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Tuesday, January 28, 2003

The Pedagogy of the Heterodox

While trolling through one of my favourite second-hand booksellers in London, I once came across an odd book, Quantitative Marxism. Now, Marxism, as I understand it, is concerned with many things, but optimisation is not one of them. Not that a quantitative approach has to focus on optimisation, mind you; but quantitative approaches implies a solution to something--using data to arrive at some conclusion or to add to the analysis of a problem. The book's own blurb describes it as such:

This book seeks to establish a constructive and useful interaction between empirical data and research methods, on the one hand, and Marxist theory and analysis, on the other. It shows that it is possible to operationalize Marxist concepts either by using orthodox data and reinterpreting it, or by constructing data which are more congruent with Marxist notions. The contributions deal with a wide range of theoretical, methodological and policy-related issues. Among the substantive issues discussed are unemployment and structural change, uneven development and industrial restructuring, and the financial sector.

The blurb is, more than anything, a bit benign; it almost makes Marx seem, well, normal. That, I concede, may be naive--Marxism, to it's adherents, is not a mere school of thought, using various methodolologial approaches to support it. Marxism, as I understand it, transcends methodology--it certainly cannot be described as positivist in orientation.

Well, all of this is a bit academic, you may think. Why bring it up?

Last week the Chronicle of Higher Education published a story on heterodox economics. Now I go to Birkbeck, which, though many may not heard of it, and it certainly does not look like it, is one of the top economics departments in the UK. The only way to get up there is to be neoclassical, running a rigorous, mathematical programme. I take great interest, therefore, in people suggesting that what i'm leaning is, well, pointless. In June 2000, some French economics students, decrying the state of the profession as "autistic", had this to say:

Most of us have chosen to study economics so as to acquire a deep understanding of the economic phenomena with which the citizens of today are confronted. But the teaching that is offered, that is to say for the most part neoclassical theory or approaches derived from it, does not generally answer this expectation. Indeed, even when the theory legitimately detaches itself from contingencies in the first instance, it rarely carries out the necessary return to the facts. The empirical side (historical facts, functioning of institutions , study of the behaviors and strategies of the agents . . . ) is almost nonexistent. Furthermore, this gap in the teaching, this disregard for concrete realities, poses an enormous problem for those who would like to render themselves useful to economic and social actors.

The students go on to complain about the abundance of mathematics in economics, and about the lack of pluralism in the field. In September of 2000 some French economics professors later supported the students with a petition, questioning, among other things, "the object and nature of modelling itself and considering how economics can be redirected toward exploring reality and away from its current focus on resolving "imaginary" problems." Thus, "post-Autistic economics" was born.

Now, people that have gone through a degree programme similar to mine work in all areas and sectors, solving (or, at least, trying to solve) "real-world" problems. Some of these are more successful than others, yet few would say that they do not find themselves "useful to economic and social actors". What do these students mean?

In a 1996 column in Slate, Paul Krugman describes the conflict:

More than 40 years ago, the scientist-turned-novelist C.P. Snow wrote his famous essay about the war between the "two cultures," between the essentially literary sensibility that we expect of a card-carrying intellectual and the scientific/mathematical outlook that is arguably the true glory of our civilization. That war goes on; and economics is on the front line. Or to be more precise, it is territory that the literati definitively lost to the nerds only about 30 years ago--and they want it back.
That is what explains the lit-crit style so oddly favored by the leftist critics of mainstream economics . . . the quantitative, algebraic reasoning that lies behind modern economics is very difficult to challenge on its own ground. To oppose it they must invoke alternative standards of intellectual authority and legitimacy. In effect, they are saying, "You have Paul Samuelson on your team? Well, we've got Jacques Derrida on ours."

A French post-Autistic website, for example, is not very impressed by representative-agent models:

Is it relevant to study the actual evolution of a whole country's economy as if it reflected the choices of a lonely individual? The answer is obvious: NO. In that case, what is the point of overburdening the student with the methods of "optimal control", the statistical techniques of confrontation of Robinson's "intertemporal choices" with the available data on the GDP evolution of such and such country? According to us, there is none.

