Ten years ago, David Colander wrote an obituary describing "the death of neo-classical economics." Sort of. Strictly speaking, he was calling for economist-assisted terminasia:
The use of the term neoclassical to describe the economics that is practiced today is not only not useful, but it actually hinders understanding by students and lay people of what contemporary economics is.
Let me be clear about what I see as the largest problem with the use of the term. The problem is its use by some heterodox economists, by many nonspecialists,and by historians of thought at unguarded moments, as a classifier for the approach that the majority of economists take today. We all, me included, fall into the habit of calling modern economics neoclassical when we want to contrast modern mainstream economics with heterodox economics. When we like the alternative, the neoclassical term is often used as a slur, with our readers or listeners knowing what we mean…The worst use, and the place one hears the term neoclassical most often, is in the discussions by lay people who object to some portion of modern economic thought. To them bad economics and neoclassical economics are synonymous terms.
There is much not to like in current economics; but slurring it, by calling it neoclassical economics, does not add to students’ understanding of the current failings of economics. Economists today are not neoclassical according to any reasonable definition of the term. They are far more eclectic, and concerned with different issues than were the economists of the early 1900s, whom the term was originally designed to describe. If we don’t like modern economics, we should say so, but we should not take the easy road, implicitly condemning modern economics by the terminology we choose.
David Colander's description fits perfectly the critics of the "neoclassical political and economic mindset" described in Mike Moffat's recent post.
It is true that most economists believe first year textbook writer Greg Mankiw's 6th principle: markets are usually a good way to organize economic activity.
But they also are aware of Mankiw's 7th principle: Governments can sometimes improve market outcomes.
There is legitimate disagreement about whether a particular economic issue, for example, the tar sands development, is best described by the 6th principle – markets are good – or the 7th – more government intervention could improve outcomes. I would vote for the latter (when I'm not feeling too cynical about government), my fellow bloggers might disagree.
As an academic economist, it's not difficult to avoid these disagreements, especially if you steer away from conversation topics like global warming over lunch with colleagues.
PhD students and new faculty members are almost as likely to have an undergraduate degree in engineering or mathematics or physics as in economics. They may never have taken Econ 101. Graduate courses in economics also teach that markets are good. But in the grad school version – "If preferences are locally nonsatiated, and if (x*, y*, p) is a price equilibrium with transfers, then the allocation (x*, y*) is Pareto optimal" – the ideological content is so deeply buried it is easy to be completely unaware of it.
These days, technique matters. Have you controlled for endogeneity? Unobserved heterogeneity? Did you use the right kind of standard errors? Do you have a good instrumental variable?
As technique becomes more important for deciding what is good research, ideology becomes less so. The rapidly growing field of behavioural economics, for example, questions the presumptions of rational choice that underpin the Econ 101 stories about markets. Behavioural research is published because in part because it's often technically sophisticated, and in part because it explains the real world.
But the phrase neoclassical economics is still good for one thing: it's really handy for separating out insiders, who never use the phrase, from those outside the mainstream.
Worthwhile Canadian Initiative 
Mr. Rowe: Thanks, but I still feel like I learned very little of leftwing economics from the course; all I know is rightwing economics and my own homemade objections to it (as well as what I’ve picked up from Tom), without knowing how the majority of leftwing economists would respond.
I agree that the highest priority is getting students to learn the main ideas and the basic reasoning behind them, and I understand that it can be difficult to give a balanced account without going into too much detail for an introductory course. But as I said earlier, other courses manage to teach introductions without throwing neutrality and balance out the window like this economics course did.
Yeah, I agree. It was a cheap segway for my apple comment. I was jesting. Hopefully both generations see some humour. As always, intersting comments from all parties, web hosts included, despite some hotter responses earlier. 🙂
JvfM: No worries! Humour accepted here.
Thinking more on simon’s last comment.
Let me go totally over the top, and throw out something wild (don’t hold me to this, anyone).
