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Hip Heterodoxy

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The Birth of Orthodoxy

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Christopher Hayes
Christopher Hayes
Chris Hayes, Editor-at-Large of The Nation, hosts “All In with Chris Hayes” at 8 p.m. ET Monday...

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The term "heterodox"--like, say, "infidel"--is necessarily imprecise; it categorizes people by what they don't believe rather than what they do. In the case of heterodox economists, what they don't believe is the neoclassical model that anchors the economics profession. Classical economics refers to the theories laid out by Adam Smith and David Ricardo in the eighteenth and nineteenth centuries, which emphasized the power of the "invisible hand" of the market to promote the division of labor and economic growth. Smith famously summed up the recipe for prosperity as "peace, easy taxes, and a tolerable administration of justice," with "all the rest being brought about by the natural course of things."

A hundred years after Smith, a group of "neoclassical" economists came along and added a few key features to his account, which continue to ground the field to this day--that humans are rational, utility-maximizing agents with fixed preferences, that they make decisions "at the margins" and that the mechanisms of supply and demand (operating free of government interference) will lead to a general equilibrium whereby resources are allocated efficiently.

That view dominated for the next sixty years until John Maynard Keynes came along in a period of global economic crisis and proposed a new way of looking at the economy, one focused on national economies as systems that were decidedly imperfect and prone to failure. In the wake of Keynes's work in the 1930s and '40s, economists had a problem on their hands. They had two models for how an economy worked: the neoclassical account of supply, demand and prices (microeconomics) and Keynes's account of the relationships among consumer demand, employment and money (macroeconomics). In the 1940s and '50s, a series of legendary economists formally fused the two, producing the "neoclassical synthesis." Many of the pioneers of this work, from Paul Samuelson to Kenneth Arrow, were famously liberal. But their work stressed the ways in which markets, functioning on their own without interference, tended to an interdependence described as "general equilibrium." In their wake came a parade of libertarian economists, like Milton Friedman and his Chicago School colleagues, who pushed the neoclassical model to leave Keynes behind completely, to fully embrace the logical extremes of a world of self-interested rational actors--a back-to-the-future gambit dubbed the "new classical" economics.

In terms of the implications for the relative value of market and nonmarket forces in allocating resources, the new classical view didn't differ substantially from Adam Smith's original contention. In the same way classical economics was born as a brief for laissez-faire capitalism, against the prevailing interventionist mercantilism of the day, the new classical model reaffirmed the value of markets in the wake of Keynes's critiques.

And it came to dovetail quite neatly with a worldview that has dominated the past thirty years of globalization, which Notre Dame heterodox economist David Ruccio succinctly summed up to me as one in which "markets, private property and minimal government will achieve maximum welfare."

But the neoclassical model didn't leave its mark only on economics. In an audacious burst of methodological imperialism, Chicago Schoolers like Gary Becker used the framework of rational individuals seeking to maximize their utility to analyze and explain everything from tax evasion to teen pregnancy. This laid the groundwork for the public discourse we have today, in which Freakonomics spends 101 weeks on the bestseller list and policy-makers obsessively invoke "incentives" as the panacea for any given social problem. ("Incentive pay" for teachers! Give poor kids sneakers, and they'll be A students!) Indeed, the cradle for much of our policy discussions can be found in the first chapter of just about any introductory economics textbook, where the basic precepts of the neoclassical framework are described under the rubric of "thinking like an economist."

The problem, then, that heterodox economists face is that they are economists who don't "think like economists." Many point out that humans aren't rational, or not nearly as rational as the theory would have them be (and, further, that in the aggregate this creates market failures). Others point out that humans are social creatures, not individual agents, and their preferences and behaviors are forged by social structures: institutions, habits, social mores and culture all mediate and drive economic behavior. Others say that price and value aren't interchangeable and that prices don't arise from the simple intersection of supply and demand curves, while some argue that unequal power between different sectors of society affects how markets operate. Dissent from the mainstream of economics is not new; indeed, it's nearly as old as the profession itself. Marx was a kind of heterodox economist, as was Thorstein Veblen. John Kenneth Galbraith spent his whole life as an economic dissident, and the political ferment of the 1960s ushered in a relatively large class of radical economists who together founded the Union for Radical Political Economics, which exists to this day.

In 2000 the economics graduate students at the École Normale Supérieure staged a mutiny, signing a manifesto that objected to the "autistic" economics they were being taught. "Too often," the students wrote, "the lectures leave no place for reflection. Out of all the approaches to economic questions that exist, generally only one is presented to us. This approach is supposed to explain everything by means of a purely axiomatic process, as if this were THE economic truth. We do not accept this dogmatism."

The rebellion spread across Europe and gave rise to a fairly vibrant Post-Autistic Economics movement in places like England and Germany. But in the United States, the Post-Autistic movement never caught fire, and dissident economists remain clustered in a handful of locations: the University of Utah; UMass, Amherst; the University of Missouri, Kansas City; The New School; Notre Dame; and in a few professional associations and journals. "We're between 5 and 10 percent in the academy," Frederic Lee, who edits the Heterodox Economics Newsletter, tells me. "That might be generous. It's not very much, but it would be like saying Jews only constitute 5 percent of Europe. Yeah, sure, after you slaughter 'em. The issue isn't that you're small--the issue is that you're there at all."

The chief complaint of heterodox economists is that the social hierarchy of the profession prevents their ideas from getting the hearing they deserve. Thomas Palley, a dissident economist who received his PhD from Yale and once worked for the AFL-CIO, says that many heterodox ideas "can't be rejected on scientific grounds. They meet all the tests of the profession--they don't meet tastes of the profession. So then you have to answer where the tastes come from."

As a parable of how the boundaries of "taste" and acceptability are enforced, the tale of Notre Dame's economics department is instructive. For the past few decades Notre Dame has had one of the few economics departments where grad students interested in non-mainstream topics could study and find advisers for their dissertations. But the faculty's heterodox focus froze it out of the top-ranked journals, which generally don't accept non-neoclassical work, and resulted in a low ranking. In the early part of the decade, as Notre Dame pushed to raise its national stature, the department's poor ranking came under increased scrutiny, and in 2002 a blue-ribbon committee was commissioned to make recommendations aimed at raising its reputation.

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