Wednesday, 12 March 2014

Pluralism since the '1992 Plea' in the AER

Author: Neil Lancastle

In May 1992, a ‘Plea for a Pluralistic and Rigorous Economics’ was published in the American Economic Review (Vol 82 No. 2). It was signed by Harcourt, Galbraith, Goodwin, Kindelberger, Minsky, Pasinetti and other eminent economists. The Plea was funded by FEED who launched a second ‘Plea’ in 2009 and support the 2012 ‘Manifesto for Economic Sense’.  Geoffrey Hodgson, Research Professor in Business Studies at the University of Hertfordshire and one of the co-organisers of the ‘1992 Plea’, is interviewed here about the history of economic pluralism, and the challenges facing economics today.

NL: Twenty two years after the ‘1992 Plea’, do you think the mainstream has changed?

GH: I think things have changed in economics, to some degree. It’s not entirely positive, but in some senses economics is more diverse now that it was twenty two years ago… for example, new areas like experimental economics and behavioural economics have gained respectability. The main problem now with economics is not so much its diversity, or its insufficient internal pluralism, but the way that technique dominates and gets in the way of substance. Economists are engaged with mathematical puzzle solving rather than real-world problems…

NL: By that you mean things like regression analysis and theoretical model building?

GH: Theoretical model building and econometrics … that is all that now seems to matter in terms of publication in top journals or academic promotion. The whole discipline has become dominated by people who are very clever in technique but innocent of many important aspects of the real world and the history of their own discipline.

NL: In that 1992 Edition of the AER there were some pluralist surveys of economists, do you think the AER would publish that kind of qualitative research today?

GH: Generally it is very difficult to publish anything like that, and not just in the AER. I include other leading journals, like the Quarterly Journal of Economics or the Economic Journal in the UK… although occasionally they publish qualitative pieces, to spice up interest in their journal.

NL: What successes have you seen in the campaign for pluralism?

GH: The ‘1992 Plea’ was an early ringing of alarm bells about the nature of the discipline and the way it had been developing. It may have stimulated further similar complaints, such as from the French student movement… and dispersed attempts in Cambridge and also in the US… but the real change came with the 2008 crash. This provoked a much larger tide of complaint among students and others about the alleged inadequacies of mainstream economics.

NL: Was there a pluralist movement prior to the ‘1992 Plea’?

GH: Several prominent economists had made complaints. The petition was preceded by an important 1988 report by a commission of the American Economics Association, called ‘Report by the Commission on Graduate Education’ (Krueger et al, 1991), which complained about the dominance of technique in the discipline. A number of leading individuals, including Milton Friedman, also complained about the subject turning into advanced mathematics.  The most important event was the 1988 commission and its critical and scathing report.

NL: Did it have any success at the time?

GH: No.

NL: So why do you think the profession keeps coming back to these very inward-looking methods?

GH: The economics profession has an internal reward system that gets reinforced and replicated. Someone once compared it to the peacock’s tail. Once this positive feedback loop gets established, then people look for the glorious tail feathers despite their questionable usefulness. Fancy mathematics gets economists published and gets them promoted. As those people rise in the profession they will recruit people who perform similarly and the same kind of behaviour gets replicated. Other people, who think more widely or philosophically, or are more interested in the history of the subject or how it has changed, or who look more deeply at the conceptual assumptions, don’t get considered for influential positions in the discipline.

NL: What advice would you give Rethinking Economics?

GH: I hate to be pessimistic, because I don’t want to dampen the enthusiasm of those people committed to this, but unless you get some of the top universities appointing professors who are more broad-minded, who are not dominated by technique, who have influence, and some of the top journals consider more conceptual, historical material rather than simply technique-driven material,  then it will fail. Mark Blaug, who was a friend of mine who died a couple of years ago, got very pessimistic about this, and so did Ronald Coase who died last year. Another problem is that American economics is now overwhelmingly dominant. I often ask people… can you name a living British economist…  and they really have difficulty thinking of anybody. When mainstream economists took over the Cambridge department in the 1980s, after the era of Robinson and Kaldor, their explicit aim was to make Cambridge a rival to the top American Universities In other words, they aimed not to develop Cambridge’s own niche, but simply to follow what America was doing. You are inevitably 5 years behind if you are lucky, and that US emulation has led to the near-destruction of British economics… with this subservient mentality it is very difficult to change things in the UK.

