[ From Gintis' web site: http://www-unix.oit.umass.edu/~gintis/ ]
Review of Edward Fullbrook, A Guide to What's Wrong with Economics By Herbert Gintis In June 2000, several Parisian economics students circulated a petition calling for the reform of their economics curriculum. Their complaint was the inability of the neoclassical economics they were studying to satisfy their need for a deep understanding of the operation of real-life economies. They called for a reform of the university curriculum that would tolerate analytical diversity and foster critical dialogue across contrasting approaches to economics. Their demand was taken up by large numbers of students, and a similar demand was formulated by Ph.D. students at Cambridge University in the UK the next year. This reform movement has grown in Europe, under the rubric of "post-autistic economics." This volume presents their case, but with voices of professional economists rather than students. My interest in this book and this movement stems from my life-long battle against neoclassical orthodoxy. My conclusion from reading this edited volume is that the post-autistic economics critique is incapable of leading to positive change in how economics is done and taught. The central critique is that neoclassical economics does not describe real-world economies, and must be replaced by or supplemented with other approaches. This is just wrong. While the elementary courses are far from the real world, advanced courses in such areas as labor, international finance, macroeconomic policy, economic development, law and economics, environmental economics, and so on, are quite real-world. If an undergraduate students left with a degree in economics that allowed them to understand The Economist and the Journal of Economic Perspectives, the level of economic awareness in the world would be considerably higher. If the undergraduate curriculum does not bring students to this level, the curriculum is, to my mind, faulty. Perhaps less stress on arcane theories that are relevant only to professional economists should be replaced by a more historical, institutional, and hands-on approach to microeconomic and macroeconomic issues. But, this is a critique of pedagogy, not of economic theory. A more gutsy critique would be to say that neoclassical theory is incorrect, not simply "unrealistic," and to provide alternatives precisely where the theory is incorrect. Moreover, the critique should focus on the professional level of neoclassical economics, not the models that are presented in undergraduate and introductory graduate courses. I would like to see an alternative curriculum, not just some pap about letting 100 flowers bloom and the need for real-world economics. Marxism, Keynesianism, Institutionalism, Syndicalism, Austrian economics, and other alternatives to the neoclassical model all developed strongly for a while and then foundered. They certainly do not present analytically interesting alternatives to neoclassical economics, in my opinion. I do not want to suggest that neoclassical economics is the only credible starting point for serious economic analysis, but I am not satisfied with old, warmed-over theories that have not stood the test of time.The pleas for democracy, toleration, and pluralism by the "heterodox" is simply an admission that they can't win the intellectual battle by having better theories, only by having more troupes. Perhaps more damning, the authors seem completely unaware of contemporary economic theoretical research, which addresses many of the serious problems with neoclassical theory. There is a short piece on behavioral economics, which has been one of the most vibrant areas in economics over the past 25 years, but the author assumes that behavioral economics is an alternative to neoclassical economics. Rather, it is a complement to economic theory and a source of empirical data that can be used to generate better models. Behavioral economics uses decision theory and game theory to critique the Homo economicus of traditional economic theory, but the profession is responding by revising Homo economicus, not by rejecting behavioral economics (see recent papers in Econometrica, the Quarterly Journal of Economics, and other journals). Post-autistic economics ignores the innovative work of Ernst Fehr, Abijit Banerjee and Esther Duflo, Colin Camerer, Samuel Bowles, George Loewenstein, Daniel Kahneman, Benoit Mandelbrot, Edward Glaeser, David Laibson, Matthew Rabin, Bruno Frey, Elinor Ostrom, Barkley Rosser, Armin Falk, Simon Gaechter, Jean Tirole, Aldo Rustichini, and many others. It ignores neuroeconomics, econophysics, and the notion of the economy as a complex system, with its stress on agent-based modeling. These researchers transform analytical economics to meet the empirical challenges posed by new data. Some of them are extremely critical of neoclassical theory, and others are a bit more tolerant. Unlike leaders of the post-autistic school, however, they do not urge a retreat to philosophy or some defunct 20th century doctrine. The informal buzz about neoclassical economics is that it is conservative and necessarily supplies right-wing answers to policy issues. This is incorrect. Neoclassical economics suggests the various implications of different policies and leaves it to policy makers to weight the costs and benefits according to their values. For instance, neoclassical theory suggests that raising the minimum wage will lead to a decline in the demand for low-wage labor unless the local demand effects of the higher wage in communities offsets the labor market substitution effect. What is wrong with that argument? Moreover, the theory suggests that the adverse demand for labor effect could be completely offset by a wage subsidy to employers or to the workers themselves (EITC is just this). The gossip also is that neoclassical economists are all conservatives, so the theory must be wrong. In fact, neoclassical economics is completely compatible with state ownership of the means of production, and other socialist institutions. This follows from the Fundamental Theorem of Welfare Economics, and was used by Oskar Lange and other socialists to critique Hayek and von Misses in the great socialism debates of the 1930. Unfortunately, the Fundamental Theorem is one of the more monstrously incorrect parts of the neoclassical edifice. The papers in this book are generally present no challenge for the professional economist. Many are just superficial, and some are egregiously incorrect. Perhaps the most bizarre is the paper by Bernard Guerrien, "Can We Expect Anything From Game Theory?" Guerrien asserts, without evidence, that "game theory models are always `stories', like fables or parables, with no relation to real-life situations." Really? What about auction theory, which has been so successful in organizing the sale of bandwidth in many countries? How does one explain the role of game theory in revolutionizing Industrial Organization? Moreover, game theory is the basis for all of behavioral economics, and accounts for its experimental success in large part. Guerrien's description of game theory is quite faulty. "...players are supposed to choose separately and simultaneously one element of their strategy set...", says Guerrien, and launches a broad critique on that basis. But, he is just wrong. Evidently he never heard of extensive form games or behavioral strategies. In short, the intellectual level of this critique is low. Neoclassical economics is a flawed doctrine that deserves to be treated with continual hostility---but hostility with a professional eye towards replacing poor with superior models and whole theories.. New and better theories must be capable of convincing young economists with no preconceived notions or special political pleading of the superiority of the new over the old. Taking to the streets with petitions is useful if it stirs up research activity, but not otherwise. Contemporary economic theory is deep and challenging. It has some of the answers, and will aid in the development of other areas in which its answers are inadequate. In other areas, it is simply and impediment to understanding. This much is appreciated by most of the post-autistic writers, and it appears to me to be correct. In perhaps the best piece in the book, Geoffrey M. Hodgson asks "Can Economics Start from the Individual Alone?" He argues persuasively that it cannot. The methodological individualism of neoclassical economics is incorrect, and has led to quite bizarre forms of theorizing in cutting-edge game theory. However, traditional institutional economics is hardly the remedy. Rather, I speculate that a fundamental theorem of Robert Aumann on the relationship between correlated equilibrium and Bayesian rationality is the key to transcending neoclassical economics' methodological individualism. But, the post-autistic people who contributed to this book probably do not know or do not understand Robert Aumann's contributions. A pity.
