to do with what we're talking about.

I do agree with Matias's point about the non-neoclassical mainstream work that Noah brings up being within the "protective belt" of the neoclassical paradigm. But this is instructive. Most of this work is what we would call "institutionalist" which is most decidedly not neoclassical. It's published next to neoclassical papers because it provides excellent economic analysis within a different analytic framework. Meanwhile there are other "institutionalists" that are heterodox. There are also "institutionalists" like Doug North who is celebrated by the mainstream despite his best efforts to push the mainstream away and insist he's working on a completely different project! All this is quite instructive! What matters for being in the "mainstream" is mostly about who you are willing to work with, what ideas you are willing to accept as decent ideas, and where you publish. It's a sociological term. To be out of the mainstream you need two things: (1.) you need to have elements of your analysis that is different from most of the mainstream, and (2.) you really need to be exiled from the mainstream or (more commonly) you need to exile yourself. Some institutionalists thrive in mainstream economics. Some institutionalists are very adamant about not being in the mainstream and criticizing the mainstream. The latter are heterodox, but really as a matter of choice and affiliation.

Similar problems come up with the responses of people like Lars Syll (who thinks neoclassicism implies deductivism) and Deirdre McCloskey (who wants neoclassicism to mean Paul Samuelson). You can click through the links (I won't cover them here) but the problems with their thoughts are pretty much the same problems with Matias's: they take entirely reasonable definitions and conditions that they like a lot and are flummoxed that most people seem to think differently.

Here's the point: definitions are useful if (1.) they make meaningful distinctions, and (2.) a lot of people use the same definition to mean the same thing. You need both elements. Noah's use of terms like "neoclassical" and "heterodox" meet both elements. Matias's only meets element (1.) (probably - although maybe not) in general, although it also meets element (2.) if he's talking to other Post-Keynesians.

And Noah uses it how most history of economic thought people use the terms and how most economists use the terms.

So give the guy a break.

7 comments:

  1. I actually agree that I would classify Austrians as heterodox, and Mattias is overstating his case. Austrianism shares a lot of similarities to neoclassical economics, but it is definitely a different approach.

    What Vernengo has instead defined is the 'classical' approach of societal reproduction, classes etc. which covers a substantial portion of the heterodoxy from Marx to Sraffa to PKs. But other heterodox schools, such as old institutionalism and Austrianism, do not fit into either this or the mainstream category.

    Btw, my guess would be that it is Noah's dismissive - and, frankly, ignorant - approach toward the heterodoxy that elicits such jaded responses.

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  2. These were my thoughts on Noah Smith's use of a picture of a building in the neoclassical architectural style to illustrate his point.

    http://noahpinionblog.blogspot.com/2013/06/what-is-neoclassical-economics.html?showComment=1371285897113#c5472553491846536777

    That stated, I largely agree with this post - especially with this part: "What matters for being in the "mainstream" is mostly about who you are willing to work with, what ideas you are willing to accept as decent ideas, and where you publish. It's a sociological term. To be out of the mainstream you need two things: (1.) you need to have elements of your analysis that is different from most of the mainstream, and (2.) you really need to be exiled from the mainstream or (more commonly) you need to exile yourself. Some institutionalists thrive in mainstream economics. Some institutionalists are very adamant about not being in the mainstream and criticizing the mainstream."

    However, I would disagree with this statement:

    "Joan Robinson did a lot of great neoclassical work for example"

    Um...perhaps you ought to see this link which makes good points taken from direct quotations, Daniel Kuehn.

    http://www.amazon.com/review/RDNPK1N0JOMC1/

    But in any case, Daniel Kuehn...where would you put the people who are working on alternatives to S.E.U. decision theory (i.e., like Mark Machina, Itzhak Gilboa, David Schmeidler, Uzi Segal, Daniel Ellsberg, et cetera)?

    Into orthodoxy, or heterodoxy?

    One last thing, though, concerning this statement: "Neoclassicism can include things like game theory (that just introduces a strategic framework to the optimization problem) and even behavioral economics (I'm thinking of things like hyperbolic discounting - but probably a lot of behavioral economics can be imported into an optimization problem, though it doesn't have to be)."

    Were you aware of a 2010 article by Nathan Berg and Gerd Gigerenzer published in History of Economic Ideas that makes *exactly* this argument, Daniel Kuehn?

    http://digital.casalini.it/10.1400/140334

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    Replies
    1. Yes, I'm well aware Michael Emmett Brady has a chip on his shoulder about Robinson. My point stands.

      I don't really know the people you list so couldn't say.

      Thanks for the Berg/Gigerenzer link - I was not aware of that, no.

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    2. A chip on his shoulder about Robinson? Perhaps. But I think he makes an interesting argument that does seem somewhat plausible. How can you even claim Robinson to be "neoclassical" when she implicitly admits that she lacked the training to even do the work to understand A.C. Pigou's 1933 book? And for that matter, there have been economists who suspect that Joan Robinson didn't complete The Economics of Imperfect Competition - not by herself, anyway.

      Berg and Gigerenzer also have a version of that same article on the SSRN. Here it is.

      http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1677168

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  3. Matias Vernengo's opinion is amusing: "... in my view heterodox ideas should be based on the old classical political economy ideas, plus Keynes' effective demand."

    "Heterodox" is a compound word, it means Not-orthodox. There are some things that are "orthodox" and some things that aren't. Nobody can say "I demand that all the ideas that aren't orthodox have the following structure...."

    Nor is it possible to label everything outside of some some structure as "orthodox". For example, following Gene's suggestion recently I could develop the Irishman theory of value, whereby all value is produced by Irishmen. According to Matia's taxonomy if I did so that would be "orthodox" economics.

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  4. I disagree. One can define mainstream and heterodox as sociological but the one thing they have in common is they are both living. Austrianism died a long time ago and its proponents don't advance the subject but strive for ideological purity to the true faith. There are some that attempt to claim and perpetuate the name, but they are repudiated by the purists and would do better to let it die on the dustpile of history.

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    Replies
    1. Basically you don't think our stuff is any good. Why try to mask that view with a debate about categories?

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