The Culture of Economics

The following are lecture notes used by Hendrik F. Van Den Berg in his CoR

presentation of December 15, 2013

The Culture of Economics

 

 

I. Answer to the Queen: Economists Live in a Mythical World of their Own

A. We’ll look into it.

B. Eventually, a large range of responses emerged:

1. Nothing to worry about, it’s under control – trust us.

2. Economics needs to change

3. My point today is that change is very difficult

 

II. What is economics?

A. Definition of economics

1. Provisioning vs. survival

2. GDP: market transactions only

3. Should say something about human well-being

a. What constitutes provisioning?

b. Policies to improve provisioning

B. History of thought

1. Alternative approaches

a. Holistic, complex, inter-disiciplinary

b. Static vs dynamic

c. Partial vs. general equilibrium

d. Empirical vs logical

2. Invisible hand, Say’s law, equilibrium system vs. evolving complex system

3. Walras (1874)

a. Static – one isolated point in time

b. Linear

c. Markets only, not entire social provisioning

d. Auctioneer

e. Static system – quite an assumption in late 1800s!

4. Marshall (1890) – Ironic resort to partial equilibrium.

 

Ironically, because economists intuitively accepted that there was a solution to Walras’ system of equations but were unable to actually apply the huge Walrasian model to deal with practical problems, they felt justified to focus on individual markets and ignore the interconnections within the overall system. This flight to scientific reductionism even revived Smith’s (1776) metaphor of the invisible hand, which suggested that as long as the individual mn markets functioned well, overall economic outcomes were always socially optimal. The ideas associated with Walras, Marshall, and other late nineteenth century economists who implicitly accepted scientific reductionism along with the central role of the rational individual is known as the neoclassical school.

 

 

C. Other views – Quick mention here

1. Malthus – equilibrium at subsistence

2. Marx – instability of capitalism

3. Institutionalists-German historians

a. lumped in with socialists

b. American ascendency

4. Keynes – stability requires active intervention

a. More difficult to resist

b. But, Keynes is distorted and attacked with alternative of “freedom”

 

Mainstream economists increasingly came to believe that Keynes was ad hoc, “winging it”, useful but limited to the special case of the Great Depression. When Keynesian analysis could be blamed for ignoring inflation of the 1970s, it was doomed.

 

 

D. Response of the neoclassical paradigm

 

So Keynes was replaced by another false “system” approach: developing a mixed macro-micro models that systematically linked the economy’s individual consumers, workers, producers, bankers, and investors to the economy’s aggregate performance. Macroeconomists referred to this as establishing the microfoundations of macroeconomics.

 

1. Arrow and Debreu – simplification of time

a. Risk vs. uncertainty

b. Equilibrium solution

c. Whole issue of markets vs non-market transactions ignored

 

 

The financial failures that Keynes (1936) linked to financial uncertainty were further pushed out of sight by the theoretical work of Arrow and Debreu (1954) and Debreu (1959), who simply substituted the word risk for Keynes’ uncertainty, defined the former in terms of known probability distributions, and then assumed the existence of a set of competitive markets in contingent commodities that enabled all risk to be insured or diversified away. Wrote Debreu (1959, p. 98), presumably seriously: “This new definition of a commodity allows one to obtain a theory of uncertainty free from any probability concept and formally identical with the theory of certainty….” Financial regulation was thus unnecessary, and financial innovations, such as those which sank the global economy in 2008, were positively viewed as adding to contingent markets and, thus, helping to stabilize the economic system.

 

2. Fama’s efficient markets

3. Friedman’s stabilizing speculation

4. Jensen and Meckling – firms reflect individual owners

5. Coase theorem – no externalities, only markets

D. Serious dissent

1. Marx

2. Institutionalists, German historical school

3. Post Keynesians

4. Behavioral economics

5. Heterodoxy at UMKC!

E. But, this dissent is largely ignored

1. How can intelligent people live in such a myth?

2. The power of culture!

3. Humans develop culture to deal with their complexity

F. So, the one possible answer to the Queen is: It’s the culture!

III. Culture

 

Culture consists of informal institutions such as traditions, myths, religions, norms of behavior, manners, artistic expressions, and symbols. Culture emerged from the process of human evolution because it enabled humans to cope with the growing complexity of their existence. Fundamentally, culture serves to enhance social cohesion by inducing independently-thinking but socially-inclined individuals to conform to the patterns recognized by others who embrace the same culture. Clearly, when describing the culture of economics, the models that economists commonly use to explain issues and pass along ideas form part of the field’s culture.

 

Simon (1955) has used experiments to show that people are likely to take short-cuts and engage in “satisficing, ” and Simon (1959) later described people as doing the best they can, but that they are only “boundedly rational” because humans often need to make decisions quickly and without all the facts in hand.

Churchland (2002, p. 308) explains the neuroscientific findings precisely as follows:

The Brain’s earliest self-representational capacities arose as evolution found neural network solutions for coordinating and regulating inner-body signals, thereby improving behavioral strategies. Additional flexibility in organizing coherent behavioral options emerges from neura models that represent some of the brain’s inner states as states of its body, while representing other signals as perceptions of the external world. Brains manipulate inner models to predict the distinct consequences in the external world of distinct behavioral options.

