Hedoin, Cyril. "Towards a Paradigm Shift in Economics." LA VIE DES IDEES June 17, 2010.

In his article "Who Are These Economists, Anyway?," James K. Galbraith sets out to list the economists he believes were sufficiently clairvoyant to foretell the financial crisis. Galbraith argues that they are not found where expected, in other words at the heart of economics, but instead are located in the margins, or even altogether outside of academic economics.

As he tells his reader up front, Galbraith’s list of economists is not exhaustive, and it clearly based in part on his own knowledge and his sense of the field. He jumbles together names like Dean Baker, Hyman Minsky, Wynne Godley and Gary Dimsky, figures of different intellectual origins but who, according to Galbraith, were all able to foresee the financial crisis (or in the case of Minsky, who died in 1996, to have provided theoretical tools for analyzing the mechanisms of financial instability). These authors also share the fact that they are not from the profession’s center, from what has been called « the mainstream », or, more awkwardly, « neoclassical theory ». The basic framework of Galbraith’s argument is that this reveals—or makes even more obvious—the fact that economics has been headed down the wrong path for years. He maintains that, as a consequence, it is important for the field to take advantage of the financial crisis to reorient itself, even if it means making a definitive break with conventional science. As Galbraith concludes, « It is therefore pointless to continue with conversations centered on conventional economics. The urgent need is instead to expand the academic space and public visibility of ongoing work that is of actual value when faced with the many deep problems of economic life in our time. […] The point is not to argue endlessly with Tweedledum and Tweedledee. The point is to move past them toward the garden that must be out there, that in fact is out there, somewhere ».

Galbraith’s position is interesting, and at least it is constructive because he is attempting to ground himself in (while also showcasing) analyses that, although on the periphery of economics, are trying to offer alternatives to the dominant approach. As I will note later in my response, numerous economists have expressed dissatisfaction with the current state of the discipline, particularly with the field of macroeconomics. The best known—but by no means the only—of these critics is Paul Krugman (2009), a point on which I concur with Galbraith. Nevertheless, my point of view differs from his in that, while we agree that the science of economics is in need of change, we locate the seeds of this much-needed reorientation differently, and I maintain that internal evolution at the discipline’s heart is more likely than a « scientific revolution » energized by the its margins. . . .

Read the rest here: http://www.laviedesidees.fr/Towards-a-Paradigm-Shift-in.html.

Wallace, Lane. "Multicultural Critical Theory. At Business School?" NEW YORK TIMES January 9, 2010.

Ever since 1959, when two influential studies by the Ford and Carnegie Foundations chastised business schools as being too vocational, most M.B.A. programs have taken anything but a broad approach to their subject matter.

With few exceptions, traditional instruction has involved separate disciplines like finance, marketing and strategy, with an emphasis on quantifiable analyses and methods. While some valued what a liberal arts background could provide, the dominant view was that those elements had no place in professional business schools.

BUT even before the financial upheaval last year, business executives operating in a fast-changing, global market were beginning to realize the value of managers who could think more nimbly across multiple frameworks, cultures and disciplines. The financial crisis underscored those concerns — at business schools and in the business world itself.

As a result, a number of prominent business schools have re-evaluated and, in some cases, redesigned their M.B.A. programs in the last few years. And while few talk explicitly about taking a liberal arts approach to business, many of the changes are moving business schools into territory more traditionally associated with the liberal arts: multidisciplinary approaches, an understanding of global and historical context and perspectives, a greater focus on leadership and social responsibility and, yes, learning how to think critically. . . .

Read the rest here: http://www.nytimes.com/2010/01/10/business/10mba.html?em.

Horn, Karen. "The Serendipity of Genius." STANDPOINT (October 2009).

What is economics? Is it a science? Haven't all its failures of prediction and political guidance proved its lack of respectability? The current financial crisis also reveals a deep crisis of economics. We seem to be witnessing the dismantling of an approach that, at least in its shallow mainstream version, has to make a series of absurd assumptions in order to reach any conclusion — with both the assumptions and the conclusions being astonishingly out of touch with reality. Its scholars have come to use mathematical logic as some sort of l'art pour l'art, falling into the trap of technicality rather than aiming at the wider horizon of an all-encompassing social science.

