Sheila Dow discusses pluralism in economics.
"Economics took a different turn in the last few decades of the 20th Century so that there’s a much greater focus on models as providing the full argument. People were lulled into a sense of security by what’s called the great moderation, which was a long period of stability, steady growth. Various people were making statements “We’ve got it cracked. No more issues to be addressed,” so the crisis was a huge, huge shock. Even though people were starting to say that risk pricing was going awry in financial markets, nevertheless, there was this confidence… I mean, because that framework is based on a notion of equilibrium and markets being able always to bring situations back to equilibrium, there seemed to be this blind confidence that the same would happen again. Okay, there’s a bit of mispricing, we have to deal with that, but equilibrium will be restored. ...
"The crisis itself was regarded as a problem of mispricing due to impediments to market forces. So all the solutions now coming from mainstream economics are couched in these terms – how to reconfigure incentives, how to reconfigure constraints on destabilising activity, how to make information more transparent so markets can make decisions better. A lot of the thinking that’s gone into bank regulation has been very constructive but the underlying thought processes are still in line with what went before and the expectation is we can sort this so that it won’t happen again. ...
"What’s required is what I would call a pluralist approach to teaching, which is recognising that there are other ways of addressing economics. This could start at a very simple level of just making it clear that there is an other. ... [W]hat I’m talking about is economics but doing economics differently. This is even prior to questions of which is better, which is worse, whether it’s possible to say one is wrong. That’s something else. I’m just talking at the level of the fact that there are different approaches to economics and it seems to me it’s crucial for educating future economists, whether practitioners or academics, that they be aware of the possibilities and be given the equipment to make their own choices about how to approach the subject....
"One example would be that New Keynesians focus on market imperfections and that provides the justification for intervention. But the implication is that without those imperfections we would be in the perfect general equilibrium world and intervention wouldn’t be required. So, it’s great that they are focusing on limitations of markets and therefore proposing policies which often would be supported by Post-Keynesians. But Post-Keynesians would approach the question very differently; the rationale for intervention, and the starting point in other words would not be an ideal general equilibrium world. This is difficult to talk about because the differences are so profound. A Post-Keynesian would start with a historical understanding of a particular context, not seek a universal solution; understand ways in which the market economy does not ensure full employment (the principle of effective demand is a core principle within the Post-Keynesian approach); look at the role of money; look at the way in which financial markets create instability and through financial instability create economic and monetary instability."Geoffrey Harcourt discusses his views on Keynesian and Post-Keynesian economics.
"A Keynesian economist means a number of things. Keynes, in particular, put aggregate demand alongside aggregate supply in producing a new theory of the determination of level of employment and activity. And he claimed that Thomas Robert Malthus, whom he called the first of the Cambridge economists, had this idea, but was defeated in his debates with Ricardo, and so the whole concept of aggregate demand vanished for 100 years, and Keynes brought it back when he was thinking about: "How do I explain these prolonged and terrible levels of unemployment?" Both in the 20s, and even more so in the 30s. And he developed his new theory around the interplay of aggregate demand and aggregate supply, and resurrected the term that Malthus, amongst others, used, effective demand, where effective demand was the point where aggregate demand and aggregate supply were equalised, in the short period. ...
"[L]ying behind proper Keynesian analysis is the assumption that all important decision makers are doing it in an environment of fundamental uncertainty, so that expectations - both short-term expectations and long-term expectations - have a central role to play. It's in the light of people's expectations, and then the total outcome of what they do, we see whether expectations are realised or not. If they're not, then in Keynes's analysis there are a variety of different stories of how the decision makers react to the signals that are given out by the initial non-realisation of expectations. ...
"But as far as positive attributes [of Post-Keynesian economics] are concerned, the way of defining particular functions, like the consumption function, the investment function, putting in how you model exports, how you model the demand for imports, how you model the government's behaviour, they are all peculiarly post-Keynesian because they are based on observations rather than on axiomatic assumptions."Charles Goodhart discusses his practice of bringing different ompare different traditions or theories in economic thought as a way to identify and discuss key issues in monetary theory and policy
"Very rarely is there any single, clear answer in economics, which is actually why I found it so enjoyable to do economics, because at school we were always taught that there was one right answer. Even in subjects such as history, there was the correct answer and then everything else was incorrect. When one came up to university to do economics, one soon discovered that actually there wasn't a single answer, and I found that was enormously relieving and it was like being freed from shackles, so that one could think for oneself rather than try and memorise what one was told was the correct answer. ...
"When I specialised at school, I specialised in history. Again, I think that economics is a splendid subject. Not only because there isn’t one correct answer to most of the questions that we get asked, but also because I think it’s a very good mixture of history, of knowing what has happened in the past and how we got where we are at the moment and much more rigorous mathematical analysis. I think that the combination of history and mathematics is a very good, very valid one, and in a sense puts us apart from some of the other social sciences. Now, having said that, I think that the subject from time to time varies too much in one direction. ... I think that in recent years it’s been very upsetting for me that history has been downgraded, and indeed that economic history is no longer required as part of the undergraduate economics syllabus, but also that the whole thrust of the subject has gone far too mathematical, with far too little reference and under-appreciation of historical evolution. ....