NL: Can we talk about your hope for the future?

You may have heard of a new association called WINIR: the World Interdisciplinary Network for Institutional Research. What we are trying to do is create a new field for study. It’s not just about economics, but institutional economics is a part. I think that this is a more productive strategy than trying to change economics…  but the problem with WINIR is it doesn’t cover everything. At the moment, it omits crucial areas like finance... we can’t do everything. We are hoping to find new ways of promoting realist approaches and developing new ideas

NL: When you look at Blanchard’s work at the IMF…  is there at least a sense that more reflective research is coming out, even on the finance side?

GH: That’s right, and there are other good examples, like Thomas Piketty’s work on capital and inequality…. but these are the exceptions. All the incentives, all the ways that you get promoted in the system are not by thinking outside of the box. When I gave a talk to the Post-Crash group in Manchester, I said you have to take the institutions of science seriously. One of the problems with heterodox criticism is that it’s a fragmented growth of people who can’t agree amongst themselves on much, except that they are opposed to the mainstream: that will never generate cumulative knowledge. We actually need an alternative centre of orthodoxy. Science cannot progress by questioning everything, all the time….  some assumptions or knowledge has to be taken for granted. These assumptions may need to be changed later, but we need consensus as much as pluralism. Hence I’m against organising opposition to mainstream economics on the basis of a ‘heterodox’ label…  in fact there are many good and interesting things going on in the mainstream.  Heterodox organisations and leading figures who work under that label often overlook potential allies in the mainstream…

NL: One of the things we are struggling with in the UK curriculum review is the word ‘CORE’… this Popperian idea of a heuristic around which everything else revolves…  is the idea of a ‘CORE’ something the profession can escape?

GH: I think the CORE idea is important: the problem with things at the moment is that the core is defined in terms of technical skills. An undergraduate doing an economics degree has to understand key aspects of game theory, to understand key certain econometric techniques, and these take up the time of teaching and testing for the student… and as the bar is always being lifted… because the complexities of game theory and econometrics are always increasing…  so it’s not so much changing the subject matter of the core, it’s changing the preoccupation of the core. We need to establish that the first and foremost job of an economist is to understand the economy…  all other things are subservient to that.
Many heterodox economists blame Marshall, among others, for what went wrong. He was part of the neoclassical revolution of the 1870s and 1880s. But if you actually look at how Marshall wrote and how he behaved he was extremely tolerant and open minded…  he wrote in his Principles and also in his letters that economic theory is not a mathematical toy. He argued that we have to understand the real world. For him, mathematics was a tool, but not the main part of the subject…

NL: Several of the petitions for pluralism talk about solving climate change, global warming, inequality, wealth accumulation, capital flight, all of these issues. Do you agree that economics is that broad? Can economics solve all of these problems or is that too grand a claim?

GH: Marshall’s definition of economics was the study mankind in the ordinary business of life: by that he meant processes concerning the generation of wealth and its distribution, which include problems like the impact of climate change…  we need to develop economic policies to deal with climate change in some way.

NL: Which includes solving these issues...

GH:  Yes.

NL: Could you recommend three pieces of your work to a student interested in pluralism?

GH:  My 2004 book on institutional economics; my 2013 book on evolutionary economics; and my book on capitalism that is coming out this year. Each book addresses the issue of pluralism and challenges mainstream assumptions.

NL: Thank you very much.


Hodgson, Geoffrey M. (2004) The Evolution of Institutional Economics: Agency, Structure and Darwinism in American Institutionalism (London and New York: Routledge).