North (2005, pp. 15-16) describes the origins of culture as follows:

Throughout human history there has always been a large residual that defied rational explanation—a residual to be explained partly by non-rational explanations embodied in witchcraft, magic, religions; but partly by more prosaic non-rational behavior characterized by dogmas, prejudices, “half-baked” theories. Indeed despite the…assertion by eminent theorists that it is not possible to theorize in the face of uncertainty, humans do it all the time; their efforts range from ad hoc assertions and loosely structured beliefs such as those encompassed in the labels “conservative” and “liberal” to elegant systematic ideologies such as Marxism or organized religions.

Keynes (1936) referred to these half-baked theories as “convention,” in the sense that, for lack of anything better, some ideas seem to provide a reasonable guide for action, which then becomes the conventional way of doing things.

 

In sum, culture enables complex human societies to survive within the constraints of their economic, social, and natural environments. History suggests that human culture does not always achieve the fundamental goal of survival. There have certainly been many conflicts among individuals and between groups of individuals. And, numerous civilizations collapsed because they were not able to deal with all the social and natural challenges they faced. Overall, however, human culture has been quite successful in that it has enabled humans, in a very short evolutionary period of time, to gain a large presence on Earth.

 

Unfortunately, economists have not done a very good job of incorporating these ideas.

 

Secondly: Bourdieu calls for reflexivity!

 

 

 

IV. Bourdieu’s model of culture

A. Field – subcultures abound

 

There are many subcultures (Max Weber)

 

Field: The social or intellectual arena within which people spend much of their day and within which they can best advance their primary economic and social interests.

 

1. Intellectual field

2. High school students

3. Military

4. Economists: conference behavior

 

B. Habitus – neoclassical models

 

A habitus is a set of subjective but persistent perceptions, customs, conventions, norms, mannerisms, behaviors, expressions, and procedures that are deemed appropriate or “normal” by practitioners in the field. Habitus effectively constitutes both a person’s personal disposition towards others and the set of behaviors by which she thinks others within the field will judge her to be one of them. Bourdieu effectively straddles the long-running sociological debate between subjectivity and objectivity by defining the field as objective and the habitus as subjective. Bourdieu argued that people develop the subjective dispositions and attitudes of their habitus in order to be successful in their well-defined objective field.

 

A soldier, therefore, is likely to adopt a habitus characterized by a clear willingness to engage in aggressive behavior, an unquestioning acceptance of authority and rank, as well as a strong affirmation of group loyalty. A businessperson’s habitus tends to be characterized by an admiration for aggressive salesmanship, a disdain for government restrictions on business activity, and a positive response to monetary rewards. An economist’s habitus most likely includes the use of neoclassical models to analyze a set of issues from the perspective of a market economy, a preference for mathematics in stating hypotheses, familiarity with statistical methods, and a reluctance to address issues that extend beyond the market economy or, heaven forbid, into other disciplines.

 

C. Doxa – neoliberalism, the culture of the Western elite

 

Psychologically, it is difficult for an intelligent person to deal with this combination of an objective field and a subjective habitus. Therefore, human societies, groups and organizations within human societies, and fields develop, largely unconsciously, sets of beliefs, symbols, and popular stories that provide some justification for the subjective and somewhat arbitrary habitus associated with one’s objective field.

 

Arguably, the doxa that underlies the habitus of economics is the so-called neoliberal doctrine.

 

1. Invisible hand

2. Trickle-down

3. Rationality

4. Individuals

a. Collective action is coercion

b. Government is alien entity that oppresses individuals

5. Freedom!

a. Markets offer freedom

b. Free trade gives us choices

c. Freedom to choose!

 

D. Symbolic violence

 

Recall that the evolutionary role of culture was, at least in part, to enable individual behavior that benefits the welfare of the whole group, not necessarily each individual. Culture can, in numerous cases, be oppressive. One of his themes was that such oppression was driven by an unequal distribution of cultural capital. Bourdieu’s use of the word capital to describe a person’s familiarity with, and ease of acting within, a culture reflects the accumulation of human culture through the long, slow processes of education, social experience, family upbringing, assimilation, and learning. These processes are not egalitarian!

 

A paradigm shift constitutes a shift in cultural capital. By intimidating actual and potential purveyors of alternative paradigms, those with the greatest investments in the current paradigm use symbolic violence that effectively protects both the doxa and habitus from contradictory facts, or what Thomas Kuhn (1962) called anomalies. If anomalies are openly and objectively discussed and examined, a paradigm shift becomes more likely. But within the strong culture of economics, few economists will question their neoclassical models much less their neoliberal doxa. They received strong and continuous approval for mastering neoclassical economics from their professors during graduate school, and after graduation they continue to receive implicit reassurance of the legitimacy of the doxa and habitus from colleagues, journal editors, and employers. As an illustration of the subtle nature of symbolic violence, consider, say, a Marxist economist in line for promotion and in need of increasing her publication record to justify the promotion; she might very well convince herself that it is permissible for a Marxist to write an article based on a standard neoclassical model that reflects an idealized capitalist economic structure because such an article would be more likely to get published in a “first-tier” economics journal. A further justification would be that unless she gains the promotion, she will not be able to do good Marxist economic analysis in the future. In the meantime, of course, the dominant paradigm is not challenged.