In economics, the facts are right wing.
Let me now massively qualify and explain.
Most non-economists see the market system as some sort of Hobbesian State of Nature. An anarchy, not a system in which there could be any reason whatsoever that individual self-seeking choice could lead to anything other than a total mess.
Subject to loads and loads of qualifications, economists have a totally different view of the market economy. They see it as an ordered system, which does have some tendency towards an allocation that is in some sense “optimal”.
So if you define “right-left” as “free market vs non free market”, economists are inherently right wing on that dimension relative to the rest of the population.
And if we want to teach one thing in first year econ, it’s that vision of the market as an ordered system rather than a hobbesian anarchy. And our biggest fear as teachers is that our students will never grasp that vision.
All the many qualifications to that vision are secondary. You cannot even teach them until you have first taught the vision. Because they can only be understood as qualifications or exceptions to that vision. You cannot speak of “failure” except against a pre-supposition of success.
In some weird sense, there is no “left wing economics”, at least, not understood against the background of non-economists’ thought. Left-wing economics can only be understood in the context of economic thought.
God knows if that makes any sense.
“Maynard: I’m not sure where you get the idea that “the models appear never to be marked to market.” Go back to my discussion of RBC. Read Kydland and Prescott. If anything, I’d argue they overdid trying to match their model to the data through calibration.
But again, go back to my physics example. Suppose you were writing a physics textbook and you wanted to explain how a baseball pitcher made a ball curve. Would you explain the forces being imparted on the ball, or would you explain the process that I went through as a kid pitcher developing my curveball (a hell of a lot of trial an error)? Why should economics be modeled differently than physics?”
Mike, I’m not sure why you find my claim so hard to accept. I hardly need to make a list — John Quiggin has already done so. Or do you feel it was unfair to claim, let’s see, the Efficient Market Hypothesis as an idea that was taken and run with rather than marked to market? How about the Laffer Curve? How about the nonsense we in the US have been hearing for over a year, from Economists with impeccable credentials including good old Greg Mankiw about how government spending to deal with unemployment will lead to communism, or fascism, or hyperinflation or something.
And I honestly do not understand your point about physics and ball curves. Let’s take a different example, planes. We don’t build planes by polling pilots as to their theories of how flight operates, and then implementing those theories — we build planes based on theories of how air and solids behave, theories that have been aggressively tested via experiment. And when those experiments defy reality (“wow, a wing shape moving through air really CAN generate lift, who would have thought?”) we don’t claim “well Aristotle claimed air could not behave this way, therefore let’s ignor the experiment”. Now consider, for example, the Laffer curve: we implement the experiment, the result is not what is claimed would happen, and the protagonist’s response is “well you need to reduce tax rates even further”.
We have gone from Adam Smith saying “Is it not remarkable that, in SOME situations, for SOME purposes, disorganized people working to their own ends can create a good for all society” to “Under all circumstances, for all purposes whatsoever, the only possible way to generate goods for society is through disorganized people working to their own ends, and, in a word, greed is good because it is that sole way to produce social value”. When examples, plenty of them, throughout history, across the geographies, and in our own time and society, are produced to bely this claim they are shrugged off as anomalous. When behavioral economists, for example, show that people do not behave in the way of h. Economicus we are told so much the worse for real humans — they clearly are not maximizing their utility properly. And this fact, that real humans do not behave this way, is not allowed to muddy the policy prescriptions. If aid economics has not worked across most of the world, well clearly the answer is replace the poor with a better class of poor, not to rework the framework to better fit reality.
Sure, you say, none of this has anything to do with academic economics; this is all politics pretending to be economics. Again I refer you to one Mankiw, G. The people spouting these ideas are as lionized by the academic economics establishment as anyone else.
Hopefully both generations see some humour.
