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This
article is republished, with permission, from the Summer 2006 issue of the Yale Economic Review The
Autistic Economist Stanley Alcorn and Ben Solarz (Yale Univeristy,
USA) How many economists does it take to change a lightbulb?
The caricature of the economist – bumbling, impractical, disconnected from the object of his work – underpins a set of surprisingly sophisticated criticisms leveled against the discipline, particularly its realism, method, and ideology. None of these critiques is particularly new, nor is any entirely unique to economics. But over the last few years, they have been asserted against the dominant economic pedagogy in general and the neoclassical framework in particular with new force – a force strong enough to be labeled a movement. An amalgamation of unorthodox academics, discontented students, and skeptical non-economists, this movement may not always be unified in its diagnosis, but is certainly unified in their discontent. If only because one of the many criticisms is of the discipline’s aloofness, the jokes as well as the criticisms should be heard. “We wish to escape from imaginary worlds!” proclaimed a group of French economics students in 2000, petitioning for broad changes in their economics curricula. “We no longer want to have this autistic science imposed upon us.” The use of the French term “autisme” harkens back to an older meaning – “abnormal subjectivity, acceptance of fantasy rather than reality” – but it also refers to the continuum of neurological disorders. Steve Keen, associate professor of economics at the University of West Sydney and the author of Debunking Economics: The Naked Emperor of the Social Sciences, sees the aptness of the term as the strongest point of the critique. “It asserts that neoclassical economics has the characteristics of an autistic child,” he said, criticizing the manner in which the discipline “hangs on to its preconceptions, when serious analysis shows that they are untenable.” Indeed, these characteristics are precisely those of the caricatured economist: marked deficits in communication and social interaction, preoccupation with , nd abnormal behavior, such as repetitive acts and excessive attachment to certain objects. Unlike the butt of a light bulb joke, however, this epithet comes with a freight of petitions, articles, and books—the work of a growing coalition that, following the French students, calls itself “post-autistic economists.” The punch line is more than just a witty joke: it is a critique of substance and appeal posed both at the foundations of neoclassical thought and at its place within the discipline. It Takes Two: the Realism Critique Go back to the light bulb jokes and look at the economist who “assumes the existence of a ladder”; the analogy here is with the many simplifying assumptions made in the course of developing an economic model. But as Keen is quick to point out, “There’s a very big difference between a simplifying assumption and a counterfactual one.” By way of example, he notes the Capital Asset Pricing Model, developed by Bill Sharpe in 1964, and challenges the implicit assumption that investors agree on the future prospects of shares with correct expectations. This is equivalent, he argues, to assuming consumers could predict the future. For Keen and other leaders of the movement, however, this is not an isolated example of confusing simplifying assumptions for counterfactual ones: “Neoclassical economics makes many of the latter and then defends them as if they’re the former.” The term neoclassical as it applies to economics was coined by the late nineteenth century economist and sociologist, Thorstein Veblen, who referred originally only to a common utilitarian approach and the common assumption of a hedonistic psychology. The term’s modern connotation, however, alludes essentially to the competitive paradigm in which large numbers of rational, value-maximizing firms interact with rational, value-maximizing consumers in an economy with a complete set of perfectly competitive markets. Its origins as a school of thought can be traced back even further. In 1854, the Prussian economist Hermann Heinrich Gossen published a treatise on The Development of the Laws of Human and the Rules of Human Action which he promptly declared commensurate to the work of Copernicus in its genius. The book, Die Entwicklung, for short in Prussian, was poorly received due to its dense, mathematical style. Years later, however, when William Stanley Jevons of England, Carl Menger of Austria, and Leon Walras of Switzerland independently sparked what is today known as the Neoclassical Revolution, the essence of their work could be traced back to that of Gossen, who had first posited that a connection exists between exchange value and marginal value. In 1870, the three European economists advanced the school of thought of marginalism, advocating that the most pertinent economic phenomena are producers’ marginal cost and consumers’ marginal utility – a doctrine which has survived largely unchallenged. The resulting paradigm, having since grown in scope and complexity, was institutionalized in 1948 by Samuelson’s canonical textbook Foundations of Economics - a text still used in many modern economics courses. Quoting its 3rd edition, “Neoclassical economics... is accepted in its broad outlines by all but about 5 percent of extreme left wing and right wing writers.” Yet, a variety of recent work suggests that application of this broad outline may often have the character of Sharpe’s assumptions; the neoclassical paradigm may not be a simplification of the real world, but rather a contradiction of it. A powerful example