"If there had been greater reliance on history, I think there would have been a greater appreciation that a combination of a housing boom and credit expansion was highly dangerous. What happened, to a degree, was that in the US there were wonderful data on housing – all aspects of the housing market – which went back to the early 1950s. For 50 years you had monthly data on housing prices and all that. During these 50 years, if you held a diversified portfolio of houses across all the States in the US, there was only I think one or two quarters where housing prices overall on average fell. There were crises in New England at one stage and then the oil-producing states at another, but if you diversified you seemed to be safe.
"If you took these 50 years, and ignored history elsewhere, and you ran your econometric analysis and assumed that the future was going to be like the past of those 50 years, it actually came about that you reckoned that a decline in housing prices over the whole of the United States of more than about four or five percent was an almost unimaginable event. It was basically on that premise that people went into, for example, all the sub-prime stuff, because it didn't matter if you were lending to poor people or people who are likely to get ill, who were on the fringes of the labour market and so on, because if they couldn’t repay you, for one reason or another, if housing prices didn't go down you could foreclose and you would still be safe, because you wouldn't lose any money, whereas you could sell.
"The whole of the sub-prime exercise and the rest of it, which initially was done for the best of intentions, and it was to try and get the disadvantaged of America into the housing market. If you could rely on ever rising housing prices, it would have worked, but you couldn’t and history would have shown you that. So certainly I would want to start by reinstating history to a far greater extent into the syllabus; history not only of one country, because again any country has a sort of particularity. You want to have a history of two or three countries. ...Tony Lawson argues against the mainstream use of mathematical methods in economics, and instead advocates an ontological approach.
"The mainstream is defined in principle by an emphasis on applying a narrow set of methods, those of mathematical modelling, whatever the context. In accepting this principle its advocates are forced into working with a particular ontology, whether they recognise it or not: to presupposing worlds of isolated atoms. Thereafter they are reduced to focusing on theories, or formulations of theories, that can be transformed into the world of isolated atoms. In essence, human beings have to be turned into atoms. The obvious assumption to use in order to effect this is that we humans are all super-rational; we don't make mistakes. Situations are devised wherein, relative to the notion of rationality specified, there is a unique optimum, and the presumption is that any model agents, being rational, would ‘end up’ there.
"Heterodoxy is something else. Its participants put much more emphasis on at least seeking to be realistic. I do think underpinning most of the different schools within heterodoxy are more realistic ontological presuppositions; these, if not always explicitly made clear are usually close to the surface. Another difference is that even when heterodox economists use mathematical modelling, they’re far more pluralistic about it. They are willing to engage with people who don't. They’re willing to say it’s one method amongst others. So, pluralism of method is essential to heterodoxy. ...Julie Nelson is interviewed on the subject of feminist economics, which she once defined as "work having to do with the economic roles of men of women that has a liberatory bent ... and work on the definition and methodology of economics that shows the gender biases there."
"My assessment is that most heterodox groups are each best identified or distinguished through a tradition-specific focus on issues that fairly clearly reflect ontological presuppositions and concerns, and indeed a shared set. Institutionalists, following Veblen, are very interested in both evolutionary change, and things like institutions that bring stability within change. So, in evolutionary economics a focus on process and stability is fundamental. Post-Keynesians are very interested in uncertainty. Uncertainty basically derives from the openness of social reality. So, it’s an ontological presupposition of openness that conditions their focus. Feminists are especially interested, I believe, in relationships. Relations of care, oppression, exploitation, etc. It is an ontological orientation of relationality that is fundamental here. Marxian economists focus on the relational totality in motion that is capitalism. So, ontological categories like relationality, openness, process, totalities are key to identifying the various heterodox traditions.
"I believe the just noted ontological categories are everywhere relevant, each being fundamental features of all social phenomena. So, I see the separate heterodox traditions each as a division of labour looking at the same basic social reality from a particular perspective. Implicitly at least, they agree more or less on the nature of social reality, and are divisions of labour within the study of it."
"My research during the last couple of years looked at phrases like ‘women are more risk-averse than men’. Philosophy and linguistics tell us that they’re considered to be generic statements about categorical differences, like ‘ducks lay eggs.’ Actually, only a minority of ducks lay eggs--only the mature females! Most ducks don’t lay eggs. So when people hear ‘Women are more risk-averse’, people tend to think of that as categorical--women over here, men over there. In my meta-analysis, I looked back at the statistical data on which this claim was based and the two distributions are almost entirely overlapping. There is at least 80%, sometimes 90 or 96% overlap between the men’s and women’s distributions. There may also be tiny, perhaps statistically significant differences in the means of the distributions, but men and women are really a lot more similar than different. Yet, if you read the titles of certain books or articles, you would be getting a big misperception. ...Ha-Joon Chang discusses the development economics, contrasting the neoclassical view with a productivist view.