Sorry – there is no room for irony in multiple choice exams.
our biggest fear as teachers is that our students will never grasp that vision
I do agree with this, to some extent. There is something beautiful from a formal point of view about market equilibrium even though my politics are more aligned with Maynard Handley. Have you read Mancur Olson’s Power and Prosperity, in which he shows that even selfish dictators will, if they take a long-term view, act in the interests of their subjects? I find that compelling also and a useful counterpoint.
And I honestly do not understand your point about physics and ball curves.
Mike is being a bit disingenuous here. If he teaches at Ivey, in the sense that I am familiar with, then he is teaching “applied economics” that is thinner on theory than say a course NR teaches, and more case study based upon real business situations.
Same thing in engineering (my undergrad) that is called “applied science” at some schools (Queens is one) – first two years is on first principals – the applied/practical stuff emerges in third/fourth year. A chemical engineer will have a different skill set than a chemist – both can learn from each other despite differing levels of speciality/generalization.
Um, Mike is right here, posting in this thread. It would be easier for the rest of us to follow if you could address him directly in the second person.
Isn’t this just the oldest label-disowning strategy in the book?
Y’know, kind of like how hipsters say that “hipster” is a meaningless word or how ravers always insisted on calling a rave anything but a “rave”.
Hipster and neoclassical are perfectly good labels. I would be sceptical if the people on the inside weren’t trying to disown it.
It was quoted immediately above by Maynard, after posted twice by Moffat, initially in response to me. I considered it a balk. Others didn’t. The opportunity to respond directly had passed. Hence the response to MH.
I’ve noticed the discussion here degenerating of late. This 2nd person transgresion seems minor in comparison.
Nick @ 09:04, Plato said reality was left-wing, social sciences before empirical.
I’d guess, left at first to get irrigation. Then right to get seeds and animals diffused. It looks like what Islamic Empire and Sung Dynasty missed, and my view always shifts here; what Europe got, was a mixed economy. An army stable enough to protect artisan trade unions, who crafted (IDK if paid but a market for work) the steam engine. After Watt it doesn’t matter too much, but I’d guess ideally market forces to trade-diffuse tool and tie equipment until heavy industry saturated. Followed by LW again to get human rights needed to discover AGW in time, and nuclear winter, and…
What we have now is the world’s military superpower dedicated to maximizing petro consumption. It didn’t have to be LW shift post-WWII, but the GOP/Harper/Abbott? are destroying civilization, maybe the species.
Sorry – there is no room for irony in multiple choice exams.
Well, if the examination occured at home, by the parent with a closed mind, the “multiple choice” would be ironic.
I’d better add this:
🙂
More history: it looks like Islamic Dynasty had the empiricism necessary to form metallurgy for a while when had best scientists. I’d guess religion gave them the stable gov. But it seems like civil war among three factions broke up gov stability. Ended same as Roman Empire infrastructure destruction except internal war instead of hoarde invaders.
China had gov for centuries, the metallurgy and industry since Sung, but turned inwards, no market for steam engine inventors said leader. Europe got stability from Martel and then Charlamagne. And market forces from renaissance or early inventors. I guess there was enough Aristotle or trade from Islamic technologies to make a few Church property owners willing to fund inventors.
Maynard: I’m not sure what you mean by “not marked to market”. There are all kinds of empirical studies on the Laffer Curve – most of which suggest that most the tax rates in developed countries is well to the left side of the peak. Your description of economics looks like nothing I recognize in the policy journals – it looks like trash TV. Just because some blowhards on Fox News misuse the theories don’t invalidate them, the same way that fascists spouting off on eugenics don’t invalidate the theory of evolution.
Just visiting from Macleans: I didn’t forget econ my training when I started teaching at Ivey. And you seem to forget them I’m a p/t there and work in the private sector. I’ll spend maybe 80 hours in front of a class room this year, and another 1920 or so doing other things, the majority of which is related to economics (specifically the area of pricing). I’m not sure why you continually feel the need to relate everything back to 4% of my current job.