of this is the critique written by economist Joseph Stiglitz, now a professor at Columbia University, of the assertion in the First Fundamental Theorem of Welfare Economics that every competitive equilibrium is efficient. Based on the work in information economics for which he won the Nobel Prize, Stiglitz finds that this most basic claim is not robust to the removal of the assumption that information is perfect. Removing even a few of the counterfactual assumptions of the competitive equilibrium means that markets will always be incomplete and non-competitive in a way that renders the First Theorem essentially false. As he concluded in Whither Socialism? (compiled from the Wicksell Lectures), “Quite contrary to that theorem, competitive economies are almost never efficient.” Consider, for example, the market for insurance: the notion that this market could be “complete” in any meaningful sense is mind-boggling, since it would require perfect information about an infinite set of unknown, possible worlds. The state space cannot be enumerated, much less insured against. The incompleteness of such markets is not an exception, but a basic fact, and reversing the counterfactual claim of market completeness renders the efficiency properties laid out in the First Fundamental Theorem counterfactual as well. A separate, but related criticism of the neoclassical paradigm attacks the idea of the individual as a “rational maximizer.” Although models have attempted to integrate the insights of psychology and behavioral finance, the basic insight is one of non-rationality. The neoclassical theory, however, hinges on a contradiction: immaculate rationality, such as Sharpe’s assumption that individuals have a stochastic form of perfect foresight. This leap of faith – far beyond the classical idea of rationality as laid out by Smith and Ricardo, which insisted only on preferring more to less – collides head on with reality. The insurance company’s quandary carries over to every individual decision-maker; the infinite market has its corollary in a pathological structural ignorance. The individual is no more capable of making decisions about infinite sets of unknowns than the insurance companies. Yet, supposedly, economic man makes such decisions in the course of daily life. Homo economicus, the fictional actor envisioned by the neoclassicals, performing calculations instead of interacting with reality, could be diagnosed as “autistic” more easily than the economists who created him. More advanced and evolved than the average homo sapien consumer, this idealized construct is capable of analyzing an infinite string of data in an infinitesimally small period of time – all with seamless prescience and precision. Take as an example a trip to the supermarket, where actors are charged with calculating which basket of goods will maximize utility and minimize cost. With the number of combinations increasing exponentially with the number of options, the actor faces 100 combinations given 2 options when told to choose 0-10 units of each. But given just 30 goods, told once again to choose 0-10 units of each, the consumer faces 1030 combinations. Even if the consumer could rule out 99.9% of the combinations and calculate each remaining combination in one-billionth of a second, he would be faced with a task lasting 32 billion years, or a period longer than the age of the universe. Homo economicus does not even bat an eye. That the actual psychology of decision-making differs significantly from this picture should be no surprise, and the insights of decision theory confirm this. The economic interaction of firms and consumers proceeds not like the tennis match in which each player calculates the Newtonian physics of ball trajectory and energy transfer while executing perfectly, but instead like the casual contest dominated by the imprecision of instinct. Economists have attempted to integrate these insights without sacrificing the basic paradigm. As Judith Chevalier of Yale University says, a lot of economics now “focuses on questions like ‘how many irrational actors are enough to actually have an impact?’” But if irrational actors are not a deviation from a realistic assumption, but the state of reality itself, the neoclassical framework is clearly turned on its head. It Takes Eight: the Method Critique The central post-autistic criticism of economics’ lack of realism is inherently linked to that of method in general. To turn again to the light bulb jokes, the first and second punch lines are closely related; the attempt at holding all things constant is as contrary to reality as the assumption of the existence of a ladder. Moreover, the second requires the first; it is the unreal paradigm that requires the methodological acrobatics in order to get reality and theory to accord. It is this connection between method and realism that makes economics so remote for the non-economist; the methods are often opaque because they are seeking to bend reality rather than revealing insights about it. Edward Fullbrook, research fellow at the University of the West of England and the coordinator of the online Post-Autistic Economics Network (www.paecon.net), captures this criticism as “a keystone of intelligibility.” He states, “Economics must engage with ‘real economic problems’ and make its analysis intelligible to an educated general public if real democracy is to function intelligently.” Holding things constant, instead of engaging with the inconstancy of real economic problems is one of the central criticisms of the economic method. “Holding things constant” could be a metaphor for the neoclassical focus on static equilibrium rather than dynamics – a focus which post-autistics often identify