Watching Paul Krugman’s appearance on Squawk Box got me thinking more about something I’ve been thinking about for a long time.
Heterodox economics is a broad category with all sorts of people. Let me paint with a broad brush. There are some people who think mainstream economics, summarized but not necessarily fully captured by standard textbooks, is a problem in itself. Due to its normative framework and theoretical structure, it should be critiqued and largely replaced. Others think that modern mainstream economics, in itself, is pretty decent. For this camp, the biggest problem is the way mainstream economics is interpreted and used by economists and policy makers who are ideologically blinded or have perverse incentives.
I’ve long been in the first camp. I won’t say that there is nothing useful in standard economics textbooks, but the baseline approach needs to be knocked off its pedestal as Economics, and treated as one particular theory – at the very least. That being said, time and experience makes one wonder. And here is something I am confident in:
Contrary to what Squawk Box commentators think, Paul Krugman is not a unicorn.
If you know basic mainstream economics you understand PK. You may not agree with him. You may not think he best represents the best of academic economics in the last 40 years, but you understand him. He is not a bizarre fictitious magical creature. Maybe you think he is a pig, or a jackass, or whatever, but he is not a unicorn. It is either dishonest or ignorant to marginalize PK in such a fashion.
I doubt the participants of squawk box are informed by heterodox economics, but here is the thing I worry about. In criticizing mainstream economics, we should not, as radical economists, reinforce the erroneous idea that the “taxation is socialism and makes George Washington roll in his grave” economics of today’s conservative politicians is mainstream econ 101.
Since 2008 I have had many students interested in some type of libertarian economics. I really enjoyed having students who were interested in economics, and willing to question their textbooks. One problem I encounter ocassionally is that fairly heterodox libertarian ideas are presented by these students as mainstream economics. Consider as a completely hypothetical example (I’m not actually going to quote from anyone’s final exam here so I’m making an example up):
“Absent a gold standard, central bank policy creates a misallocation of resources that can only be solved through a recession. Trying to stimulate the economy in a recession only creates more problems, as anyone who understands econ 101 knows.”
Maybe this claim about how an economy operates is true. I don’t think so, but the student can attempt to make their case. I prefer a thoughtful piece I disagree with over uninspired attempts to please me (which usefully miss the mark anyhow). Maybe this is what should be taught in econ 101. Again, I don’t think so, but whatever. The problem is that the “this is just basic econ 101” rhetoric is untrue. That an idea is not really mainstream textbook economics does not make it incorrect. However, that an idea is not really mainstream textbook economics does make it incorrect to suggest otherwise.
The fact is that mainstream economics, for all its flaws from my perspective, does not fit all that well with today’s Tea Party economics. There may be an important pro-market ideological overlap between textbook econ and Hayek-style libertarianism but they really are not the same thing. I was never thrilled by those Keynes vs Hayek rap videos. Part of it is just an aesthetic preference, but the bigger point is that whichever side you choose, the very framing is already a consolation to the right. I think it is fine to read and consider Hayek seriously, despite (or maybe even because of) the fact that he is somewhat of an outsider, but I think it is both dishonest and politically problematic to give the “road to serfdom” idea/paranoia the status of widely accepted mainstream economics.
Let me summarize.
1. I think it is important to criticize mainstream economics.
2. That something is not mainstream economics does not make it wrong, but it does mean that we shouldn’t let that something present itself as standard econ 101 for rhetorical purposes.
3. Mainstream economics is not Austrian economics.
4. Mainstream economics largely assumes a mixed economy. It is not the simplistic fairytale Americans are told of evil completely planned economies versus virtuous completely free markets. It is certainly not the economics of people on Squawk Box (But what would the founding fathers say ?!).
5. We should do 1, but with 2-4 in mind.