In many intellectual fields like economics, the symbolic violence is most often carried out by the field’s most highly regarded members who serve on the editorial boards of professional journals and the faculty committees that hire, promote, and fire new faculty members. Thus, a young assistant professor seeking to publish and gain tenure will be “well-advised” by her older mentors to write articles that apply only neoclassical analysis. Course content in the leading economics departments, dissertation advice, and the selection criteria for research grants further install the orthodox habitus and doxa in the minds of the young students who will become our future economists. Outside of academia, the corporate-funded think tanks, the Federal Reserve Bank in the U.S. and other central banks elsewhere, international agencies such as the IMF, World Bank, and OECD, the business press, and private financial firms also keep the neoclassical models and other elements of the economics habitus firmly entrenched by means of their employment practices, their ability to influence policy and the press, and their money that funds research, publication, grants, internships, and philanthropy.

V. Specifics of economics culture

A. Grad school curriculum – “thinking like an economist”

B. The Fed – pathetic museum

C. Econ departments sent to business schools

D. Finance over economics

E. Foundation for Economic Education – stock market game

F. Tunnel vision, scientific reductionism

G. Inter-disciplinary studies entirely ignored

H. Example of economic growth

1. Harrod-Domar vs. Solow

2. Ad hoc “Schumpeterian” model

a. Schumpeter preferred hereditary rulers to capitalists

b. Endogenous models distort Schumpeter

 

 

The neoliberal doxa of free markets and individualism closely reflects many fundamental aspects of the broader Western social culture, especially that of the United States, the United Kingdom, and other countries with strong Anglo-Saxon cultural heritage. Economists, by projecting their subculture into the rest of the world, are, therefore, effectively forcing major elements of Western culture on others in the guise of science. Third world economists trained at Western universities or taught from Western economics textbooks effectively serve as the foot soldiers for Western culture in their native countries. Respected Western economists use neoclassical models to judge economies and economic policies everywhere in the world. In short, most economists behave like the Western sociologists Bourdieu criticized for judging foreign cultures from the perspective of their own Western cultures.

The obvious example of bias in the subject matter of economics is the tendency for economists to focus exclusively on market activities, to use data generated by markets, and to interpret the observed results as if all economic activity was undertaken by rational individuals operating in competitive markets. Recall the quote by Bourdieu at the start of this article. Hence, most economic research analyzes activities included in measured GDP, uses market prices and quantities to quantify human economic activity, and even uses market generated prices to proxy for the value non-market activity if such activity is included in the analysis. Of course, most non-market activity, such as household production and volunteer work, is effectively ignored and given the implicit value of zero.¹ Any objective examination of real world economic activity shows that most human economic interactions do not occur among individuals in formal markets, but among people interacting in a great variety of non-market settings, including within households, within business organizations, in voluntary interactions, in government, and in various collective activities.

At the same time, the neoliberal doxa of economics leads most economists to view issues such as psychological happiness, environmental problems, and species losses in the natural environment as non-economic issues that fall outside the field of economics. SO we focus on the growth of GDP.

 

IV. Conclusions

 

With the neoliberal doxa firmly in place, economists maintain the rational individual homo eoconomicus at the center of their economic analysis. This means economists have less motivation to engage in research, writing, or teaching that would reveal the power of organizations like the business and financial corporations that dominate current global provisioning. Through their economic power, these groups (Yes, GROUPS!) work closely together to actively support a group culture in the organized field of economics that effectively discourages its practitioners from studying those very same organizations and forms of group and social behavior! The transnational corporations and financial conglomerates that dominate the global economy thus often fly under the misdirected radar of mainstream economics. The financial groups that destabilize the global economy also evade detection, except that they are really important in some way that people cannot understand. Just pray and await your fate!

This conclusion about what is really going on reminds us of the words of Robert Heilbroner, who many years ago noted that “[t]he best kept secret in economics is that economics is about the study of capitalism.”² After focusing on the culture of economics, however, it is clear that we have to slightly revise Heilbroner’s conclusion: economics is, in fact, about the study of a mythical market system that actually has little resemblance to the real global capitalist system we live in today. That is not to say that mainstream economics is irrelevant, however. From within that quaint mythical world economists generate very useful intellectual support for the neoliberal policy agenda that favors the business and financial organizations that have come to dominate the real monopolized and financialized economic system. Mainstream economists therefore enjoy a fairly comfortable life. And, they enjoy that life free of any feelings of guilt because their quaint culture also assures them that the economics they do is all about the maximization of human welfare.

 

Only collective action can change the system

1. Democracy

2. Think holistically

3. Re-legitimize government as a form of collective action

But, this requires a shift in various cultures!