Re: Article in the Chronicle of Higher Education

[pdavidso <pdavidso@xxxxxxx>]

Henry and Gary have asked me to elaborate while Mat  has written:


>===== Original Message From "Forstater, Mathew" <ForstaterM@xxxxxxxx> =====
>Paul can speak for himself, of course, but since he has done so
>previously, I imagine he is referring to his tactic of emphasizing the
>(related issues of) number of axioms, ergodicity versus non-ergodicity,
>and generality (general versus special in Keynes's sense).
>
>My own feeling is that a multi-pronged approach is called for, meaning
>that we need to challenge the mainstream in multiple ways. Paul's
>approach is important, but we need to fashion a variety of internal and
>external critiques, challenging them on their own grounds, as well as
>challenging the grounds themselves.  We also need to fashion alternative
>approaches, and here I think that we need to both develop specific
>alternative paradigms (Post Keynesian, Institutionalist, Marxist,
>Austrian, etc.) as well as to work on a variety of hybrid or eclectic
>approaches that draw on multiple alternative traditions.  Of course,
>every person doesn't have to do all of these--there can be some division
>of labor.


Here is my response to all three:

&#65279;RESPONSE TO ?TASKING ON RATIONAL MAN?

The fact that Notre Dame Committee found no fault of current faculty who were
hired to build an alternative ? is of no value.  In 1974 I was appointed to be
the area wide chair of the Economics discipline at Rutgers University with a
specific mandate from the Provost to product differentiate (vis-a vis
Princeton, etc) the economics discipline in New Brunswick. At that time there
were five departments of economics in New Brunswick and all of them consisted
of mainly low-rated mainstream economists. The Provost wanted to bring media
attention to an alternative economics program at Rutgers.  The Provost was
motivated by an article appearing in THE CHRONICLE OF HIGHER EDUCATION lauding
the University of Massachusetts for providing an alternative to the
neoclassical mainstream of the day.  The Provost urged me to get the same
media attention for an alternative [Post Keynesian discipline at Rutgers]
where there were 81 professorial lines in 5 different economics department at
the New Brunswick Campus Area.

The economics department of Livingston College (Rutgers) recruited under my
guidance  Alfred Eichner, Jan Kregel, Nina Shapiro, Michele Naples, and Bruce
Steinberg (that?s right ? the guy who is now the media talking head of Merrill
Lynch) as non-mainstream economists.   With me that made 6 out of 81 economic
professorial positions that could be identified as non-mainstream!
These six faculty members out published the remaining 75 others - including
outpublishing in mainstream journals. Yet after this, my neoclassical
colleagues revolted and the Administration caved in ----- the rest is history
as they  prevented Steinberg, Naples, and Shapiro from getting tenure? and
made life very unpleasant for Kregel, Davidson and Eichner so that ultimately
Kregel and Davidson left and Eichner died.

So history indicates that Central Administrators back off with their support
when a viable alternative starts to take root ? and the remaining neoclassical
economists protest. Attention from the main stream is desired by
administrators? especially in periods of tight budgets when granting
foundations and government  institutions are dominated by mainstream panels of
peers who think of the grants as ?their? money. [See the anecdote about NSF
and my grant request in John King?s book HISTORY OF POST KEYNESIAN ECONOMICS.]
Administrators now evaluate departments as to whether they are ?profit
centers? and heterodoxy just does not cut it for grant money?
Perhaps the University of Missouri Kansas City an exception as long as
financial support for CFEPS continues to provide funds.

If heterodox economists join other social science departments than they are
lost to the economics discipline ? and the fight over economics is over.



First point: We must continue to fight for publication rights in the major
economics journals published by the American Economic Association ?especially
the AER, JEP, and JEI ? from which we are excluded as not ?rigorous?.  The AEA
association is willing to accept our dues each year? at least 5000 of us
according to the CHRONICLE? and that represents a substantial funding to
propogate neoclassical fiction. How about sending a petition to tghe AEA
indicating a mass resgnation from its membership unless we are given access to
the journals?