Finally, I’m greatly puzzled about how a equity-efficiency trade-off became a ‘right-wing’ idea (see Nick’s discussion of Okun). You can admit that the tradeoff exists and be well to the left of the NDP politically in terms of redistribution. I’m a big supporter of carbon taxes and other non-Coaseian measures to account for externalities (far more than any party, even the Greens), but like all economists I recognize there are costs to go along with the benefits. Aside from people who argue that we’re on the right side of the Laffer curve (see above), pretty much any serious policy proposal admits that there are costs along with benefits to any policy proposal. I’m not sure why that should be considered controversial!
When we’ve eaten all the free lunches (as we should) the only lunches left are ones that have costs, as well as benefits. There are always trade-offs.
Hi all:
Someone who you might think unlikely to agree with Colander re whether contemporary econ is nee-classical, Sam Bowles, actually agrees. What he points to is the increased willingness to model situations featuring incomplete contracting as well as the behavioral/experimental challenges to the rationality assumption. So, for example, in a world of incomplete contracting, more equitable distribution may allow better incentive contracting – poor agents can’t be given contracts that specify a penalty in case of failure; borrowers with wealth can post collateral, etc.- that improve efficiency as well.
Incidentally, in my principles course, I use Tom Slee’s wonderful book, No One Makes You Shop at Wal-Mart, as a supplement, so that students can see that rationality plus equilibrium doesn’t necessarily spell efficiency, especially in the context of strategic interaction.
I’m not sure why you continually feel the need to relate everything back to 4% of my current job.
Umm, because you are listed in the top righthand corner of this blog
as being from Ivey School of Business, and you often blog about the teaching of economics – the subject of your baseball analogy.
Finally, I’m greatly puzzled about how a equity-efficiency trade-off became a ‘right-wing’ idea (see Nick’s discussion of Okun). You can admit that the tradeoff exists and be well to the left of the NDP politically in terms of redistribution.
Is this directed at me? Highly ironic when you had blogged about improper labels given to economists, and then go ahead and try to suggest that I am “well to the left of the NDP politically” when you base this solely on the fact that I require evidence of certain claims/assertions before ideologically accepting them, wholesale.
Let me give you a little example of how you are completely wrong. I was living in BC in the early 90’s. The Socreds (right wing party) lost power, and the NDP got back in. First Mike Harcourt as premier, then Glen Clark who rose through the ranks from a union organizer background. I had concern for the economy as a whole and my prospects there. I disagreed completely with their platform. So, when they tried to feed their spending/social programs budgets by issuing a Special Directive from the Lieutenant Governor in Council advising their flagship crown corporation, BC Hydro, to increase rates comparable to a private sector utility, this essentially meant a $200 million tax hike to captive ratepayers.
The rate hike had to be spread out over two years (the directive limited a prcentage hike each period). The first hearing passed, and the max hike was approved by the Commission.
The Commission Chair, btw, described himself as a “neo-classical economist” (I remembered “neo-conservative” but it appears my memory was wrong in light of the recent discussions) when queried by the media about his appointment by the very left NDP. He was on a sabbatical from a teaching position from SFU, a position he earned after earning his PhD in economics at the university of Grenoble.
The Chair was well versed in economic theory (he had consulted extensively to some utilities on DSM) but had never worked in industry or had any background in internal utilities (I had previously worked at a utility helping to set up an internal audit/internal). So, when the second hearing came up, I registered as an intervenor and went after the senior management on out of control spending in their Operations,Maintenance and Administration charges through cross examination and entering of evidence in the public hearing. The lawyers representing various interests were also weak in this area.
Now, since I was essentially intervening against the chair’s previous decision (he had developed /adopted a funding formula that enshrined inefficient spending and rate hikes) publicly questioning the appropriateness of his model, there was some risk involved. And he did take it personally. So, after a pretty good dressing down by him, suggesting I was wasting everyone’s time, the following morning I responded with something to the effect that in light of his comment that he was satisfied that his formula was moving close to one independently developed by a counterpart in England, I responded with an equally profound comment:
“That (moving to the England model) I suppose causes me some concern. As the chairperson recognizes, there are many theories of economics, and few economists agree all of the time.”
