I made some bold statements in my inaugural post. Can I back them up? First, I direct your attention to INET - the Institute for New Economic Thinking. Their name pretty much sums up their purpose. A Bunch of fringe quacks? Quite the opposite. Dozens of distinguished economists, among them 5 Nobel prize winners, all admitting that something is very wrong within economics. For a quick look, check-out Joe Stiglitz's take in this video:
The Economist also talks about INET in this article:
A challenge to economic orthodoxy
Now, while I think INET is a step in the right direction, I think it necessarily suffers from immensely entrenched dogma. Yes, dogma - "A set of principles laid down by an authority as incontrovertibly true." Just as atheists don't often become priests, in order to obtain a PhD in economics, one must be a believer in the core tenets of economic theory. Yes, tenets. There are certain aspects of economic theory that are rarely or never questioned. Equilibrium. Rationality. Utility optimizing. These concepts are the basic foundation blocks upon which economic models are constructed, but where did they come from? What proof do we have of their validity? What are they? Can I see an equilibrium scamper through the forest? Can I taste rationality?
First, equilibrium. Here is a concept adopted from 19th century physics. (Economists stole much of their methodology from physicists.) Equilibrium is the idea that there exists a theoretical point at which economic forces balance, at which they achieve "equilibrium." Fine notion, but what does it actually mean? Can we observe this balancing of forces? No. Economists accept it more as a tendency than an actual observable state. Economic forces are always trending or pushing in some direction and equilibrium is a useful way of analyzing which direction forces are trending. Fine, but what does that mean? It means, equilibrium is a metaphor. A conceptual tool - not an actual condition. Holy shit. Thou speakest false! Afraid not. Equilibrium is not an actual state of existence, it is merely a mechanical metaphor adopted from 19th century physics. To be sure, it's a useful metaphor, but it is still a tool rather than an actual state of being. This is a very important distinction, and one that is rarely considered. I have to admit, I might not have considered it had I not read Richard Bronk's The Romantic Economist. The title sounds a bit hokey, but it's actually a very cerebral and engaging book by a professor at the London School of Economics.
If equilibrium analysis is merely a conceptual tool, could not other conceptual tools replace it? Why stay beholden to something arbitrarily adopted over a century ago? Perhaps, other metaphors might be more useful. Rather than trying to fix economics, why not reconstruct it entirely? But Jacob, that's so much work! Why throw the baby out with the bathwater? Well, I think the baby already drowned in the tub. Ouch. No, I merely think that attempting to start from a new perspective would be a useful and potentially revelatory exercise. It wouldn't hurt for a few more economists to try this and see what, if anything, they learn.
For instance, what if we replaced equilibrium analysis with "ecosystem balance." What? Ecology? Yes, why not? I think conceiving of the economy as an ecosystem is a useful approach. Carrying capacity, resource constraints, survival of the fittest - all of these concepts could be applied within economics. Metaphors are only useful when they are useful. (Isn't that a tautological mind-fuck?) No, seriously, We should only use what's useful. This is the measuring stick against which economic approaches must be tested.
I'll address rationality (or lack thereof) in my next post. In the mean time, here are some more links for the curious:
New Economics Foundation
New Economics Institute
Personally, I feel INET is too conservative, NEF is probably a bit too liberal, and NEI is even further out there, not too many actual economists are associated with them, but they're still not totally off and they have healthy things to contribute. The Sante Fe Institute isn't strictly for economics, but they take some very novel approaches.