Competent economists are the rarest of birds. . . . The master-economist must possess a rare combination of gifts...He must be mathematician, historian, statesman, philosopher — in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man's nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician.

We owe this job description to John Maynard Keynes and the situation hasn't changed since he wrote it nearly a century ago. The scarcity of good economists has indeed been a constant plague of humankind. This is not to say that all economists are by nature technocrats who fail to recognise the relevant questions. This would just not be true. The verdict of narrowness and non-scientific shallowness cannot be directed against those economists who have made their career outside the mainstream, the so-called "orthodoxy" — in institutional economics, for example, or in public choice, in law and economics, game theory and behavioural finance. In these relatively new and innovative fields, scholars have been endeavouring to fill the gaps in mainstream theory, hoping to contribute to what should one day be a better and more fruitful mainstream. The goal is a body of theory that would be able to answer more relevant questions about how mankind can peacefully live together in society, granting personal autonomy and economic progress for all, building on the institutional achievements of Western civilisation, such as individual liberty, the free market and the rule of law. . . . Read the rest here: http://www.standpointmag.co.uk/node/2164/full.

Sorman, Guy. "Economics Still Doesn’t Lie." CITY JOURNAL September 25, 2009.

“The French have heads not for economics but for politics,” Alexis de Tocqueville wrote wisely in 1848. Along with this disinclination toward economics, the French tend to be anticapitalist and friendly to state intervention. So for them, for others annoyed by economics, and even more for those who can’t stand the free market, the recession has an upside: it’s open season on economists. How could economists fail to predict the crisis? Doesn’t their shortsightedness impeach the very status of economics as a science? Not at all. Economists follow the scientific method. Based on observed facts, they measure, examine regularities, derive models from such regularities, and submit the models to criticism and to the test of reality. Thus economics progresses from one falsifiable hypothesis to another. Some models stand up to tests; these become laws that can be expressed mathematically; and the number of economic laws grows. Economics is a science because it is a system of thought that moves forward, leaving behind old notions that have proven false. And not least among its accomplishments is improving the condition of the human race. Consider the history of the twentieth century after 1945. Millions of human beings have emerged from poverty, and millions continue to do so. Eastern Europe is rebuilding; Brazil, India, and China are making great progress. But their accomplishments are not due to cultural shifts, political changes, or the sudden discovery of natural resources. Rather, these nations moved out of poverty and toward relative well-being by following sound economic strategies: free trade, business competition, and a stable money supply. These strategies are part of a broad consensus among economists about the way to achieve economic growth. Other elements of that consensus include the relation between wage levels and employment, Joseph Schumpeter’s concept of “creative destruction” (economic evolution spurred by innovation does not proceed in smooth linear fashion, but through alternating phases of expansion and crisis), and the advantages of securitization (namely, the spreading of financial risk). Economists continue to have lively quarrels, but these disputes generally take place within certain parameters. For an economist to contest the principle of free trade or to recommend inflation, for example, would be comparable to a physician’s practicing bloodletting. . . . Read the rest here: http://www.city-journal.org/2009/eon0925gs.html.

Rushkoff, Douglas. "Economics is not a Natural Science." EDGE August 11, 2009.

We must stop perpetuating the fiction that existence itself is dictated by the immutable laws of economics. These so-called laws are, in actuality, the economic mechanisms of 13th Century monarchs. Some of us analyzing digital culture and its impact on business must reveal economics as the artificial construction it really is. Although it may be subjected to the scientific method and mathematical scrutiny, it is not a natural science; it is game theory, with a set of underlying assumptions that have little to do with anything resembling genetics, neurology, evolution, or natural systems. . . . Read the whole essay: http://www.edge.org/3rd_culture/rushkoff09/rushkoff09_index.html.

"What Went Wrong with Economics." THE ECONOMIST July 16, 2009.