  [ I was an important force in pushing the AEA to set up the Schelling
Committee on Journals and I presented the Schelling committee with a proposal
to assure that heterodox members of the AEA had representation on the Board of
Editors of the AEA journal and some voice in editorial decisions.
Unfortunately, I lost that fight primarily for lack of support -- for others
merely railed against theory and the use of math. This latter path of being
against theory and math is a foolish one to take but it allowed the Schelling
committee to endorse such an argument without recommending any institutional
teeth to enforce such actions. ]

This argument against theory and math allows the mainstream -- especially
Nobel Prize winners-- to characterize all heterodox economists as nonrigorous,
soft-headed, bleeding heart, fuzzy thinkers who are trying to use economics to
foster a political program.

	Heterodox economists should NOT permit themselves to be categorized as
against theory or math.  We are only against BAD theory, i.e., bad theory is
theory based on axioms that are not relevant to economic decision making in an
entrepreneurial economy.  In an entrepreneurial economy such as we live in, as
Keynes pointed out in 1935, production and exchange is organized
by the use of money contracts in the face of an uncertain future. And a money
wage (not real wage) contract is ubiquitous in labor markets.

Accordingly attacking neoclassical economics as ?sycophantic to capitalism? ?
as Steve Keen is quoted as saying in the CHRONICLE article, is exactly the
wrong words to use in argument -- for it the make speaker smell suspiciously
like a destructive anarchist in sheep?s (or maybe Marxian)
clothing.   Capitalism  (i.e., an entrepreneurial economy where the money wage
contract is a basic instrument for organizing production), like Democracy, may
not be exactly the most efficient heaven on earth, but with reforms it is
probably the best hope for all us mere mortals.

  The basic attack on ?rational man? should be that in an economy that is
nonergodic, i.e.,  ontologically[ not epistemologically] uncertain,
self-interest decision can result in BAD economic outcomes even for those who
decisions was made in the light of self-interest.
  This has nothing to do with MARXIAN exploitation, unequal power, etc.

  Michael Bernstein?s argument that WWII ?solidified? the trend towards Adam
Smith?s laissez   faire economics ? as suggested in the CHRONICLE article? is
not only misleading but it   historically inaccurate. [I wish Mr. Bernstein
had read Roy Weintraub?s new book HOW   ECONOMICS BECAME A MATHEMATICAL
SCIENCE.  This book, I believe, is a an   excellent book on the history of
economic thought development and therefore we are going to  publish a
symposium of reviews and rejoinder on the Weintraub book in an early
forthcoming issue of the JPKE.]

  Moreover, as someone who lived through WWII and the post war period, I was
appointed as   an Instructor in Physiological Chemistry at the medical school
of the University of Pennsylvania in 1950, I can reply to Mr. Bernstein that
the enormous infusion of government funds for developing application of
mathematical models in various disciplines ? dried up immediately after the
war and did not really beginning again until the late 1950s ? after
  Sputnik. [ All one has to do is look at Herman Miller?s study of INCOME OF
THE AMERICAN PEOPLE to see that in 1950 academic salaries lagged way behind
skilled blue collar workers ? and nominal academic salaries were not much
higher in 1950 than they werein the 1930s. In 1950 a starting salary for a
Full Professor in Physiological Chemistry at the medical school of the
University of Pennsylvania was $4800.]

 Keen is quoted [in the CHRONICLE] as putting neoclassical economics at the
same level of Physics before Newton.  This is a terribly wrong argument for it
suggests that with enough research neoclassical economics can reach at least
the same level of description and prediction  as Newtonian physics.  But that
is NOT possible since Newtonian physics dealt with ergodic processes and the
major economic processes in economics are NONERGODIC.  Therefore  prediction
is impossible? and institution building to offset unforseen outcomes MUST be
the  object of economic policy.

  THE ONE UMBRELLA FALLACY. Mat has responded by arguing that heterodoxy needs
to   encourage many approaches? a similar argument has been put forth by
Harcourt and Dow ?the horses for courses? argument.  I prefer to call this
approach the fallacious idea that ?the  enemy of my enemy is my friend?.

