Motivations for Pluralism: Politics and Values in Economics

This document openly and explicitly states the motivations that bring together the RE organisers and RE groups, and address the underlying question of why we chose the aims that we have, and the direction for economic curriculum reform we have. We address the pertinent question: how political is our organising?

1. We are not a politically aligned network, but we hold political, philosophical and ethical values at the core of our organising. By this, we mean that we share a broad vision of what is good for academia and society. Namely:
2. We believe that the ability to effectively participate in democratic processes is vital for all citizens.
3. Because of this, we want to demystify economics in the public eye and bring it closer to mass critique.  We believe that the current state of economic policy debate, in which citizens are liable to over-deference to experts and reliant on often badly argued “expert” opinion, is a bad one.
   
4. We believe that a fully functioning democracy requires rich and imaginative debate at the level of economic concepts.
5. Because of this, we want to enrich both public debate around economics, and the academic economics that feeds it. Right now both policy and academic debates have become mono-cultural and stale.
   
6. We believe that the current neoclassical economics taught in most departments is not politically neutral, and thus it is important to introduce pluralism in economics. Nor did the classical economists see themselves as practising a politically neutral discipline.

7. We believe that pluralism and open-mindedness to other disciplines is a value that would improve the culture, methodology, and practice of economic research and teaching. We do not collectively advocate for any single economic theory or policy to dominate others; we want to introduce substantial debate back into economics.

Appendix

I: What we mean by “value-neutrality” in the social sciences

By “value-neutrality”, we mean neutral or silent on issues of: what kinds of changes are good for society; what one ought to value (ethical, normative or positive values); what kind of society is a good one; what is the good life; what is the essential nature of being human, that reaches beyond particular configurations of society.

Although every model is, by necessity, an abstraction from the full complexity of society, the abstractions that are made in neoclassical economics impose particular emphases that have values explicitly or implicitly embedded in them. The questions that any school of social science chooses to pose as its most fundamental questions reveal 1) what is considered as “important” or “relevant” for the discipline, and 2) a pre-made conception of what society is and how one ought to study it, prior to actual research. Therefore we cannot pretend that neoclassical economics is simply a value-neutral science, and instead we ought to discuss and debate what kinds of values it embeds, in contrast to other ways of studying society, and in contrast to other schools of economics.

II: Examples of posits of neoclassical economics that are not value-neutral

In the below section, we give examples of concepts, theories and assumptions that are predominant in neoclassical economics. Not all of them are included in every model, but we seek to give a wide range of examples. This does not mean we support the teaching of the opposites of these examples, but that we believe it is problematic to teach one side in isolation.

a) Normative concepts (concepts that explicitly suggest what is better or worse for people or for society)

1. Pareto optimality: the major criterion of what it means for a situation to be good, or in economic terms, “efficient”; status-quo biased, blind to distributional issues such as inequality
2. Kaldor-Hicks efficiency: possibly the second most popular criterion of efficiency after Pareto optimality; assumes that everyone has the same marginal utility of money
3. Utility and welfare: both these terms are heavily structured economic concepts, with heavily ethical connotations in both their naming and their use
4. Utility is derived from personal preference-satisfaction: this is implicitly politically libertarian, as it assumes individuals always know what is best to maximise their own utility, or equivalently, that a person’s preferences are the most important to satisfy
5. Consumers’ and producers’ surplus: used in microeconomic analysis of gains from trade, prone to same problems as Kaldor-Hicks efficiency
6. Discount rates: the use of exponential discounting under-estimates long-term costs such as environmental risks

b) “Thick” descriptive concepts (concepts that are descriptions of human nature, but which imply ethical attitudes as to what is important or what is good)

1. Agents arrive at the market with preferences ready-formed: this assumption means that economists have not ventured into the questions of where preferences arise and how preferences themselves might be shaped by the structure of the economy or society
2. Utility in macroeconomic models is determined solely by consumption: implies consumerism and materialism: people have no preferences over relational aspects of production, or even over whether they are employed or not (other than through its effects on their being able to afford more stuff)
3. Representative agent modelling is utilitarian: the “social planner” in DSGE models aggregates individual utilities and maximises this aggregate utility
4. Representative agent modelling is atomistic: this commits macroeconomics to an individualistic rather than holistic understanding of society

III: References to more material on value-neutrality and economics

Ingrid Robeyns, Economics as a Moral Science, http://crookedtimber.org/2013/10/31/economics-as-a-moral-science/

Robert Shiller, Economists as Worldly Philosophers, http://www.aeaweb.org/aea/2011conference/program/retrieve.php?pdfid=490

Manifesto: A direction for the reform of economics education

 

This draft manifesto is intended as a statement to provide a unifying direction for those groups campaigning for economics curriculum reform in universities across the world. Please show your support by signing your name and organisation below.

