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Chapter 2. Mainstream and

1. The critique of mainstream economics

popular or student critiques, heterodox economists often hold economics doctorates and are active as researchers within (albeit on the margins of) the discipline. Their points of view cannot be dismissed as plain ignorance. In any case, the existence of a vocal heterodox economics points to the problem of the stability and boundaries of mainstream economics, both through its mere existence, and through the arguments and research spurred by this group.

Understanding the role of heterodox economics is easier when seen in the context of well known popular and student critiques.

Economics critique in the public debate after the 2008 crisis

An international wave of critique was directed against academic economics in the wake of the great 2008 financial crisis. Up until then, the economics profession had experienced great confidence; perhaps most of its members still do. The apex of trust in the economics profession is probably to be found just before the crisis hit. In 2003, Chicago economist Robert Lucas (2003:1), one of the leading figures in modern macroeconomics, claimed in his presidential address to the American Economics Association that macroeconomics “has succeeded: Its central problem of depression prevention has been solved, for all practical purposes, and has in fact been solved for many decades”. In 2004 Princeton professor Ben Bernanke (2004), later head of the Federal Reserve, said in a similar vein that we had entered the age of “the Great Moderation”, where economic ups and downs have been more or less smoothed out with the aid of better economic institutions and improved macroeconomic policies. Even when the now-infamous US subprime markets started to look shaky in 2007, leading economists were still reassuring:

“If we have learned anything from the past 20 years it is that there is a lot of stability built into the real economy” (Lucas 2007). In short, the message was that the era of economic crises is over. If we just continue to leave the markets undisturbed by regulation, let independent central banks focus on targeting inflation, and don’t let politicians interfere with populist economic stimuli, we do not need to worry about crises anymore. And we certainly don’t need to worry about big downturns like the Wall Street crash of 1929 and the Great Depression that followed.

But in 2008, the crash happened nevertheless. The crisis led to a brief period of public questioning of the economics profession. “How did economists get it so wrong?” asked Paul Krugman (2009) from the heights of his influential New York Times column. His answer was: “the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth”. Economists before the Great Depression had tended to view capitalism

as an intrinsically well-functioning and near perfect system; this seemed to have been the case once again. What is more, Krugman and other critics pointed to a set of general perceived problems with mainstream economics. First, there seemed to be a preoccupation with impressive-looking mathematics; second, this formed the backbone of abstract models far removed from the real world. Most critiques have revolved around these two factors in some way, sometimes connecting it to the seeming lack predictive or explanatory capacity of the discipline.

There are numerous well-known examples of this type of questioning of what academic economists were actually doing. For instance, the story has been often retold of how Queen Elizabeth addressed the economics profession at an official visit to the London School of Economics, asking how it could be that virtually no one in the profession foresaw the threat of a major financial crisis (Stewart 2009).

Two years into the crisis, Robert Solow (2010), the Nobel laureate and well-known economist, gave a prepared statement before the United States Congress, in which he claimed that the modelling assumptions of modern macroeconomics do not “pass a smell test: Does it really make sense?”. This kind of popular critique was widely heard in the public debate. For example, Paul Krugman has a huge following outside the economics profession, and many journalists were not slow to pick up his views. Unconstrained by professional allegiances, we heard opinions like that of Larry Elliot (2009) at The Guardian, who claimed that “As a profession, economics not only has nothing to say about what caused the world to come to the brink of financial collapse last autumn, but also a supreme lack of interest in it”.

This type of critique was also voiced in the Swedish context. To cite just a few examples, macroeconomist Lars Jonung wrote in the newspaper Dagens Nyheter, that “Today’s global financial crisis has triggered a crisis also for the economics discipline”, commenting on the initiative by the investor George Soros to donate US$ 50 million to the creation of the Institute for New Economics Thinking (INET) to promote reorientation in economics (INET 2015; Jonung 2010). The supposed crisis within economics, and its failure to warn of the 2008 crisis, was the theme of a series of radio programmes aired by the public service science magazine Vetandets värld (Zachrisson 2012). That radio programme was just one of many occasions when the well-known aphorism of Swedish novelist August Strindberg, from the 1880s, was retold: economics is “a science invented by the upper class to get hold of the fruits of the labour of the underclass”. Likewise, human ecology professor Alf Hornborg likened the role of modern economics to that of the church in mediaeval society. The profession also had to defend itself against what Lars Calmfors, another well-known macroeconomist, called

“economist haters” (Zachrisson 2012). No doubt, economics and economists

have increasingly been the targets of both interest and popular critique in the public debate since 2008. But they have also faced a second form of critique, with protests coming from closer to the profession.