The BC Hydro rate application was turned down (starving the NDP of another $58 million/yr cash grab in perpetuity), some of my points (ones that are often raised on this blogsite) were highlighted by the chair in his closing comments, and to have final say, when participant funding was being allocated, he cut mine in half for, allegedly being off topic and repetitive (I covered the same sort of questioning that he himself asked a yr previous before making, in my opinion, the wrong decision).
Years later, when he was touring promoting a book, he admitted on CPAC that early in his career, he was completely wrong on some items, and has since rethought them/changed his opinion. So, I reminded him in an email that I too thought the same thing. To which he kindly replied, adding “touché”.
So, the point being, if you are attempting to put a label on me, being to the right of a neo-classical economist, using this example, would seem more appropriate.
You were probably still going to Banting High School when all of this happened.
“Touché.”
“Is this directed at me? ”
No, it wasn’t – it was to the thread in general. My apologies for the confusion.
“You were probably still going to Banting High School when all of this happened.”
Oakridge. I hate those Bantings guys so muccccch (j/k)
Oakridge.
50th anniversary last yr. I didn’t go. Many classmates did.
You’re an Oakridge and Ivey grad? Have I spent my entire life following in your footsteps?
If you said you went to John Dearness, I will officially lose my mind.
Notre Dame.
Very cool – I know it well.
Huh? I don’t know what that was about, JVFM, but it was long and had nothing to do with the topic at hand. I deleted it.
Whatever. It was for Moffat, at the end of an oldish post. I figured if one of the bloghosts goes after a commenter with a perceived slight, they have the opportunity to properly put them in place (like one of the times you went after me on “companies are legal persons” lazy/thinkers ) 🙂
Sorry. I saw a post that looked a propos of not very much on a thread that’s been dormant for a couple of weeks. You can try again if you want.
But I did notice you reference the same Kevin Lynch op piece on twitter roughly 20 min later 🙂
Btw the answer is because of the readership of the G&M – they don’t much stick to heavy policy stuff on a Sat morning.
Na, too much work. The point was made.
Stephen deleted my comment without comment. No problem. I shortened it, clarified it and extended it moving from libertarian economics to libertarian political philosophy, appealing to fair play and hoping it conforms more to the bloghost’s sensibility.
Anyway, I started by asking: What’s this about “’companies as legal persons’ lazy/thinkers”?
In hazy (not lazy) thinking companies as legal persons are one of the reasons neo-classical economics is dead, sort of; and why I believe libertarian economists is half-dead, really. I did grasp and agree with Hayek’s Road to Serfdom; what’s dead (in libertarian economics; Hayek’s part of the half alive) is what is hidden and why I couldn’t spot it to swat it right off. When uncloaking their flying saucer it was impressive in size and speed. Nonetheless, their two-tier equilibrium system is flawed. To find it, simply look under Hayek’s road you’ll see another bigger road going the other way. It’s the road to slavery (think Solon, property ownership and debt).
Further, to make the road to slavery more visible look at a leading libertarian political philosopher: Robert Nozick. He argued (against Rawls Theory of Justice) that in a “free system” a person could “voluntarily” become a slave and sign a contract to do so. No. A free system pivots on fairness: Free people, free markets exist with fair people and fair markets. People’s sovereign right to freedom is inalienable.
An old debate. I probably used the slash wrongly in the quote. We ended up agreeing on most things, just difference in degree. His blog about who pays for NDP tax hikes on corporations. This apparently placed me (in some person’s minds) to the far left of the NDP. You know what they say about “to assume” –
“When you assume, you make an ass out of u and me.”
~ Oscar Wilde