Ottoviano-Peri and the CEA vs. George Borjas on the Distributional Consequences of Immigration
The Evolution of Household Income Volatility

"Orthodox" and "Heterodox" Economics Once Again

I'm going to duck and let Barkley Rosser duke it out with Thomas Palley.

Barkley says that leading American Keynesian or neo-Keynesian or new Keynesian Ben Bernanke--former co-editor of the flagship American Economic Review, former chair of the Princeton Economics Department, former chair of the President's Council of Economic Advisers, current chair of the Board of Governors of the Federal Reserve and of the Federal Open Market Committee, one of America's leading economists in institutional, research, and policy arenas--has "heterodox ideas." He is, according to Barkley, a "non-orthodox mainstream" economist who has spent his career "reviving a non-orthodox idea, financial fragility" and successfully "brought the idea out of the shadows of non-respectability where the rat[ional ]ex[pectations] 'revolution' had put it."

Palley says that orthodox economics "exclude[s] ideas that don’t fit... create[s] barriers to entry and expression.... [To] counter Diane Coyle’s claim that heterodox economists have nothing to complain about.... The last time a paper on macroeconomics with a Keynesian structure was published in the American Economic Review was in the early 1980s. Send in such a paper and it will be immediately rejected as “old” economics. That is a matter of taste. There is simply no scientific basis for rejecting the Keynesian description of how the economy works.... [T]he orthodoxy dismissed (and still dismisses) Keynesian theory on the grounds that perfectly flexible prices and wages will automatically solve real world unemployment.... [I]t is increasingly hard to have conversations with mainstream economists.... [H]eterodox economists know the orthodoxy.... [O]rthodox economists increasingly have no knowledge of heterodoxy and are proud of that ignorance..."

Hoisted from Comments: Barkley Rosser:

Ben Bernanke, Mortgages, the Financial Accelerator, and the Macroeconomic Consequences of "Financial Fragility": Well, conversation here has stopped, but I feel the need to add a bit more in light of my being wrong and brad's request about how all this relates to heterodoxy.... In 2004, David Colander and Ric Holt and I published an article ("The Changing Face of Mainstream Economics") in the Review of Political Economy.... [W]e distinguished between the concepts of "orthodox, mainstream, and heterodox" in the following way: orthodox is a set of ideas, presumably equaling "neoclassical economics" with its trinity of greed, rationality, and equilibrium; mainstream is a sociological category, consisting of the economists in charge of the leading departments, journals, and funding sources; and heterodox is both, anti-orthodox intellectually and also alienated from the mainstream sociologically, on the fringes professionally, with or without due cause.

The controversial aspect of this is that it allows for the category of "non-orthodox mainstream"... [like] George Akerlof, whose AEA presidential address had some people upset in the Chris Hayes Nation article on neoclassical mafias. There was this terribly respectable, mainstream economist, Nobel Prize winner and AEA president, uttering these clearly non-orthodox ideas about macroeconomics, egad!...

[W]e argued that the real intellectual action is on the boundary between the mainstream and the heterodox, with the orthodox in effect being... fossilized and ossified.... [T]he people who were more likely to be engaging in outright repression of ideas were less likely to be the elite at the very top of the mainstream, who tend to be pretty open-minded, but more second-tier players, stupidly enforcing dead (or dying) orthodoxies. Hence, at Notre Dame the villains were a bunch of third rate deans and nobodies, far less well known than some of the people they were criticizing and repressing, a pathetic joke really.

So, bringing this back to Bernanke, clearly he is an example of somebody who fits this non-orthodox mainstream category. He made his fame by reviving a non-orthodox idea, financial fragility.... I will give him credit that apparently he did cite Minsky and Kindleberger, as well as Fisher... brought the idea out of the shadows of non-respectability where the ratex "revolution" had put it... [and] to the attention of policymakers... although as I previously noted, many such policymakers never stopped taking it seriously.

Thomas Palley:

Are Heterodox Economists Just Unhappy Whiners?: Economists also use private languages to exclude the public, to exclude ideas that don’t fit those languages, and to create barriers to entry and expression.... I would like to... counter Diane Coyle’s claim that heterodox economists have nothing to complain about.... The last time a paper on macroeconomics with a Keynesian structure was published in the American Economic Review was in the early 1980s. Send in such a paper and it will be immediately rejected as “old” economics. That is a matter of taste. There is simply no scientific basis for rejecting the Keynesian description of how the economy works.

That leads to the practice of economics in the real world.... [T]he orthodox cup is filled with hard-core orthodox theory, [but] the lip of orthodox policy practice quickly and easily slips into Keynesian thinking. This suggests Keynesians may be more right than the orthodox.... [Consider] the scare with deflation during the last recession. Suddenly, the orthodoxy started arguing at the policy level that inflation could be damaging and the economy might get trapped with sustained unemployment... exactly what Keynes claimed, yet the orthodoxy dismissed (and still dismisses) Keynesian theory on the grounds that perfectly flexible prices and wages will automatically solve real world unemployment....

[I]t is increasingly hard to have conversations with mainstream economists.... [H]eterodox economists know the orthodoxy.... [O]rthodox economists increasingly have no knowledge of heterodoxy and are proud of that ignorance.... For instance, “old” Keynesian economics is often accused of lacking so-called “optimizing foundations”, which is complete nonsense. Keynesian economics has long emphasized rational consumers and profit maximizing firms – and has been criticized for it by other heterodox economists...

The kindest thing one can say about Thomas Palley is that he suffers from a bad Groucho Marx problem: "heterodox" ideas that appear in orthodox flagship journals in articles written by prominent mainstream economists cannot really be "heterodox" at all because everyone knows that economic orthodoxy is hegemonic and exclusive.

Say the secret word and win $100!

But let's give the microphone back to Palley:

Heterodox Alternatives: “[N]ew Keynesianism” – a form of intellectual cuckoo that took over the Keynesian nest and pushed out the real Keynesian ideas (PS. Brad, you’re not chopped liver, but you are scrambled eggs. PPS. Nice post about the tool kit)...

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