What do Post-Keynesian Economics, Austrian Economics, Institutional Economics, New Institutional Economics, and Marxist Economics have in common? People working in these areas sometimes call themselves Heterodox economists, and they work on the fringe of the profession. On rare occasions I have dipped into what these people do to find out what it is about. Typically, what I find is a grumpy bunch who dislike mathematics, and whose aims are mainly destructive - they want to discredit what mainstream economists are doing. To the extent that they have interesting and constructive ideas, you can usually find examples of mainstream economists who are tackling the same issues and doing a better job.
What makes a fringe economist? Apparently some are just born that way. My colleague Doug North, who lives in the office next to mine, is like this. Doug may indeed be the most successful fringe economist in the world (though "success" and "fringe" seem to be contradictory), and he has a Nobel prize to prove it. He has a disdain for mathematics, and seemed pretty suspicious of the invasion of his department by various macroeconomists and theorists, beginning six years ago. Other people grow into fringe economics, maybe out of necessity. One learns how to do economics in a particular way, a technological innovation in research methods comes along that destroys your human capital, and you are faced with two alternatives. Either you bear the costs of adopting the new technology, or you form your own support group and fight the adoption of the technology by others. Old-time Luddites and Saboteurs would understand the second approach well.
Mathematics is of course here to stay in economics. Samuelson's Foundations of Economic Analysis was an early handbook for the application of mathematics to economic problems, and once Arrow, Debreu, and McKenzie (for you Rochester loyalists) had made their contributions, there was no turning back. The fringe, working outside the mainstream, has had issues with essentially all mainstream fields in economics, but internal conflict within fields has also lead to fringe movements of disenfranchised types. Internal squabbling has been far more prevalent among macroeconomists than among microeconomists (though I'm sure people can give me plenty of examples of groups of economists who hate each other). Macroeconomists had a hard time absorbing the new methodology that was first introduced in the early 1970s that included dynamic optimization tools from mathematics, and various elements of received micreconomic theory (general equilibrium theory and game theory primarily). One Luddite was James Tobin who, after making some nice contributions to our understanding of asset pricing and financial intermediation, chose to take the destructive approach with regard to the ideas of Lucas and friends.
Now, this brings us to you-know-who. Krugman wants to discuss two "fringe groups." The first is the Austrians, who of course are genuinely fringe. Who are the other fringies? Krugman says:
More interesting, in a way, are the economics professors who are totally convinced that people like Brad DeLong and yours truly are ignorant, unwashed types who don’t know anything about modern macroeconomics.I have no evidence on DeLong - no idea how washed the man is. With Krugman, however, we have good evidence of cleanliness from here, where we get this:
“Twenty-five cities in forty days,” he says. “The mechanics of washing up in hotel sinks because you’re not in any hotel long enough to use their laundry.”Anyone who would rather dry his underwear in a frying pan than wear soiled undergarments can't be all bad.
It’s not so much the washing as the drying that presents a problem. Years of experiments have failed to yield a satisfactory solution. Krugman has discovered that it is slow and quite risky to use a hair dryer with any item that involves elastic. Long ago, in Tel Aviv, his roommates found him attempting to dry his underwear in a frying pan.
“The trick with underwear is to wring it out and then press down—”
Now, how ignorant is Krugman? The question is: "relative to what?" Surely he knows more than a ferret, or an albatross (my wife taught The Rime of the Ancient Mariner yesterday, and we had a discussion about albatrosses over dinner, so I had this on my mind). On economic issues, he would certainly give our graduate students a run for their money, but in terms of modeling skills, I think our first-year graduate students would win hands-down. Krugman is apparently quite proud of this 1998 paper. This is something our first-year graduate students could do in 20 minutes on an exam. Nothing to be ashamed of, of course. Krugman wasn't shooting for publication with this little ditty.
Does Krugman know more about macroeconomics than, say, Bob Lucas? I don't think so. Bob, at 73 years old, is still writing papers, giving academic seminars, and going to academic conferences. He is very much up on what is going on in the profession, he's receptive to new ideas, and he encourages younger members of the profession. Bob seems quite uninterested in earning a big income. He just loves economics. Krugman checked out of academic activities long ago, opting for highly-paid speaking engagements and NYT column-writing. But that's fine. We don't really expect him to be at the cutting edge of academic thought.
The strange thing is that Krugman wants to characterize the people who think of him as less-than-up-to-speed on macroeconomic thought as "fringe." I haven't taken a poll, but my informal reading of opinion among New Keynesians, New Monetarists, Prescott followers, or whatever, who are also active researchers (have published a paper in a respectable economics journal in the last 3 years), is that Krugman's "fringe sect" is actually the majority of mainstream macroeconomists.
Krugman goes on to say this:
For the record, I tend to think things through in terms of New Keynesian models, as in my old Japan paper, but often translate the results into IS-LM for simplicity. If that’s a crude, primitive approach, somebody should tell Mike Woodford.What Krugman does not understand is that Woodford's framework is not IS-LM. One of Woodford's brilliant marketing triumphs was to dress up New Keynesianism in the language of Old Keynesianism. There is an IS curve and a Phillips curve, and you drop the LM curve in favor of a Taylor rule. However, the underlying model is basically a Prescott real business cycle model with monopolistic competition. The sticky prices give you relative price distortions that make the model amenable to doing standard welfare economics. It's really not IS-LM at all, but if people like Krugman think it is, that's helpful for Woodford.
Krugman goes on to discuss how some people, including John Cochrane and Narayana Kocherlakota, are hopelessly confused about basic economics. Then he finishes with this:
What’s going on here? I believe that what we’re looking at is people who know their math, but don’t know what it means: they can grind through the equations of their models, but don’t have any feel for what the equations really imply. Confronted with informal discussion that’s grounded in models but not explicitly stated in terms of math, they’re totally baffled. And so they lash out.Now it's Krugman that is sounding like a grumpy fringie. The message here is a Luddite message. Beware of economists who use mathematics. They have spent too much time with their math books and haven't a clue about economics. The rhetoric is typical. You are supposed to picture sad (and calm) Krugman in his arm chair, musing over his frustrated critics who are busy frothing at the mouth in their hopeless confusion.
There is nothing new about this, of course. We have lived with Luddites for a long time in the economics profession, and they are not going away. Coming from a Nobel-Prize-winner with a large audience, the message can of course be quite damaging. University administrators read the New York Times, and so do undergraduate students. Lazy scientists don't need encouragement. Students love it when they are told they really don't need to know anything technical. However, belief in that falsehood will not do them, or society, any good.