Last night I caught AC’s Radio 4 program on teaching economics after the financial crisis. It’s a great story, well told. But, it is just that. In its totality, a distorting dramatisation, on account of allowing multiple silly, uninformed critiques to go unchallenged in the program. Yet presented as a reasonable, impartial take on what is going on in economics. If this were an op-ed in a newspaper, it would be forgivable. Most people know that when they read comment that they are getting selective advocacy. But I think a lot of listeners think of Radio 4 as a station they can trust to explain things how they really are. This program reveals that sometimes the editors slip up.
Here are some examples the one-sidedness that undermines AC’s attempt to portray himself as your friendly, impartial, interlocutor.
1. The tale of the panics and bubbles course that Manchester University refused to incorporate into their module. The story told is of a rare piece of enlightened teaching, done voluntarily, leading to the termination of the contract of the dissenting teacher. I blogged before on what I thought of this course [AC was sent this blog, but either chose not to read it, or ignored it]. From the reading list the students were given, I guessed that the lecturer either knew very little about what was going on in the literature on panics and bubbles, or deliberately set out to give them a haphazard pot-pourri of his favourite tracts. I won’t claim to be the final arbiter on this [though I do think my views are representative of those working in the intersection between macro and finance]. So presenting only my view, or something like it, would have been just as bad. But that view did not get heard. Also, AC plants the inference that the teacher’s contract was terminated solely because of his giving up his own time to offer a dissenting course, and to propose a regular one. But we don’t get to hear what Manchester University think happened. Did AC try to speak with them and they declined?
2. AC caricatures mainstream economics as blindly applying rational choice, pitting a 20 second soundbite from Danny Quah explaining the idea, against a catch-all alternative from Ha-Joon Chang. The other side of the story about the mainstream is this. First, there are now hundreds of papers in top journals using what you might call crudely ‘behavioural’ alternatives to rational choices. Robert Shiller just won the Nobel prize for pointing out the failures of rational choice to explain finance. Second, most of those I read and know who use rational choice use it in a more nuanced way than you would guess from ACs program. A philosophy I’d characterise like this: we know people don’t behave literally like this in all its minutiae, but maybe the rational model captures enough of what’s going on to make progress explaining what we see. Plus, there is the practice of using the contrast of rational choice models with the data to point the way to better models. [Example: Shiller again]. Any hint of this in AC’s narrative? No.
3. AC, as if to explain what’s wrong with mainstream academic macro, puts the ridiculous question to Steve Keen as to whether Keynes would get published in a top journal now. This is just such a daft hypothetical. Things have moved on so much since then. Who knows what Keynes would write now. Would you ask whether 75 year old physics papers would get published now? And: papers in top journals are literally drenched in Keynes. It’s probably Keynes’ influence that’s pretty much why the dominant model in central banks has sticky prices, and many have unemployment. Keynes is everywhere in the modern debate about the power and usefulness of government spending increases in recessions. [Added 4/12: AC repeats this silly tactic, asking about Minsky’s chances of getting published. And a moments’ sensible thought would give the same answer. PS here’s what I think about Minsky].
4. In the same breath, Keen states baldly that you can’t publish in top journals if you don’t use the assumption of rational expectations. False. I know many dozens of examples. But here’s Nobel laureate Tom Sargent this time using models with learning, a framework he pioneered. [That’s funny, two Nobel laureates flouting the AC stereotype of economics.] If AC had wanted more, he could have googled ‘expectations, learning, business cycles, adaptive’ or something like that. Perhaps throwing in ‘heuristics, self-confirming’ for good measure.
5. We’re told that the other thing you can’t write about now in the mainstream is animal spirits. False. Try reading Roger Farmer, who climbed to the top of the US university system publishing papers on just that. Or, try googling ‘animal spirits, business cycles, recession’.
6. George Soros is quoted telling us that mainstream economics is wrong because it’s based on ‘General equilibrium theory’ which gives you the answer that markets always work perfectly, and their outcomes cannot be improved. False. Some such theory does, but there are thousands that don’t. [eg, any model with sticky prices, or unemployment, or credit frictions, like this one, or……].
7. Soros again telling us that finance assumes always that risk can be quantified. False. Sure, a lot of it does, but, now, there’s lots that explores Knightian uncertainty. [Oh – is that more Keynes again? Surely not!] Try looking at the collected works of Cogley, Sargent, Hansen [Nobel Prize winner again?], who model the effect of agents’ doubt about their models of risk – and the caution that injects into their investment strategies – on asset prices. Or, google ‘asset prices Knightian uncertainty dividends business cycle’.