"When I teach my students I always ask them to start with a definition of ‘feminist’ and ask them whether a man can be a feminist, etc. So, to me, feminism is not treating women as second-class citizens, as there to help and entertain men. And then more my methodological work has been about the biases that have been built into economics by choosing only the masculine-associated parts of life and techniques and banishing the feminine-associated ones. In my own life, I’m quite comfortable in both economics and feminist camps. I find when I give talks I get interesting labels. When I talk to a group of relatively mainstream economists I’m a wild-eyed radical leftist feminist nutcase. But because I’m an economist, when I talk to a lot of gender and women’s studies groups, and I don’t talk about the evils of global corporate capitalism and I don’t have a certain line that I take on the economy, I’m considered a right-wing apologist for capitalism. And I’m quite comfortable balancing those two. ...
"I think of the feminist analysis as a particular way in ... The gender aspect, along with explanations coming from economic power and class, I think, together explain a lot of the power of the mainstream in economics. That is, the mainstream is supported in part because it kind of throws a smokescreen over inequalities which we would rather not look at. For example, in the US, these ridiculous CEO salaries, some people spout a free market sort of thing to justify that. But then also I think there is a psychological dimension to the power of the mainstream. It seems to be more macho, more rigorous, somehow more scientific, and builds this big barrier of math: ‘Well, you don’t understand the policy because you can’t read this journal article’. I think this is rather silly and that the more we reveal that the emperor has no clothes, maybe, the easier it will be to knock down."
"People have debated about the definition [of development economics] for ages. Now, broadly, there are, I think, two-and-a-half definitions, if I may say so. The first definition is basically conflating economic development with economic growth. So as output per capita grows, there is economic development. This view is adopted by most neoclassical economists, who form the vast majority of the economic profession today. But then there is another definition, which has roots from the classical school and the Marxist school and also what I call the developmentalist tradition, people like Alexander Hamilton, Friedrich List, and the development economists of the 1950s and ‘60s, people like Simon Kuznets, Albert Hirschman and so on. In these alternative traditions, economic development is defined not purely in terms of quantitative growth but qualitative change.
"This definition is based on the understanding of the economy mainly as something based in the sphere of production. So, for these people, economic development happens only when there is fundamental structural transformation in the productive structure of the economy and also the underlying capabilities that make that productive transformation possible. It’s a much more nuanced and qualitative definition of economic development. For example, Equatorial Guinea, which is actually, at the moment, the richest country in Africa, because of oil, grew from an economy with $350 per capita income in the early ‘90s to a country with something like $22,000 per capita income. The standard neoclassical definition will classify this as economic development but there are people like Albert Hirschman or Friedrich List who would say, ‘No. That’s not development. That’s just quantitative growth.’
"Then I said two-and-a-half definitions because there has been more recently a variant of the neoclassical definition, which is apparently more progressive, but in the end even less forward-looking than the standard neoclassical definition. This is a definition that more or less equates economic development with poverty reduction. ... So it has a progressive element, but, on the other hand, this is a vision of the economy as something that is almost static. You don't need structural transformation. You don't need growth in productive capabilities. All you need is to generate more income and, more importantly, redistribute it more fairly so that we eliminate abject poverty, which is usually defined as $2 a day. So that is a very narrow defensive kind of definition. ...
"It is not just academic theoretical differences because they give very different policy implications. So if you take what I call the productivist view, the view that economic development is in the transformation of the productive sphere, yes, then you will necessarily recommend economic policies that will encourage the accumulation of new technologies, acquisition of new skills by workers, transformation of the social arrangements to back those. So the most famous policy recommendation in this tradition is the so-called infant industry argument. The argument that governments of economically-backward nations need to provide trade protectionism, subsidies and other supports to young industries so that they can have the space to develop their productive capabilities and eventually catch up with the more advanced producers from abroad.
Now, for this to happen, you would need to provide tariff protection. You might even need to ban the imports of certain foreign products. You might put restrictions on foreign direct investment. You might set up state-owned enterprises in the large capital-intensive sectors with high risk because, typically, in developing countries, there are no large capitalists that can take such risks in the beginning. So you recommend these kinds of policies.
"If you took the neoclassical view, then, basically, economic growth happens ultimately as a consequence of people trading. So as people want to buy better things then they are ready to offer higher prices and entrepreneurs will spot the opportunity, produce new things. In that world, you also assume that technologies are freely available, and therefore everyone has equal productive capability. ...At most, you would provide some public goods like infrastructure and basic education, but, beyond that, you don't really have to do anything other than keeping competition alive by opening your borders, by deregulating businesses. ... If you keep the markets open and free, economic development naturally follows.
"From these two different visions of how the economy works and develops in the long run especially, you’d come up with completely different sets of economic policies. ...
I studied economics in the early 1980s in South Korea. Most of our professors were neoclassical economists, although, compared to today’s neoclassical economists, they were much milder. But the reason why I started looking at other approaches was because I just couldn't reconcile what I was taught in the classroom with what was happening around me. At the time, South Korea was going through its miracle growth period. The economy was growing at 8, 10, 12% every year, massive social transformation, positive and negative, and huge conflicts. Workers going on strike, students going on demonstration, riot police coming in to bash people. Huge conflict, and then in the classroom, the professors were saying, ‘All changes are marginal. Everything is in equilibrium.’ I couldn't take it seriously."