as the central problem of the ruling economic method. “My major objection to neoclassical theory is its obsession with equilibrium,” says Keen, “as if economic processes occur only in equilibrium. That’s nonsense: economic processes, like those of all other dynamic and evolutionary systems, occur in time and far from equilibrium.” This is a criticism which cuts to the core of the neoclassical paradigm. In contesting not the properties of equilibrium but its very existence, the post-autistic approach points toward an economics that would differ radically from that going on in today’s college classrooms, as well as in most economists’ offices. It points toward an economics built up from reality, rather than built down from theory. The problem with trying to understand the economy with a focus on the single theoretical approach of equilibrium is that it cannot provide insights into the problems which defy it. In this sense, the overuse of statics is a problem of applying the wrong scientific metric. It is not that there are no situations in which equilibrium analysis is valid, but that it is a limited tool rather than a complete economic framework. Implicit in this criticism is a caution against the overemphasis of any single approach. If there is a central post-autistic methodological critique, it is a demand for pluralism. This is not a unique criticism; in fact it can be brought to bear in all of the social sciences as well as the physical sciences. It is, however, a recognition of the fact that economics has been uniquely limited as of late in its menu of approaches. As Nobel Prize-winning economist Ronald Coase pointed out in a speech at the University of Missouri five years ago, that one could (and many still do) teach economics today using Samuelson’s 1948 textbook is an indictment of the discipline’s stagnancy. While physics and chemistry have been fertile ground for innovation, economics continues to rely on the same basic tools. Fullbrook and the post-autistics take issue not only with the neoclassical approach of Samuelson, but with the stagnant reliance on any single economic approach. “The nature of all conceptual analysis is to block from view aspects of the object of inquiry so as to concentrate on selected ones,” said Fullbrook. “Economics is no magical exception. All economics analysis, whatever its ‘school,’ proceeds on the basis of concepts that admit only a partial view of the economy, thereby predetermining the set of possible conclusions. Therefore, to reverse the ‘triumph of ideology over science’ and its undermining of democracy, economics must analyze economic reality, as modern physics does with physical reality, from a pluralism of conceptual perspectives.” The acceptance that there are multiple conceptual perspectives would allow each model to be applied where it is most valid, rather than applied by force even where they are not. This pluralism is thus also a shift from an approach driven by methods, looking for markets everywhere because it believes it can model their equilibria, to an approach driven by problems, looking for solutions to economic realities. “I don’t only think [economics] will change. I think it ought to change,” Coase said in his speech. “We do need empirical work, but we need something additional: empirical work which actually changes the way we look at the problem.” Once again, this is not a criticism unique to economics, but the fact that it is being raised with such vigor in this discipline by its own Nobel Prize-winning practitioners, shows economics is uniquely in need of such a critique. The most common defense of economists against these critiques is that they are aware of them and have already taken them into account. Yet, if the post-autistics are right, the concessions that have been made are superficial, and orthodox economics remains fundamentally autistic. It Takes None: the Ideology Critique The third and final light bulb joke punch line – the economists waiting for the invisible hand to screw it in – touches on the possible reason for economics’ resistance to change. Blind faith in market forces is a problem both of realism – assuming perfect, complete markets exist which in fact do not – and of method – searching for a specific mathematical construct called a “market” rather than searching for a model adequate to a specific economic reality – but it is also something more. It is an ideology, associated in the popular consciousness with the “Chicago school” economics of George Stigler and Milton Friedman, and more accurately, with the policies of neo-liberalism – the laissez faire endorsement of the “free market.” It is the fear of an encroaching ideology that has motivated most non-economist critiques of economics – a fear that economics is not a social science, but actually a tool of the free market enthusiasts for their own self-congratulation. In the minds of these critics, the First Fundamental Welfare Theorem of Economics is not simply inapplicable, but is actually capitalist propaganda. Put this way, the ideological criticism looks paranoid, at best. It does, however, touch on something important. Economics is tied deeply to politics in a way that other social sciences are not; we have a Council of Economic Advisors, but no corresponding Council of Sociological or Anthropological Advisors. Indeed, Joseph Stiglitz is only one example of an academic economist who has made this transition to politics and back. Yet Stiglitz and others often complain that academics are largely ignored, that the advice of economists is only accepted when it confirms ideological positions. This could be said equally of popular economic understanding: people in general do not typically have a great