Economics students become activists

Economics students, some of whom would form the next generation of the economics profession, soon joined its critics. In November 2011, a spark flew from the street protests of the Occupy Wall Street movement to Harvard University, where a group of students staged a walkout from top economist Greg Mankiew’s introductory economics class (Beggs 2011; George 2011). In their open letter to Mankiew, the author of one of the standard textbooks internationally in economics, the students argued that the course did not give room to any critical discussion of the simplifying models taught, nor mention alternative approaches. According to the letter, “If Harvard fails to equip its students with a broad and critical understanding of economics, their actions are likely to harm the global financial system. The last five years of economic turmoil have been proof enough of this” (Concerned students of Economics 10 2011).

The following year, on the other side of the Atlantic, the Bank of England arranged a conference on the topic of undergraduate economics curricula, with the telling title “Are Economics Graduates Fit for Purpose?” Inspired by the event, economics students in Manchester founded the Post-Crash Economics Society later the same year, with their main goal to “broaden the range of perspectives and the teaching methods used by the Manchester Economics Department” (The Post-Crash Economics Society 2013).

This student activism spread to universities around the world, and led to the formation in 2014 of an international network claiming a membership of over sixty student organisations from thirty countries under the name The International Student Initiative for Pluralism in Economics (ISIPE) (ISIPE 2014). The unique nature of this network was captured in a Financial Times column commenting on the student protests and the creation of ISIPE: “In no other subject do students express such organised dissatisfaction with their teaching” (Kay 2014). Among the local student organisations giving their support to the initiative were two Swedish groups, Lunds kritiska ekonomer (Lund’s Critical Economists) founded in 2013 at Lund University, and Handels Students for Sustainability founded in 2012 at Gothenburg University (Karlsson 2012; Skoog 2013). In their widely-published open call for pluralism, ISIPE set the stage by arguing that “It is not only the world economy that is in crisis. The teaching of economics is in crisis too, and this crisis has consequences far beyond the

university walls. What is taught shapes the minds of the next generation of policymakers, and therefore shapes the societies we live in” (ISIPE 2014).

According to the student groups behind the call, economics has experienced a

“dramatic narrowing of the curriculum” over the last decades, leading to a discipline lacking in intellectual diversity and becoming increasingly irrelevant for tackling real world problems (ISIPE 2014). The call identifies the need for three forms of intellectual pluralism: theoretical, methodological and interdisciplinary.

Here, theoretical pluralism means acknowledging that there are different schools of thought implying different conceptual tools and modes of analysis. It means resisting the textbook presentation of the theory in singular in favour of a presentation of various alternative theories. Methodological pluralism means acknowledging not only the advanced mathematical training required by much modern economic analysis, but also other methodological approaches. And interdisciplinary pluralism means striving for fruitful interdisciplinary interaction, lending useful insights from other disciplines were it is appropriate.

The distinction between the three forms of critique is used here in the hope of clarifying the overarching argument, that there are different voices in the debate, some of which belong to lay commenters and others to experts. With that said, it is also the case that the popular and student critiques draw heavily on the work of heterodox economists. More or less dissenting established economists are used to make a point about the shortcomings of the mainstream. Examples might include sharing Paul Krugman’s New York Times blog posts via social media, journalists interviewing economists with a different viewpoint, as the Swedish current affairs magazine Fokus did in the 2011 piece “The fallen prophets”, in which one of the most outspoken domestic critics of mainstream economics, the economic historian and economist Lars Pålsson Syll, was interviewed (Lönegård 2011).