Of all the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself. A few years ago, the dismal science was being acclaimed as a way of explaining ever more forms of human behaviour, from drug-dealing to sumo-wrestling. Wall Street ransacked the best universities for game theorists and options modellers. And on the public stage, economists were seen as far more trustworthy than politicians. John McCain joked that Alan Greenspan, then chairman of the Federal Reserve, was so indispensable that if he died, the president should “prop him up and put a pair of dark glasses on him.” In the wake of the biggest economic calamity in 80 years that reputation has taken a beating. In the public mind an arrogant profession has been humbled. Though economists are still at the centre of the policy debate—think of Ben Bernanke or Larry Summers in America or Mervyn King in Britain—their pronouncements are viewed with more scepticism than before. The profession itself is suffering from guilt and rancour. In a recent lecture, Paul Krugman, winner of the Nobel prize in economics in 2008, argued that much of the past 30 years of macroeconomics was “spectacularly useless at best, and positively harmful at worst.” Barry Eichengreen, a prominent American economic historian, says the crisis has “cast into doubt much of what we thought we knew about economics.” In its crudest form—the idea that economics as a whole is discredited—the current backlash has gone far too far. If ignorance allowed investors and politicians to exaggerate the virtues of economics, it now blinds them to its benefits. Economics is less a slavish creed than a prism through which to understand the world. It is a broad canon, stretching from theories to explain how prices are determined to how economies grow. Much of that body of knowledge has no link to the financial crisis and remains as useful as ever. And if economics as a broad discipline deserves a robust defence, so does the free-market paradigm. Too many people, especially in Europe, equate mistakes made by economists with a failure of economic liberalism. Their logic seems to be that if economists got things wrong, then politicians will do better. That is a false—and dangerous—conclusion. . . . Read the rest here: http://www.economist.com/printedition/displayStory.cfm?Story_ID=14031376.

Horn, Karen. "Why Adam Smith Still Matters." STANDPOINT ONLINE (April 2009).

John Maynard Keynes is high in the list of bestselling books now. Adam Smith is not quite as popular. The reason is not that books from the 18th century tend to be a demanding read: Keynes's General Theory of Employment, Interest and Money, although from the 20th century, is no piece of cake either. Instead, the present global financial crisis has made the godfather of classical economics look strikingly irrelevant in comparison with Keynes, the inventor of modern disequilibrium theory. Even worse, now that bankers are being castigated as the incarnation of greed, blindness and irresponsibility, the man who wrote in his famous Inquiry into the Nature and Causes of the Wealth of Nations that "it is not from the benevolence of the butcher, the brewer, or the baker" - or perhaps the banker in our day - "that we expect our dinner, but from their regard to their own interest" is again accused of being the chief advocate of heartless laissez-faire capitalism, a system that failed and had to fail. In this view, capitalism is nothing but a false religion, with Mammon as its god and Smith as its high priest. Critics worry that markets need a moral foundation that they automatically erode. They ridicule the naïve belief that free markets bring everybody happiness at no cost, a conviction allegedly lacking all philosophical underpinnings. This is entirely off the mark. The last thing one can say about Smith is that he lacked philosophical depth. A moral philosopher, Smith was a figure of the Scottish Enlightenment, a progressive school of philosophy with members including Francis Hutcheson, David Hume and Adam Ferguson. Their approach was inspired by Isaac Newton, perhaps the greatest scientist ever. His deep persuasion was that simply observing reality enables us to discover the underlying natural principles. The Scottish Enlightenment thinkers aimed at shedding light on the laws governing human behaviour, and on their consequences for life in society. . . .

Read the rest here: http://www.standpointmag.co.uk/node/1069/full.

Posner, Richard A. "Why the Economic Crisis Was Not Anticipated." CHRONICLE OF HIGHER EDUCATION April 17, 2009.

