So there’s an interesting debate over at TPM Cafe about this article in the Nation, which argues that neoclassical economics (the mainstream) suppresses its heterodox alternatives. If true, this would be a classic case of a Kuhnian paradigm, in which the entrenched dogma resists any alternative explanation. The anomalies are ignored, until there are just too many anomalies, and then the whole edifice comes crashing down. That, at least, is how “normal” science is supposed to work.
But my problem with economics isn’t that it ignores its heterodox alternatives, which is what the article tries to suggest. I think it’s pretty clear that neoclassical economics has consistently incorporated heterodox challenges into its dogma. Just look at Kahneman and Tversky, or much of the work done by behavioral economists. Nobody really questions loss aversion anymore. It’s been neatly woven into the mainstream equations.
The real epistemic problem with economics, at least as I see it, is that we’re just not very good at it. We can’t predict recessions, or growth rates, or really any variable of macroeconomic interest.* Mainstream economists come to completely contradictory conclusions on just about every controversial issue, from raising the minimum wage to the effects of illegal immigrants to cutting taxes.
Now imagine an equivalent situation in any other science. It would be like biologists disagreeing about Darwin, or physicists being unable to predict the movement of the planets. The very reductionist foundations of the science would remain in flux. This is the problem faced by economists: it’s tremendously difficult to know what paradigms are broken and what paradigms are still valid, because no paradigm is ever particularly successful, at least when it comes to explaining the real world. I’m not saying that economics is useless, or that modern economics hasn’t made a tremendous amount of progress. Far from it. It’s just that when every model is so bad at predicting things, it’s hard to distinguish between models, regardless of whether they are mainstream or heterodox.
*In March 2001 – the very month that the American economy began sliding into its last recession – The Economist reported that 95 percent of surveyed economists believed that there would not be a recession. The state-of-the-art models used by the Federal Reserve didn’t do any better. In February 2001, they collectively predicted that the American economy would steadily grow at a rate of 2.2 percent in the second quarter of and 3.3 percent in the third quarter. The actual figures were 0.3 percent and negative 0.4 percent.