Originally posted at Naked Keynesianism.
I am pessimist by nature (or nurture), I guess. So I never thought that the current crisis would lead to a collapse of mainstream economics.
As I often point out to my students, in the U.S., it was the Great Depression, and the rise of the Neoclassical Synthesis that made Marginalism dominant. Up to that point the profession was dominated by an eclectic group that included many institutionalists, like Commons or Seligman, a non-Marxist defender of an economic interpretation of history, both of whom were presidents of the American Economic Association (AEA). Mitchell, another institutionalist that was president of the AEA, was the head of the National Bureau of Economic Analysis (NBER). And the administration was full of institutionalist economists during the New Deal. So a crisis might actually lead to the consolidation of a paradigm that was actually contradicted by the facts (yes, full employment of factors of production is hard to defend if you have 25% unemployment, but blame it on rigid wages and you’re fine).
On the role of the New School in academia, the topic of our table with Rajiv Sethi and Ramaa Vasudevan [at the conference on The State of Worldly Philosophy at the New School, February 22, 2014], what I suggested, as my interpretation was rather broad, was it is the production of heterodox economists by means of heterodox economists (my definition of the heterodox camp here). In that, at least in the U.S., the New School is aided by four other programs, namely Colorado State (CSU), UMass-Amherst, UMKC (Kansas), and Utah. Not sure what is the actual output of all these centers, but most newly minted PhDs end up finding jobs in academia, mostly public universities and liberal arts colleges, in government, in think tanks, and in organizations related to progressive activism from unions to environmental groups. In that respect, even though the profession is not likely to move closer to any heterodox perspective, there is space for heterodox economists to continue to do the kind of work that they were trained to do. In other words, if the crisis will not open new space for heterodox groups, at least not by default, it will also not close old doors.
There was a debate, to some extent represented in our table by the contrast of my and Rajiv’s views, on whether to engage the mainstream or tear it down, as Ali Khan put it in another section. I have already written on that here (for a whole book in response to critics that suggest that heterodox authors do not engage the mainstream go here). Still not convinced that engagement is necessary, or that helps to advance the research agenda of heterodoxy. Sure enough that there are ideas here and there that might be useful, but that doesn’t require engagement per se. Note that this also does not mean that the study of the mainstream can or should be abandoned. But as I noted, New School students, and heterodox economists in general, understand better the logic and meaning of the mainstream than neoclassical authors themselves (see my debate with Noah Smith here).
The idea that isolation (And from what really? From publishing in the more prestigious journals? From having Ivy League chairs? Or from reality? You choose, but I’ll rather be part of the group that was not surprised by the crisis, like Baker, D’Arista, Epstein, Galbraith, Godley, Palley, Pollin, Taylor, Zezza, Wray, etc., and many more) does not allow for the development of reasonable ideas or to have influence is also questionable. In all fairness, by the 1830s, Ricardian economics, and the main propositions of the surplus approach were forgotten and modified in incoherent ways by the likes of Nassau Senior, John Stuart Mill and others. A German philosopher studying alone in the British Museum was able to reconstruct and advance the classical ideas. Yes, his academic influence was small at best, but I would be surprised if someone suggested he had no influence (and I don’t mean politically, but strictly as an economist). All the same, by the 1930s most of these ideas were again forgotten and misrepresented, and an Italian scholar, working in isolation, while editing Ricardo’s works, also reconstructed and advanced on the classical ideas. And on top of that, the 1930s provided the idea of effective demand, and the possibility of upturning Say’s Law in the long run. All of these achievements have NOT been lost, in part, because places like the New School continue to produce heterodox PhDs.
This time around there is no need to reconstruct everything from scratch. There is a wealth of accumulated knowledge, and the shoulders of giants to stand upon. Yes, one can be pessimistic about the profession as whole, and probably should be, as Foley seemed to be in the last section, arguing that the heterodox moment after the crisis was really brief. But that is the norm for heterodox authors. And this time around we have the New School!