The Davidson Challenge

Paul Davidson has, for a long time, been a stalwart of non-orthodox economics. He plugs away gamely proselytizing what is called Post-Keynesian thought. For those of you unaware of the nuances and differences within economics, the Post-Keynesians see themselves as the true keepers of Keynesian thought and disparage the more recent school of Keynesians gathered under the so-called New-Keynesian banner. This latter group gets much more public attention largely because it includes notables such as Paul Krugman, and while the differences may appear minor to outsiders, they are deep and very real to insiders.

In my view the Post-Keynesians are the genuine heirs to the tradition because they are more rigorous in tossing overboard the more egregious – dare I say stupid? – assumptions of the various classical and neoclassical traditions that Keynes himself attempted to break away from.

Davidson has laid down a challenge. He wants the non-orthodox community within economics to stop throwing around insults at the preposterous nature of modern orthodoxy and get down to the business of developing a new economics that deserves respect such that it could enable the rehabilitation of what is, frankly, the well deserved truly rotten reputation attaching to economics currently.

He gets exasperated when people like me call the antics and hubris of the orthodox folk folly and worse. I can understand why. He has spent a lifetime trying to carry the torch for a sensible system of economics only to be ignored even when his opponents agree his points are valid. It must be frustrating to be agreed with and then ignored.

Which is why I sometimes resort to name calling.

It is utterly unscientific to plod along in a line of thinking when that line has been exposed as both empirically and theoretically bankrupt. Were chemistry to follow the same rules of academic advance as economics it would be still stuck in an era of alchemy. Chemists would be saying things like: “yes we know it’s daft, unreal, useless, and outlandish, but, what the heck, it’s what we all do.” For such a statement is what far too many economists have been content to say.

In private of course.

I have said before that economics is an intellectual archipelago. It is a series of islands of thought separated by stretches of ocean. Some islands are larger than others. Some stretches of ocean are sufficient that one island cannot even see any others. Each island believes it has true insights others don’t have. Each island rejects visitors from its neighbors and fights to maintain a purity it can pass along to future generations.

The largest island – where the orthodox live – is the epicenter of ignorance for two reasons. First it is the island upon which the errors are most highly concentrated and simultaneously most highly valued. The debilitating belief in long term equilibrium is an example of the errors that clutter this island. No one has ever seen one. No one has ever been able to prove one could exist without a supporting cast of assumptions that are so utterly ridiculous that no one not on the island can hold back the laughter when confronted with them. Yet it perpetuates its farce despite many of its most articulate inhabitants declaring that the farce is, well, farcical.

Second, it is the island most hell bent on forgetting about its neighbors. It is the most hostile to visitors. It is the most careful in expunging doctrinal anomalies. It is the most protective of its young – they are brainwashed early on to believe that there are no other islands and that their truth is so powerful it can be exported across the oceans to invade other academic disciplines like a pernicious weed.

I like this weed analogy.

It is very hard to root out vestiges of orthodox economics from related subjects. Such is the vigor of its infestation and the allure of its creed that host subjects are often unaware that they have imported ideas based upon improbable – impossible – assumption sets.

Perhaps a better analogy is that of a virus. You choose.

Either way its virulence is dangerous. It should be confined to its island distant from policy makers, business people, and other folk who could do real damage were they infected by it.

The reason this particular island can be so self-assured about its ideas is that they appear comprehensive. All the other islands, most anyway, have a more narrow view. They harbor ideas that are less extensive, offer only partial explanations, or are petulantly or even defiantly carrying forward obscure ideas. They often seem to revel in being odd, as if by being odd they are relieved of being taken seriously and thus not subject to severe scrutiny. They can thus carry on a conversation safely outside the major currents and avoid having their ideas tested and thus possibly falsified by experience.

In my experience there are many such islands.

This is why what are sometimes referred to as the heterodox economists – those who live on the smaller islands – are difficult to gather under a coherent banner. They often gather. But whenever they disperse it is with the assurance that their small island is undisturbed and that the ocean still surrounds them with the safety of separation. For they all fear losing independence. They fear that if the ocean fell away and thus joined their smaller islands they would each lose the identity they have so carefully cultivated. They decry the hegemony of the large orthodox island and have so struggled against it that they detest creating a new hegemony more than the old. They value the old fights even if they appear futile.

This is why Davidson’s challenge is so difficult to advocate. And, yet, advocate it I do.

I agree we need a more coherent and comprehensive alternative to orthodoxy.

I agree that Davidson’s rejection of ergodicity is a great place to start.

Let’s unite behind the rejection of equilibrium.

Let’s get rid of the micro foundation that sits underneath modern macro.

Let’s embrace the role of uncertainty. Of institutions. Of time. Of process. Of gender and class. Of social construction. Of the unity of society and economy. And of a whole host of other ideas on those smaller islands.

For the ocean between those smaller islands is very shallow. While the ocean beyond which lies the orthodox is deep and treacherous.

So: Paul I get where you want to go. We need a meeting of the elders. Not to swap erudite papers or to entrench well known doctrines. But to think. Think afresh.

Now that would be different in economics.