Monday, October 24, 2016

Noah Smith on the two liberal economicses


Noah Smith - liberals compete for the soul of economics. Quote:

In 2015, Forbes writer Adam Ozimek suggested that a “new liberal consensus” is forming in the economic-policy world. The data back him up. Many economics professors now tend to favor government intervention in the economy more than the general public. And the profession’s biggest public stars, from Paul Krugman to Thomas Piketty to Joseph Stiglitz, are now more likely to lean to the left than to the right. Meanwhile, I’ve tried to document the flood of new research showing that policies like public housing, welfare and public education spending are more beneficial than conservatives have recognized in decades past.

But there are not one, but two big trends in liberal economic thinking. One wants to modify the economic thinking of the past few decades, and the other wants to rip it up. I expect to see a lot of the economic debate in the coming years play out not between the left and right, but between these two strains of thought.

The research and people I’ve been writing about fit into what we might call the New Center-Left Consensus. This strain of thought is based on data and empiricism. Support for higher minimum wages, for example, has grown among economists because a large amount of careful empirical analysis has shown that minimum wage hikes don’t usually cause sizable immediate disruptions in local labor markets. These economists aren’t ignorant of the basic theory of labor supply and demand -- the kind that every undergrad econ student is forced to learn. They just realize that it might not be the right theory in this case.

The New Center-Left Consensus is attractive to academics and policy wonks. It draws on an eclectic mix of mainstream economic theory, empirical studies and historical experience. It refuses to assume, as many conservatives and libertarians do, that free markets are always the best unless there is a glaring case for government intervention. It’s more willing to entertain all kinds of ways that government can improve the economy, from welfare to infrastructure spending to regulation, but it also recognizes that these won’t always work. It embraces a philosophy of careful experimentation. Sometimes the new center-left is even in favor of deregulation -- for example, loosening zoning restrictions and reducing occupational licensing. It’s not ideologically opposed to the free market.

[...]

But there’s a second strain of progressive economic thinking that is gaining attention and strength. This alternative could be called the New Heterodox Explosion. It’s basically a movement to purge mainstream economics from progressive policy-making and thought.

The New Heterodox Explosion rose in large part out of strongly left-leaning intellectual circles, particularly sociology, the humanities and other disciplines outside economics. It has also found a home in some economics departments in other countries (most notably the U.K.). Recently, it has started to permeate blogs and the media.

Personally, I'd like to think I'm not even remotely heterodox in my own thinking. And I really think most of the heterodox movement's concerns can be addressed just by purging mainstream economics of the right-wing ideologues who've spent the past several decades turning the academic field into what it is today.

And I think the present disconnect between the policy world and the academic world will help a lot in driving economics back towards honesty.

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