8. Steve Keen is allowed to assert that mainstream macro ignores money, lending and banks. False. Take a look at some of the papers on my putative panics and bubbles course. Or have a read at the mainstream ‘Journal of Money, Credit and Banking‘, or ‘Journal of Monetary Economics‘, or ‘Journal of Banking and Finance‘. The titles are a bit of a give away. I’m not sure what Gertler, Rajan, Gale, Brunnermeir, Kiyotaki, Diamond, Keister and others who devoted their lives to modelling banks in macro would make of Steve Keen’s claim or AC’s unsceptical playing of it. They might say ‘try googling “banks, credit, business cycles, friction, spread” ‘.
9. Keen makes the subtler accusation – still false! – that where mainstream macro does include money, it’s simply ‘a veil over barter’. Well, a lot could be described like this. But a lot is not at all like this. For example the overlapping generations models of money in the Karecken and Wallace volume; or the ‘new monetarist‘ models of Kiyotaki, Wright, Williamson, Lagos and others. But even where money is a kind of veil, things are not so silly as Keen makes out. Those models embody the view that inflation is costly – for which there is some empirical evidence. They explain the phenomenon at the zero bound that increases in money don’t lead to increase in prices – contrary to the inflation hawks’ worries. And anyway, not all questions need a model of money to answer them.
10. AC interviews Andrew Haldane at the Bank of England. He says ‘it turns out that the model we had was false’. Which model was that? I thought all models were false? And that that was the point of them? I think Andy is referring to the New Keynesian model of monetary policy and business cycles, varieties of which leave out banking and finance, used across central banks [and still, incidentally, in the banking and finance-less version, at the Bank of England]. But, you know what? I don’t think any of the monetary policymakers I worked for or read believed much of that model. They worked off hunches, gut instinct, practical experience. And the judgement that i) finance would not go wrong and ii) monetary policy should and could not try to sort it out if it did. i) was clearly wrong. But I think ii) is still a respectable position to take. So Andy’s quote doesn’t really do justice to what was in the minds of influential people in the profession.
11. We don’t really get the other side of the story from student’s point of view. There are interviews with some contrarian Manchester students who are happy with the department. But what about other universities? Manchester’s National Student Survey scores plummeted because of the Post-Crash-Economics campaign, but how about talking to the universities that did best? In fact, Steve Keen’s Kingston Universty aside, try talking to any other university. Were those students happy because their curriculum was supplying them with lots of heterodox economics? I don’t think so. But that is the inference you will draw from AC’s program.
12. AC voices the complaint that Ha-Joon Chang’s career has suffered solely because of tribal discrimination. He doesn’t get promoted simply because he fails to publish in top journals, and is not properly compensated for his successful book-writing career. What about the other side of that story? Perhaps publishing in peer-reviewed journals does a fair job at quality assuring someone’s grasp of, perseverance and creativity in pushing the frontier? Perhaps Steve Keen’s assertion that he can’t publish in top journals is not because they are run by religious cabals, but they are all clever and reasonable people? That the profession has, over a long time, settled on ways of formulating economic ideas and seeing how well they fit the data? That’s pretty much my view. I accept that there might be something to the fads and cabals critique on occasion. But as an explanation for the entire published canon? Come off it. Do we get these views in AC’s program? Nope. We get Steve Keen’s revelations as unchallenged fact.
The program does have some mainstream voices, so the piece is not 100% propaganda. Danny Quah is allowed a few seconds on rational choice. And there is Diane Coyle [not sure what she must have felt about being the token mainstreamer] and Wendy Carlin [who’s excellent new textbook is now out] both making great points. But they are deliberately drowned out by AC pushing his own distorted story. The effect conveyed is: ‘there are one or two who disagree, but, hey, common sense tells you that these students have got it exactly right’.
When I tweeted about this last night, AC’s response was to say ‘merely shouting false…is a better way to draw attention to yourself than actually making an argument’. This motive-questioning escallation was ironic. I think you could make a case that AC’s program is ‘shouting’ to get ‘attention’. At most turns in the narrative, he fails to maintain journalistic scepticism and balance, and reveals that he didn’t even fancy a quick google, which most of the time would have contradicted things that were put to him. To speculate about his own motives: I’d say that a more balanced narrative just wouldn’t be as engaging. ‘Fair-minded, hard-headed mainstreamers engage in many flowers bloom approach following crisis, having made as good a fist of it as fallible human beings usually do’ [Hold the front page!]