A continuing critique of economists throughout the global financial crisis has been of tunnel vision. Ideological, free market blinkers, meant economists missed the inflating bubble and fixated on irrelevancies while sailing us happily over a cliff. A fair sample of it can be found in this New York Times article from March 2009, quoting that old favourite, JK Galbraith:
“It’s business as usual,” he said. “I’m not conscious that there is a fundamental re-examination going on in journals.”
John has pointed out that this is more of an open academic secret than a staggering revelation, with William Buiter’s summary of the shabby state of the art serving as an example. Buiter used to be on the monetary commitee for the Bank of England; he’s pretty Establishment so far as economics goes, and you can see him merrily pointing holes in both Keynes and neoclassical models here.
These gaps, or gaping holes, do indeed make policy development horribly difficult, and the lives of politicians harder. This melds with old critiques of economists as somehow wooly or less than scientific. If you use Kuhn as a starting point, though, this pigheaded devotion to a model until its contradictions with reality become unmanageable is not a bug, but a feature, and a feature of science, what’s more.
Kuhn provided the terms paradigm and paradigm shift to the history of science (and a thousand failed dot com business plans), to describe the dominant worldview of normal science and the process by which it changes. A paradigm encompasses theory, conventional practice, instrumentation, and a domain of set problems and unsolved problems for the field. Different paradigms are not just competing theories but competing worldviews because they are in some sense incommensurable; proponents will often argue past each other.
It is the narrowing of focus provided by a successful paradigm that makes the activity of normal science so productive. With a professional consensus on worthwhile problems, tremendous attention and progress can be made on those problems very rapidly. Elements widely outside those areas become seen as philosophical, or at least part of a neighbouring academic discipline rather than the discipline defined by the paradigm.
Kuhn also points to why the neoclassical model is not yet academically dead. In his analysis, paradigms are always replaced by one or sometimes two victorious alternatives. Economics today (I would assert) is at a stage of one hundred flowers blooming; alternative paradigms are propagating but they are fairly wishy-washy for the most part. In part this is because some of them – Post Autistic Economics comes to mind – explicitly reject a quantitative or model centric worldview. It might be an interesting and successful policy or philosophical school but it is unlikely to meet with scientific success because it is not scientific. The trigger might be theoretical – some new technique to deal with the nasty math behind rational agents and complete markets, perhaps. Or the trigger might be empirical – the wealth of data coming out of computational sociology from social networking sites, perhaps. I’m too far away from the field to really pick a winner. But until there is a killer new paradigm which lets technical economists address a new range of technical issues or get a different traction on reality with them, I’d suggest the New Classical Model will continue to prevail.