In my macroeconomics course, we just finished going over the Hamiltonian (one way of solving optimal control problems) and we are currently learning the Bellman equation. This stuff is not easy, and, to some extent, I understand where these people are coming from. I am no mathematical genius; my bachelor's degree is in history. 18 months ago I could not solve equations, let alone do differential calculus. I still can't quite think mathematically, and I have to always work everything out, which makes reading papers, and sometimes even textbooks, slow. I tell classmates that when it comes to mathematics I'm not a fluent speaker, just a frequent tourist with a good phrase book.

That does not mean I don't see the value of what I learn. There are problems that you could spend page, upon page writing about, which could be more easily stated with a diagram and few lines of equations. I, for one, don't see modelling as an end in itself, merely as a means for understanding what happens in the world. It is at times counter-intuitive, and at other times seems like an explanation of the obvious. I've explained to humanities undergraduates, though, why it makes sense for them to take out student loans, using the permanent-income hypothesis. If they can make sense of that, then it means that economics, as it stands, can make a difference, if in a small way. The slow progress make is definitely worth it.

Virginia Postrel points out that criticism of neoclassical orthodoxy is not even new, and that economics is very open to new ideas:

Heterodox ideas like the limits of knowledge and "bounded rationality" are associated with Nobel laureates (F.A. Hayek and Herbert Simon, respectively). The hottest young fields in economics include behavioral economics (which, along with equally upstart experimental economics, garnered the most recent Nobel) and the New Institutional Economics (which also has a couple of Nobels to its name). Sure, you can get ahead in economics tweaking static models. But to pretend that economists are uninterested in economic change is ridiculous.

Craig Newmark echoes Postrel by noting that the some critics like Dierdre McCloskey and Ed Lerner have proposed ways to fix the criticisms they raise. The post-Autistic economists value pluralism above all else, and what they propose will not solve anything, and, worse, is not even true. Indeed, much of what I've read in the Post Autistic Economics Review, pace Krugman, reads more like literary criticism than actual scholarship. This notion of criticism does not only extend to the post-Autistic crowd; other heterodox theorists have much to add as well. Austrian economics, for example, has useful insights on the theory of business cycles, to name one example, as this survey in the Economist demonstrates. The editors of the Quarterly Journal of Austrian Economics, on the other hand, seem very interested in confrontation to prove a point:

The QJAE does not shy away from controversy, regardless of whose oxen are gored. In this vein, we welcome articles employing Austrian economic theory to evaluate and demolish faddish and foolish developments in mainstream economics, which have proliferated so rapidly of late—a sure sign of a paradigm in the latter stages of crisis and self-liquidation. As a means of appealing to a broader readership, we also encourage the submission of articles that subject an important contribution, or even the entire oeuvre, of a Nobel Laureate in economics or of a rising young star of the profession to the rigorous scrutiny of praxeological economic theory.

Mainstream economics is very much evolutionary, incorporating new fields and approaches as more tools (including mathematical ones like dynamic programming, which did not exist in its current form before the 1960s) are developed and data collection improves. In contrast to the heterodox economists, some other social scientists feel threatened by the expanding scope of economics, which has gone on to look at crime, law, political power, and the environment, to name a few. This does not mean that it is always right, and can explain everything. The post-Keynesinan Daniel Davies, for instance, never tires of telling neoclassicals about the non-ergodic nature of the world--and that criticism, mind you, is a mathematical one.

In another article, Paul Krugman makes this defence of the mainstream:

Many, indeed probably most, of the non-economists who attack the field's formalism do so not because that formalism makes the field irrelevant, but on the contrary because economists insist that their equations actually do say something about the real world. And since the critic's view conflicts with what the equations say, this whole business of using mathematics to think about economics must be a bad thing.

To end where I began, I put back the Quantitative Marxism book on the shelf where I found it. I just skimmed it for a couple minutes, I know, but I did not see a single equation in it. I decided that I was better off pursuing actual solutions, rather than bending the methodology to a particular perspective.