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Friday, August 28, 2009

Did Heterodox Economists Get it Right?

After feeling like I overstated the case, I invited Barkley Rosser (or anyone else) to respond to my claim that "heterodox economists did not do a better job of "calling" the recent crashes and crises than did mainstream or conventional economists." I don't think the list below of people who called the crisis is particularly well defined, e.g. how do you leave off people like Raghuram Rajan, should Krugman be on it, and so forth, and the definition of what it means to have called it can be questioned. But I was the one who first invoked the list (I got it from Steven Keen's site), and I agree that the list as formulated is slanted toward non-conventional economists. I also agree with Barkley's response to my invitation to respond:

Mark,
I do not think this is going to be easy to determine. It involves not only identifying "who called it," (preferably publicly) and who did not, as well as this sticky wicket of "who is heterodox" and who is not (having just pointed out that it is unclear whether I count or not, and I called a lot of it, and there is question about whether Dean Baker is heterodox, who certainly called a lot of it and very early).
What certainly is clear that the clearly orthodox, and here I would say those who accepted (and many still accept) rational expectations and some sort of equilibrium associated with that, have been very wrong, with basically none of them "calling it." ...

Here's the counterargument:

Did Heterodox Economists Do Better At "Calling It" Than Mainstream Ones?, by Barkley Rosser: In a posting and comments yesterday, Mark Thoma at economists view, , argued that heterodox economists did not do a better job of "calling" the recent crashes and crises than did mainstream or conventional economists. Of course, part of the issue here involves both who one counts as "calling it," and also how one labels economists. In the comments, a list provided by Steve Keen of 11 who "called it," was invoked, with Thoma, at least, claiming that it did not show any preponderance of the heterodox. The list is as follows:
Dean Baker,US
Wynne Godley, UK
Fred Harrison, UK
Michael Hudson, US
Eric Janszen, US
Stephen Keen, Australia
Jakob Brochner Madsen and Jens Kjaer Sorenson, Denmark
Kurt Richebacher, US
Nouriel Roubini, US
Peter Schiff, US
Robert Shiller, US.
Keen categorizes these as follows in a private communication with me: 5 as Post Keynesian (Baker, Godley, Hudson, Keen, Sorenson), 2 as Austrian (Richebacher, Schiff), 2 as "from neoclassical backgrounds," but "mavericks" (Roubini, Shiller), one sort of a combination of Austrian and Post Keynesian (Janszen), and one unclear (Harrison). This looks about right to me to the extent I know about these people, although I note that Thoma claims that Baker is not "heterodox." I have not asked Dean, and he may not wish to comment, although he was once-upon-a-time a co-blogger on the predecessor to this blog, maxspeak, prior to starting his own punchy blog, Beat the Press. About four of these people I know nothing about.

I also note that there are quite a few others who can make the claim of having "called it" (I like to include myself in that gang, at least to some degree), and I also know that some of those are conventional, more or less, such as Andrew Lo of MIT, although he is now pushing a non-conventional theory about evolutionary financial dynamics. In any case, I think that the heterodox have the edge here, even if it is not clear what constitutes being in that category.

Update: I forgot about this older post of an interview with Daniel Kahneman ("There were Exactly Five People Who Foresaw This Crisis"):

"It was possible to foresee, and some people did. ... I have a colleague at Princeton who says there were exactly five people who foresaw this crisis... One of them is Prof. Robert Shiller, who also predicted the previous bubble. The problem is there were other economists who predicted this crisis, like Nouriel Roubini, but he also predicted some crises that never came to be."

He was one of those who predicted 10 crises out of three.

"Ten out of three is a pretty good record, relatively. But I conclude from the fact that only five people predicted the current crisis that it was impossible to predict it. In hindsight, it all seems obvious: Everyone seemed to be blind, only these five appeared to be smart. But there were a lot of smart people who looked at the situation and knew all the facts, and they did not predict the crisis." ...

The interesting psychological problem is why economists believe in their theory, but this is the problem with the theory, any theory. It leads to a certain blindness. It's difficult to see anything that deviates from it."

We only look for information that supports the theory and ignore the rest. "Correct..." ...

    Posted by on Friday, August 28, 2009 at 07:10 PM in Economics, Financial System | Permalink  Comments (43)


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