  The history of the Post Keynesian movement in the 1960s to 1980s (see John
King?s book)   shows that this approach leads to failure to force the
neoclassical mainstream to make room  for any alternative in the major
economic journals, textbooks, etc

  In the 1970s, a mixture of Sraffians, Kaleckians, Minskyians[ e.g., Minsky,
Chick, etc],  English neoKeynesians and American Post Keynesians [the latter
are the only ones who  adopted Keynes?s aggregate supply (Z) -- aggregate
demand equilibrium approach ] joined  together under the Post Keynesian
umbrella. [Some may be surprised by my identifying  Minsky as separate from
the American Post Keynesians ? but see pp. 113-14 of John King?s book HISTORY
OF POST KEYNESIAN ECONOMICS where King correctly illustrates  why ?Minsky?s
Post Keynesianism was highly individualistic? . [Why? Basically Minsky was
  not interested in the Z-D equilibrium analysis and his impact was to retard
PK in the US by providing people like Solow with a different model than the
basic Z-D model.  Using Minsky  against other Pkers permitted Solow to argue
that Pkers were a confusing and confused group  of malcontents who saw
differing problems in capitalism but had no consistent model to   provide a
solution.  Thus Solow could dismiss Post Keynesians as they were reaching
their
  pinnacle  (Notoriety?) Of professional attention as an inconsistent group of
idiot savants.

  I could go on to argue why Deidre McClosky?s?three vices? (as described in
THE  CHRONICLE)  are not the proper argument either.  But this will only
lengthen this already long response.

  Regarding math and economics I again urge people to read Roy Weintraub?s
book HOW ECONOMICS BECAME A MATHEMATICAL SCIENCE and the symposium on this
book
  which we hope to publish in the Summer 2003 issue of the JPKE.

  I should note that the defenders of neoclassical economics ? e.g., Solow and
Arrow [in the  CHRONICLE article] use a form of pluralism to defend the
mainstream. When challenged about self- interest decisions and efficiency they
point to a ?broadened? view of rationality ?  i.e., game theory, behavioral
economics,etc.  Thus they can reject the Dow call for pluralism --
  because they provide ?rigorous? pluralism -- while heterodoxy rail against
rigor even in pluralism.  Many heterodox economists let them get away with
that ? because  it ?looks? like they are moving towards the heterodox outcomes
even if these main stream pluralists are not adopting the heterodox theory

  But we should attack vigorously this mainstream ?broadening? of their theory
because these  other mainstream approaches ? still fundamentally assume an
underlying ergodic economic system. [See my article on probability and
uncertainty in the 1991 issue of JOURNAL OF ECONOMIC PERSPECTIVES] To the
extent they permit uncertainty to enter the analysis -- it is epistemological
  uncertainty and therefore in the LONG RUN the market system ? via a social
Darwinistic process? will weed out the fools and the survivors will be those
who made decisions ?as if? [to use Milton Friedman?s phrase] they possessed
the ?correct? information about the future!

  So Steve Keen is wrong in saying (as quoted in THE CHRONICLE) that these
neoclassicals  are ?getting away from the traditional assumptions?.  In the
short run they permit a certain form of limited rationality (Simon?s bounded
rationality) while permitting some decisions to be erroneous [to say decisions
are erroneous MEANS one assumes that the real path of the economy is
preprogrammed, i.e., ergodic] while in the long run , the neoclassical truths
still are the outcome.

  When will neoclassical economics give up a fundamental assumption (axiom)
such as the neutrality of money and the ergodic axiom -- the latter Samuelson
,in a 1968 article in the Canadian Journal of Economics, insisted is essential
in making economics a science?

When a neoclassical pluralist develops a model where money is not neutral in
either the short run or the long run , then AND only then, we will know that
 neoclassical pluralism is moving towards a model that is applicable to an
understanding the   operation of an entrepreneurial economy.

  Steve Keen ?s argument t (again quoted in the CHRONICLE) that ?If what I
demolish is a  straw man, why do they teach him?? is a cheap shot and a bad
argument.  After all in  principles of physics we are all taught that if we
drop a feather and a stone from the top of the leaning tower of Pisa they will
both hit the ground at the same time ? even though we know  empirical fact
that the feather will take longer to hit the ground.  But demolishing the
straw
  man of the feather-stone model by empirical facts is NOT sufficient to
demolish the law of  gravity!! And Steve should know better.


  So what is the correct argument??

  We should take our lead from Keynes one of the best logicians and ?minds? of
the 20th
  century. [See p. 16 of Keynes?s GT}


 [ P.S. I am surprised the author of the CHRONICLE article never contacted me]

 Paul

Paul Davidson
Editor, Journal of Post Keynesian Economics
University of Tennessee
SMC 503
Knoxville, Tennessee 37996-0550
phone # (561)369-1951; fax #(561)369-1951;
email pdavidson@xxxxxxx
http://econ.bus.utk.edu/davidsonextra/Davidson.html