An article in the October 11 New York Times attributed the almost universal failure to anticipate our current economic crisis to "insanity" — more precisely, to a psychological inability to give proper weight to past events, so that if there is prosperity today we assume that it will last forever, even though we know that in the past booms have always been followed by busts. But experts on the business cycle, such as Federal Reserve Chairman Ben Bernanke, are not confined to basing predictions on naïve extrapolation. So why did he and other experts, inside and outside of government, neglect warning signs of a coming crash? Real-estate bubbles are common. The supply of "good" land is fixed in the short run, the housing stock is extremely durable and therefore does not expand rapidly when demand increases, and land and the improvements on it cannot be sold short. And the bursting of a real-estate bubble can lead to bank insolvencies — as it did in Japan in the 1990s — because most real estate has heavy indebtedness, financed by banks or other financial intermediaries, and real-estate debt is a significant fraction of all debt. When the rise in housing prices began to slow in 2005 after an increase of more than 60 percent since 2000, the press began talking about a housing bubble. Newspaper articles featured such headlines as "Housing Bubble Is Real, So Don't Get Hurt When It Finally Pops," "If Housing Bubble Pops, Look Out!," and "Hear a Pop? Watch Out." Yet in October of that year, Bernanke, then on the Fed's board of governors, denied there was a housing bubble, saying that "these price increases largely reflect strong economic fundamentals." The alarm bells were sounded ever more loudly in the following years. On August 17, 2008 — just a month before the financial tsunami struck — The New York Times Magazine published an article revealingly titled "Dr. Doom" about an economist at New York University named Nouriel Roubini, who, for years, had been predicting with uncanny accuracy what has happened. Two years earlier Roubini had "announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide, and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks, and other major financial institutions like Fannie Mae and Freddie Mac." No one in a position of authority in government, and very few in business or academe, heeded the warnings. In May 2007 Bernanke said, "We see no serious broader spillover to banks or thrift institutions from the problems in the subprime market," though by then many banks and thrift institutions were insolvent. In February 2008 he said, "I expect there will be some failures," referring to smaller regional banks that had invested heavily in mortgage-backed securities, but "among the largest banks, the capital ratios remain good, and I don't anticipate any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system." The financial crisis, when it finally struck the nation full-blown in September 2008, caught the government, the financial community, and the economics profession unawares. . . . And not just Republican officials and the economists who advise them. President Bill Clinton's economic policies were shaped by establishment Wall Street figures, such as Robert Rubin, along with economists like Alan Greenspan, a conservative, and Lawrence H. Summers, a moderate. The many positive experiences with deregulation and privatization, the many economic success stories that followed the collapse of communism, and the many failure stories of countries that curtail economic freedom supported this belief system and made it bipartisan. There hadn't been a depression in the United States since the 1930s, and economists believed and were assuring the public that there would never be another one because they had learned how to prevent depressions. Overconfidence is a common cause of being surprised. . . . Read the rest here: http://chronicle.com/temp/reprint.php?id=1n299m9tcq02w99lgc8x14v0qdc9cmpd.

Fish, Stanley. "Faith and Deficits." THINK AGAIN BLOG. NEW YORK TIMES March 1, 2009.

Talk about the economy is everywhere, and the same things are being said. We’re in a deep hole. We may not be able to dig ourselves out. We’re underwater. Our assets are overwhelmed by our debts, which keep growing. The question is who or what can get us out of this mess? Some answer Obama. Some (a much smaller group) say Geithner. Some (in desperation) say China. But others say Jesus Christ. At first glance, Christian doctrine and economic exigencies seem unrelated, but in recent days I have come across two different ways of bringing them together. . . . Find out what these are here: http://fish.blogs.nytimes.com/2009/03/01/faith-and-deficits/.

Bennet, Drake. "Paradigm Lost." BOSTON GLOBE December 21, 2008.

The deepening economic downturn has been hard on a lot of people, but it has been hard in a particular way for economists. For most of us, pain and apprehension have been mixed with a sense of grim amazement at the complexity of what has unfolded: the dense, invisible lattice connecting house prices to insurance companies to job losses to car sales, the inscrutability of the financial instruments that helped to spread the poison, the sense that the ratings agencies and regulatory bodies were overmatched by events, the wild gyrations of the stock market in the past few months. It's hard enough to understand what's happening, and it seems absurd to think we could have seen it coming beforehand. The vast majority of us, after all, are not experts. But academic economists are. And with very few exceptions, they did not predict the crisis, either. Some warned of a housing bubble, but almost none foresaw the resulting cataclysm. An entire field of experts dedicated to studying the behavior of markets failed to anticipate what may prove to be the biggest economic collapse of our lifetime. And, now that we're in the middle of it, many frankly admit that they're not sure how to prevent things from getting worse. As a result, there's a sense among some economists that, as they try to figure out how to fix the economy, they are also trying to fix their own profession. . . . Read the rest here: http://www.boston.com/bostonglobe/ideas/articles/2008/12/21/paradigm_lost/?page=full.