Hodgson, Geoffrey M. (2013) From Pleasure Machines to Moral Communities: An Evolutionary Economics without Homo Economicus (Chicago: University of Chicago Press).

Hodgson, Geoffrey M. (forthcoming) Conceptualizing Capitalism: Institutions, Evolution, Future (Chicago: University of Chicago Press).

Krueger, A.O. Arrow, K.J. et al (1991). Report of the commission on graduate education in economics.  Journal of Economic Literature. 29(3):1035-1053

Various (1992). A Plea for a Pluralistic and Rigorous Economics", American Economic Review, 82(2):25

Tuesday, 4 March 2014

Update on ‘RE in the City’ Project

Author: Zoe Lindesay

Roughly six months after taking on the role of Project Co-ordinator for ‘Rethinking Economics in the City,’ I thought this was a good time to provide an update on our progress.

‘RE in the City’ was a project initiated in August 2013 to help engage professionals in the debate about pluralism in economics, initially using LinkedIn as a platform. LinkedIn is the leading social networking site for professionals, with over 259 million users from over 200 countries. LinkedIn is often used for brainstorming ideas, making introductions, organizing events and can have important influences on policymakers. 

The description for the Rethinking Economics LinkedIn Group is based on our mission statement:

We are a community seeking to demystify, diversify and invigorate economics 
made up of imaginative citizens, students, academics, and professionals 
an international network of rethinkers  

The Group is small, (currently 89 members) but active in terms of the number of posts and comments. At the moment our members are largely drawn from within the Finance profession, but with interests across the spectrum of pluralist economic thought, for example we get a lot of discussions on ‘the School of Biophysical Economics.’

By design this is an open group with no moderation, so the Group is as accessible and inclusive as possible. This is quite unusual for LinkedIn, where normally there is some control over who can join and who can post. We also have some close links with other LinkedIn Groups with similar interests - ‘The Prosperity Renaissance’ (with over 1,000 members) is a good example of this.  

I think LinkedIn represents a fantastic opportunity to promote and develop pluralist ideas. If anyone from the Rethinking Economics community is interested in becoming a ‘LinkedIn Ambassador for Pluralism’ you can join our Group here.

Pluralism in Action

A number of our members on LinkedIn are involved in their own projects which could be considered to be outside the mainstream. Since this is a professional network, the emphasis is much more about the practical application of ideas, and less about rigorous debate on economic theory. Here are a couple of examples from our members of what I would term ‘pluralism in action’:

Ontonix is a company which post-crash has been growing from strength to strength. Their mission is to introduce new tools for use in economic analysis, risk management and portfolio construction based on measurement of the underlying complexity and resilience of the system, instead of using statistical inference techniques. The tools for understanding complexity in economic systems have been available for a couple of years now – you can find out more from this video or by investigating the Ontonix blog. More recently, the same team have launched a new company called AssetDyne which aims to replace Modern Portfolio Theory with Complexity Portfolio Theory. You can find out more about this project here.

Another top contributor in the Group is author-researcher, Max Wong, who has been working for many years on remodelling the Basel risk capital framework. His book 'Bubble VaR' exposes the weaknesses in traditional VaR methodology and is an exciting read for anyone interested in this topic. More recently Max has been researching the use of the 'Kelly Criterion' to manage systemic risk in the banking system. He has already presented his ideas in Singapore and he is very keen to do the same in the UK, so one of my priorities is to look into sponsorship opportunities for that.

Last but not least, one of our most active members is Edward Ingram, a South African author and former Independent Financial Advisor, who is proposing a new paradigm for how financial instruments should be designed. The concept is that lending should be organised in the form of ‘Wealth Bonds’ where variable interest rates are linked to underlying earnings and not to price inflation. For example, for mortgage borrowers this would mean that if incomes were not rising as fast as inflation, then some of the pain would be taken by the banks rather than this being fully the burden of the mortgagees. The suggestion is that application of this principle should reduce volatility in financial markets and cut down on the levels of arrears. Edward has a team of senior African finance professionals who are involved in reviewing his ideas which are published in the leading South African Finance journal ‘Fin 24’ and which are also available in ‘raw form’ on his website ‘Macro-Economic Design.’