Similarly, an important part of what student organisations do is to familiarise their members with those other economists that are not taught as part of the curriculum.

They may arrange their own evening lectures with invited economists talking about alternative forms of economics, as when the Harvard students who walked out on Greg Mankiw invited heterodox Harvard economist Stephen Marglin to give a lecture on “Heterodox Economics: Alternatives to Mankiw’s Ideology”

(Marglin 2011). Study groups focusing on neglected classics are also important activities, as when Lunds kritiska ekonomer arranged a reading group on Keynes’

General Theory in 2013.

Furthermore, some economists (like Krugman or Jonung mentioned above), may not view themselves as heterodox economists, but rather as critical voices on the inside, and are sometimes publicly supportive of the student initiatives. For example, in 2013 a number of prominent academics wrote a letter to The

Guardian in support of the newly-founded Manchester Post-Crash Economics Society, claiming, in a tone similar to the students themselves, that the “dogmatic intellectual commitment” of contemporary mainstream economics “contrasts sharply with the openness of teaching in other social sciences, which routinely present competing paradigms” (Inman 2013).

While these student organisations are many and well-organised, and part of a growing international movement, it is easy for senior economists to dismiss their critique as uninformed. Perhaps the protesting students have only studied a few semesters in their economics departments, and perhaps there is vastly more to know about modern economic analysis. Maybe you only get to learn all the exceptions to the simplifying assumptions in graduate school. These are common ways of neutralising critique, and were voiced by many of the professional economists I interviewed in this study. If both popular critique and student critique can be dismissed thus, however, the same is not true for those critics who are actually trained economists themselves, and part of the profession as researchers, although often in marginal departments or areas. This third and most important form of critique is the internal scientific critique from heterodox economists.

The rise of heterodox economics

Zooming out from the post-2008 crisis, it becomes evident that none of the three forms of critique is new. There has certainly been a renewed interest in alternative approaches in economics as an effect of the crisis and the strongly felt need to do something about it, and the international scope and organisation of the critics seems to have reached new levels. But in essence, the type of critique that is voiced today has a longer history.

The immediate roots of the contemporary student movement are to be found in Paris. In 2000, a group of students at the École normale supérieure published a petition protesting the way economics was taught.8 They claimed that economics had become autistic: living in its own imaginary model worlds, it had faded out of touch with the real world and its problems. A public debate followed, starting in Le Monde, and the French minister of education became involved. The debate spread to the United Kingdom, where a group of doctoral students set up a network of economists, harnessing the relatively new powers of the internet

8 One could also point to an important “Call for a Pluralistic and Rigorous Economics” in American Economic Review, signed by a range of well-known economists including several Nobel Laurates in 1992 as an important starting signal for these types of discussions (Hodgson, Mäki, and McCloskey 1992; Lancastle 2014).

(Backhouse 2010:5–6). This was the start of the post-autistic movement in economics, and the network soon got many followers among both students and senior economists. An electronic newsletter was set up, The Post-Autistic Economics Review, which later changed its name to the more appropriate The Real World Economics Review. In 2011, the heterodox community that emerged around the network formed the World Economics Association (WEA), with the aim to fill “a gap in the international community of economists—the absence of a truly international, inclusive, pluralist, professional association.” As of 2015, WEA claimed over 13,000 members worldwide, ranking as the world’s second-largest professional economics association (World Economics Association (WEA) 2015).

Yet, while the post-autistic movement and the new mode of networking enabled by the internet grew in the first decade of the new millennium, heterodoxy in economics dates still further back. Frederic S. Lee, historian of heterodox economics, claims that the term “heterodoxy” was used in the old American institutionalist school of thought, deriving from Torstein Veblen among others. In that context, the term “heterodox” was used “as an identifier of an economic theory and/or economist that stands in some form of dissent relative to mainstream economics” from roughly the 1930s to the 1980s (Lee 2008). In the late 1980s and 1990s, the term became used to denote not only the old institutionalist school of thought, but to include Marxian and post-Keynesian theories under the same umbrella of dissent. According to common heterodox narratives, mainstream economics has been strictly dominated by a single paradigm at least since the end of the Second World War, if not longer. And there have always been other schools of thought. The most obvious example is that of Marxian economics, which predates the birth of modern marginalist economist in the 1870s. Other examples include institutionalism, mentioned above, which was alive and well in the United States amidst the relative pluralism of the interwar years (Morgan and Rutherford 1998), and of course John Maynard Keynes and his so-called post-Keynesian followers and colleagues like Joan Robinson.9