understanding of the workings of a macroeconomy, but they may well have a stock set of “economic” arguments to make about their political positions. It may be thought, then, that the reason for economics’ stagnancy in the industrialized world is related to its close ties with a politics in a state of relative peace. The functioning of the free market system may not have all the perfect equilibrium properties that have been posited, but as long as it keeps working there is little need for an alteration of this basic understanding. Furthermore, if economists are only publicized when their research follows political ideology, this becomes the public face of economics; effectively, ideology incentivizes non-innovation. Who needs new models to understand the economy? Let the hand remain invisible. The Post-Autistic World Where, then, will the change called for by voices as diverse as Joseph Stiglitz, Ronald Coase, Steve Keen, and Edward Fullbrook occur? The suggestion by all has been to look to college campuses. As Keen says, post-autistic economics “is more of an appeal to the students of economics, rather than an attempt to convince existing economists to ‘change camps.’” Those targeting the next generation believe practicing economists are too set in their ways and that all of the problems of economics are reinforced by the way it is taught. “I blame our textbooks and the sausage-factory approach to education that comes out of the false scientism in economics,” said Keen. On this subject, the more mainstream Stiglitz might agree: “[Economics as taught] in America’s graduate schools... bears testimony to a triumph of ideology over science.” Nor is this a belief held only by professors; in fact, the post-autistic movement began not because of the dissatisfaction of professors, but that of students in the École Normale Supérieure of Paris. Not only their goals but their tactics have spread worldwide. Sympathetic movements have occurred with mixed success throughout Western Europe and, in 2003, spread to the United States via Harvard University. Changing the way economics is taught, then, would seem to be the central action to change the way economics is practiced. The question is what, exactly, must be changed. Fortunately, the criticisms of economics as a pedagogy, and not as a science, are both easier to grasp and easier to agree with. Economics courses at the undergraduate level typically place little-to-no emphasis on learning the tools of economic science, instead focusing on teaching algebraic simplifications of actual economic work, and then assigning problem sets in which students plug in values for the different variables. It is good practice, perhaps, for a few specific mathematical techniques, namely constrained maximization, but it is hardly a training in how to think creatively about dealing with the economy. The bedrock of economics as it is taught is not the subject matter – the economy – or even the approach – the neoclassical school of thought – but ideology, as Stiglitz said. The repetition of simplified and vulgarized economic conclusions is the main task of introductory, intermediate, and even some advanced economics courses, and little else sticks with the students. Despite what a typical college curriculum might suggest, though, a post-autistic curriculum is not an inconceivable vision. In fact, the shift from ideology to problem-solving, from method-driven to problem-driven, from statics to dynamics, and from monism to pluralism is easier to imagine in course content than it is in individual research. The French petition and subsequent petitions at Cambridge and Harvard share many of the same, specific recommendations. All three call for opening up a debate between competing theories. The French students explicitly call for understanding current economics in its context within a broader historical continuum. More specifically, Keen sees the need for various technical changes in mathematical and theoretical constructs. “Technical training would start with differential equations rather than simultaneous ones, and models would necessarily include time, rather than ignoring it via equilibrium constructs. Its history of economic thought would eulogize Schumpeter rather than Walras, and praise parts of Keynes rather than Friedman. Economic models would bear resemblance to those of meteorologists, though with the added difficulties of the absence of conservation laws, evolutionary change, and decisions being influenced by uncertain perceptions of the future.” The meteorology analogy is apt. Indeed, the shift could be thought of as a movement from treating the economy as subject to unchanging, iron laws analogous to those of Newtonian physics. Instead, post-autistic economics would find its scientific analogy in the deeper but more tentative understandings of complex systems offered by ecology and meteorology. Perhaps this would also give economists more humility about the power of their work. As Keen recalls, “A student of mine once commented that the mechanical analogy encourages economists to tinker with the economy as if it were a car; but if the analogy were that of a rainforest, would economists blithely recommend that the forest would work better if we removed some species from it?” The hope is that in changing curricula, there may be a corresponding change in the individual students themselves; to reeducate the Economist and cure his so-called autism. The economist as humble ecologist
is a great stretch from the aloof technician stumbling to change a light
bulb, but it is not inconceivable. The goal is nothing less than a total
transformation of the discipline. But the first step is nothing more than a
simple change in perspective. |