These are just a few of the ideas and projects that we have managed to connect with via the Rethinking Economics LinkedIn Group. We held the first 'RE in the City Drinks' just before Christmas which about 20 people attended. Hopefully I will get another drinks evening set up in the near future and I look forward to seeing some of you there!

Saturday, 1 March 2014

Portcullis House Press Release

Rethinking Economics, the Manchester Post-Crash Economics Society and the Cambridge Society for Economic Pluralism (CSEP) met with MPs and economists at Portcullis House on Weds 5th February.
Rafe Martyn (CSEP), Maeve Cohen (Post-Crash) and Yuan Yang (Rethinking Economics) spoke about the history of the groups, the problem with a narrow focus on neoclassical economics, our position on curriculum reform and the INET CORE Project, and the national and international campaigns for curriculum reform.

About the Groups

The first Rethinking Economics Conference was organised at Tubingen University, Germany in 2012. Rethinking Economics UK was then established in 2013. With an INET YSI grant, they ran the Rethinking Economics Conference at Birkbeck College and LSE, London in 2013 and a smaller, parallel conference in Tubingen. Rethinking Economics is now a network of groups with conferences planned in London and New York in 2014.
Post-Crash started in Manchester at the beginning of the 2012-13 academic year. They have organised speakers such as Steve Keenrun a heterodox lecture series alongside an alternative economics module and seen similar groups start up in other universities.

CSEP was founded in November 2011. The society’s inaugural event was a packed talk by Sheila Dow in March 2012.  Since then CSEP has hosted academics from inside and outside Cambridge, started reading groups, a student debating league and a ‘NOT in the Curriculum’ programme that introduces undergraduates to some neglects of neoclassical economics.

A Lack of Pluralism

The Financial Crash in 2008 was a systemic crisis for mainstream economics. Five years later the debate has a distinct lack of economic alternatives or narratives: the debate can be exclusionary and misleading. This systemic crisis extends beyond universities and into the public and political debate surrounding the economy.

This monoculture is damaging when the public relies on experts to mediate economic discussion: economists have huge influence over the public narrative. The state of the economy is of central importance to society, which requires us to frame the debate critically and question the foundations, assumptions and practices.

The International Campaign

We are campaigning to diversify and demystify economics, and to provoke public debate. We are collaborating with PEPS-Economie and the German Pluralist Economics Network who have previously published curriculum reform proposals. For example, Plurale Oekonomik published an Open Letter in 2012 calling on the German Economic Association for curriculum reform. Academics, such as Victoria Chick, have made similar calls (see Denis, 2009).

These manifestos share similar points: having better links with real-world problems; less dominance by mathematical methods; questioning of ethical assumptions and the social responsibility of economists; more humility, self-awareness and critical reflection in their research. The central reform is for theoretical and methodological pluralism in the discipline, such as the inclusion of economic history, the history of economic thought and links to other social sciences.

Student Quotation
"As a postgraduate, I attended a UK research conference recently that asked how financial models can be re-interpreted in light of the 2008 crisis, yet hardly any of the attendees were economists. The behavioural economist presented decades of his research which told an inconvenient truth about the profession: that the micro-foundations project is a failure. Not only is the 'sum greater than the parts', but human behaviour is neither rational nor optimal. In any other profession his empirical work would be celebrated as ground-breaking and innovative, yet he told us he had been sidelined by his profession. This is why we need a more open, pluralistic approach to economics'

Denis, A. (ed.) (2009), ‘Pluralism in economics education’, Special Edition of the International Review of Economics Education8(2), 23-40