If one turns the perspective around and look at the critics of the mainstream from the point of view of the latter, it has been claimed that “Economics is the only established discipline that is regularly charged not just with including ideologically motivated research programmes and hypotheses, but with actually being (at least in its institutionalised mainstream form) an ideology”, a charge

9 Note the important distinction between, on the one hand, the formalised version of Keynes’s theory and its integration with neoclassical economics—“neo-Keynesianism”, one of the major schools of thought in modern macroeconomics—and on the other hand the heterodox so-called post-Keynesians, followers of Joan Robinson and others who criticize the formalization of Keynes’s work, and tend to emphasize its qualitative aspects like risk and irrationality to a greater extent.

levelled by what has been called a tradition of “anti-economics” as old as economics (or rather, political economy) itself (Ross 2012:241). This sense among economists of being the constant target of outsiders’ critique, and the observation that “economics is actively hated by a substantial number of people” (Ross 2012:241) sets it apart from most academic disciplines.10

If dissenting schools of thought within economics have a long history, it was only in the 1990s that heterodox economists started to think of their heterogeneous work as part of a wider network of approaches unified under the label of heterodox economics. According to Frederic Lee:

By the 1990s, it became obvious that there were a number of theoretical approaches that stood, to some degree, in opposition to mainstream theory. These heterodox approaches included Austrian economics, feminist economics, Institutional-evolutionary economics, Marxian-radical economics, Post Keynesian and Sraffian economics, and social economics. (Lee 2008:2)

Lee gives a fairly standard list of the various approaches counted as heterodox, though one could also add, for example, ecological economics. In his account, it is important to note that heterodox economics not only denotes marginal schools of thought, but also a community of marginal economists. These are organised in a number of professional societies, many of them founded in the 1960s and 1970s, and they typically publish in specialised heterodox economics scholarly journals.

For example, Lee notes that among the eight leading heterodox journals there are very different fields of focus, with the Cambridge Journal of Economics as the most influential, and other more specialised ones like Feminist Economics or Journal of Post Keynesian Economics. However, all cite each other to such a great extent that they belong to the same strong citation network. In 1998, the Association for Heterodox Economics (AHE) was established as an umbrella organisation and, along with its electronic newsletter, became an important part of the institutional infrastructure of the international community of heterodox economists.

Lee (2009) has been the primary promoter of the idea that heterodox economics has increasingly taken the shape of a broad community in opposition to mainstream economics in the last two decades, and argues that this process is coupled with increasing theoretical interaction and integration, and the creation of new institutions like the Association of Heterodox Economics. I call this notion of increasing heterodox integration and identification the Lee thesis. This

10 Examples of disciplines experiencing similarly strong reactions by outsiders would include gender studies, although the reactions and social basis of critique is probably diametrically different.

unification does not rest on a shared perspective so much as a shared opposition to what is often called the neoclassical mainstream, and the promotion of scientific pluralism in economics. Heterodox economists often hold pluralism as a central goal, and argue in terms of opening research in economics to more than the one dominant paradigm.11 But when it comes to shared ideas of more substance, most observers seem to agree that heterodox economics is really only, or at least primarily, unified by its opposition the neoclassical mainstream. But exactly what neoclassical means (or if it is even a useful term), or what unifies heterodoxy beyond that, is the object of heated debates today. Since heterodoxy seems to be a fundamentally relational concept, understood in relation to a neoclassical mainstream, understanding the intellectual divide between mainstream and heterodox economics requires a more refined understanding of that “neoclassical”


2. Making sense of mainstream and heterodox