This manifesto is based on the Manchester Post-Crash petition and the Rethinking Economics CORE feedback.

Signed:

Rafe Martyn and Marco Schneebalg (University of Cambridge, Cambridge Society for Economic Pluralism)

Thomas Youngman and Hoang Nguyen (UCL, Better Economics Society)

Alex Andrade Martins (SOAS, Open Economics Forum)

Benolas Tippet, Katarzyna Buzanska & Franck Magennis (LSE, Post Crash Economics at LSE)

Yuan Yang and Diana Garcia Lopez (Rethinking Economics Organisers’ Hub)

Nicolò Fraccaroli and Mathia Achei (LUISS University Rome, Rethinking Economics Italia)

1. We believe students should be taught to think independently and critically. This involves a critical approach to particular models within each school of economics, as well as the whole methodological structures underlying different schools of economics.
2. We need to recognise the plurality within economics. In most courses “economics” is shorthand for “neoclassical economics”. There is no recognition of the variety of schools of thought within economics, across history or across the world. Academic integrity requires that alternative economic theories be introduced to students, alongside those currently taught. Economic questions cannot necessarily be answered adequately from a single theoretical standpoint, or solely from a mathematical approach.
3. Economics, as in the case of any other social sciences, cannot always be value-neutral. Therefore we demand that the philosophical, political and ethical underpinnings of different economic theories should be explicitly discussed during lectures and seminars. Economists need to remain critical of the ethical underpinnings and consequences of their theories.
4. Economics as it is taught currently is disconnected from real-world events and policies. In many departments, much of the curricula in the last few decades have slowly lost all mention of contemporary events or facts. This means that students are not being equipped to engage in real-world debates. We believe economics graduates should be prepared to consider and react to the economic problems that the world faces, because societies are shaped by economic events and policies, which are in turn shaped by people’s understandings of economics.
5. Economic theory needs to be presented alongside economic evidence. Real-world data should be used to spark discussions of how useful different theories are. Students should be able to weigh up theories against evidence, criticise the multiple uses of evidence, and understand why statistical methods are contestable. This includes debating what constitutes evidence, and conditions under which finding evidence may not be possible.
6. We believe a context-free economics is a misguided economics. Economic theories cannot be fully understood independently of the institutional, cultural and technological context in which they were formulated. Therefore, links to economic history and the history of economic thought should be made wherever possible. We should recognise that while some of today’s economic theories are a scientific “progression” from the past, many of them are just a different way of looking at society.
7. As well as recognising the strengths of our approaches, we should foster humility and self-awareness within economics. We need to specifically mention the limitations of our approaches, and recognise that there are a plurality of disciplines that study society which have insights to offer economics. Interdisciplinary dialogue is necessary for economics to grow. We must stop isolating ourselves from anthropology, sociology and political science when we have much to learn from them.

We want to stress that individual departments are not the cause of the problem. It is difficult for any individual economist or department to act independently of others. We need to take the lead by pushing for reform together, within and across countries.

Our aims, who we are, why we act

Our aims

Last updated through consensus at London Strategy Day, 2013/08/04

ACADEMIC: To bridge disciplines within and outside of economics; to advance neglected but critical economic perspectives and methodologies; to promote collaboration, humility and ethical practice in academia.

EDUCATIONAL: To demystify economics as a technical science, building open and collaborative communities of economic thinkers. To expand the creativity and social awareness of our future economists and citizens. To bring the basic tools of economic analysis into the hands of all of us who participate in a society shaped by economic forces.

POLITICAL: To equip us all with the ability to organise effectively, and to get economics students and academics to recognise their roles and responsibilities as political actors within their institutions and within wider public life.

Who we are

Rethinking Economics is an international network of young economics students, thinkers and writers who are organising to create fresh economic narratives to enrich the predominant neoclassical narrative. We aim to demystify and diversify economics in the public eye; to educate ourselves and other students in a more reflective economics; to inspire divergent economists to engage with one another in debate; and to promote a politics of responsibility with academic economists.

Why we act

REIMAGINE our economy: We are thirsty for new ways of thinking. We want an economics that equips us to imagine alternative economies.

RETHINK your economics: Economics as it is widely taught does not reflect the economy we are living in. We need to ask new questions to get new answers, and we need a greater diversity of ideas in economics.

REDEFINE the debate: We deserve new narratives and new responses to the economic, environmental and social crises developing on our planet.

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.

References

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

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!