Sorman, Guy. "Economics Does Not Lie." CITY JOURNAL 18.3 (2008).

The dismal science is at last a science—and the world is the beneficiary. Though economics as a discipline arose in Great Britain and France at the end of the eighteenth century, it has taken two centuries to reach the threshold of scientific rationality. Previously, intuition, opinion, and conviction enjoyed equal status in economic thought; theories were vague, often unverifiable. Not so long ago, one could teach economics at prestigious universities without using equations and certainly without the complex algorithms, precise (though not infallible) mathematical models, and computers integral to the field today. . . . Read the rest here: http://www.city-journal.org/2008/18_3_economics.html.

Lunn, Peter. "Behavioural Economics: is it Such a Big Deal?" PROSPECT MAGAZINE 150 (September 2008).

Orthodox economic models are not wrong as such, but rather sloppy, biased approximations of how our economy works. They present a cartoon characterisation of economic life, greatly exaggerating one side of our nature at the expense of others. Behavioural economics has started to paint a more realistic picture. Its progress is following the pattern of a scientific revolution. At first the findings seem to be anomalies and oddities, but on closer inspection they yield new principles and regularities. Economists trained in the conventional approach were initially resistant—many still are—but over time the more open-minded and, interestingly, younger economists are being enticed towards the new field; testing explanations, deriving implications. . . . Read the rest here: http://www.prospect-magazine.co.uk/article_details.php?id=10359.

"Neuroeconomics: Hype or Hope?," Erasmus Institute for Philosophy and Economics, Erasmus University Rotterdam, November 20–22, 2008.

After having operated as a separate science for decades, economics is now opening up its boundaries to other disciplines. One such discipline is cognitive neuroscience. The nascent field of neuroeconomics is a booming business. Worldwide, more than a dozen of new Centers for Neuroeconomics Studies equipped with high tech brain scanners have been founded within the past few years. Several papers on neuroeconomics already found their way into prestigious academic journals such as Science and Nature. At the same time neuroeconomics meets resistance among economists (as perhaps best expressed in Gul and Pesendorfer's (2008) "The Case for Mindless Economics"). Many economists and methodologists are skeptical about the contribution neuroeconomics can make to economics. They question the relevance of data about decision-making processes at the neural level for addressing the sorts of questions economics is traditionally interested in.Is neuroeconomics a flimsy and fleeting hype in economics that is overselling itself? Or is neuroeconomics here to stay, offering the hope that economics will finally be transformed into a modern science? Topics: The Conference aims to offer a platform for discussing methodological and philosophical issues raised by the advent of neuroeconomics. More specifically, we invite paper submissions on the following topics: - What standards of scientific respectability and progress are implied (or invoked) in the claim that neuroeconomics will finally move economics into its proper standing of a modern science? - What consequences does neuroeconomics have for the subject matter, scope and method of economics? - How do the different disciplines of economics and of cognitive neuroscience relate to each other in neuroeconomics? Does the relationship between economics on the one hand and cognitive (neuro)science on the other need to be redefined? - Do we first need to know how different levels of analysis (e.g. of observable choice behavior, of its underlying computational algorithms and of the neural "hardware" in which they are implemented) relate to each other before we can tell how neuroeconomic evidence and findings bear on economics? If so, what levels are at stake and how are they related? - What light can insights from contemporary philosophy of mind shed on the topics raised here? - How is neural activity in people related to the various institutions in which they function? How can an improved understanding of neural processes inform institutional analysis? - What is the role and place of evolutionary theory in neuroeconomics Keynote Speakers: • Ariel Rubinstein (Tel Aviv University, New York University) • Paul J. Zak (Claremont Graduate University) • Don Ross (University of Alabama Birmingham, University of Cape Town) • John Davis (University of Amsterdam, Marquette University) • Uskali Mäki (University of Helsinki) • Jack Vromen (Erasmus University Rotterdam) • Francesco Guala (University of Exeter, San Raffaele University) Further information is here: http://www.eur.nl/fw/english/eipe/eipe_conferences/.