In a posting and comments yesterday, Mark Thoma at economists view argued that heterodox economists did not do a better job of "calling" the recent crashes and crises than did mainstream or conventional economists. Of course, part of the issue here involves both who one counts as "calling it," and also how one labels economists. In the comments, a list provided by Steve Keen of 11 who "called it," was invoked, with Thoma, at least, claiming that it did not show any preponderance of the heterodox. The list is as follows:
Dean Baker,US
Wynne Godley, UK
Fred Harrison, UK
Michael Hudson, US
Eric Janszen, US
Stephen Keen, Australia
Jakob Brochner Madsen and Jens Kjaer Sorenson, Denmark
Kurt Richebacher, US
Nouriel Roubini, US
Peter Schiff, US
Robert Shiller, US.
Keen categorizes these as follows in a private communication with me: 5 as Post Keynesian (Baker, Godley, Hudson, Keen, Sorenson), 2 as Austrian (Richebacher, Schiff), 2 as "from neoclassical backgrounds," but "mavericks" (Roubini, Shiller), one sort of a combination of Austrian and Post Keynesian (Janszen), and one unclear (Harrison). This looks about right to me to the extent I know about these people, although I note that Thoma claims that Baker is not "heterodox." I have not asked Dean, and he may not wish to comment, although he was once-upon-a-time a co-blogger on the predecessor to this blog, maxspeak, prior to starting his own punchy blog, Beat the Press. About four of these people I know nothing about.
I also note that there are quite a few others who can make the claim of having "called it" (I like to include myself in that gang, at least to some degree), and I also know that some of those are conventional, more or less, such as Andrew Lo of MIT, although he is now pushing a non-conventional theory about evolutionary financial dynamics. In any case, I think that the heterodox have the edge here, even if it is not clear what constitutes being in that category.
13 comments:
How about a list of those who ruled out a crisis ( not just failed to foresee, but actually ruled it out). I think that is likely to be dominated by mainstream macroeconomists - including Robert Lucas, Larry Summers, N.Greg Mankiw among others.
The list is likely to be enormous. But the following gem is irresistible:
"So I am skeptical about the argument that the subprime mortgage problem will contaminate the whole mortgage market, that housing construction will come to a halt, and that the economy will slip into a recession. Every step in this chain is questionable and none has been quantified. If we have learned anything from the past 20 years it is that there is a lot of stability built into the real economy."
----Robert E Lucas Jr, WSJ, Sept 2007
Peter Schiff is not an economist. He is a stockbroker. Also, he advised Ron Paul during his run for president. This seriously damages any credibility he may have, in my opinion.
I called it in the sense that I thought that we were in a housing bubble, since I sold my house for that reason. But I certainly didn't predict that we might face a possible Deb-Deflationary Spiral. The main reason is I couldn't imagine that a financial concern like Lehman would be allowed to fail. I thought that things would be rough, but, since Debt-Deflation had been discussed in 2001-2002, I simply couldn't imagine us coming near it. But I am not an economist.
Don the libertarian Democrat
Barkley Rosser:
"... I think that the heterodox have the edge here, even if it is not clear what constitutes being in that category."
No doubt. It was precisely this list (which is the same one as in Dirk Bezemer's paper) that prompted me to have a closer look at PKE and ask you for a PKE survey.
Maybe the degree to which one takes DSGE models seriously can be treated as a measure of orthodoxy.
I agree with the commenter regarding Peter Schiff. He has been predicting a catastophe of some sort was around the corner for quite some time...regardless of the cause or the outcome. Any economic weakness would be spun as the beginning of the end. Helps to sell a contrarian fund that way. He looks like a sage, but I still wouldn't follow his advice.
Suffern AC, You know what they say about the Austrians ... they've predicted 7 of the last 4 recessions.
Yes, I believe that Steve Keen took his list from Bezemer, whose paper I have just now seen for the first time.
Regarding Schiff, it is true that he (along with a few other Austrians) was predicting doom for a long time during which it did not happen. I am not fully on top of the details of his forecasts, but I have seen some who were making very specific forecasts of doom to happen some years ago that did not happen, who are now running around claiming credit for having "called it," which I find a bit ridiculous. Indeed, many heterodox are open to the old criticism that I have heard privately was thrown at Roubini at the World Bank last spring, that "a stopped clock is right at least twice a day." And then, there is the jibe, now several decades old from Paul Samuelson, that "the stock market has forecast nine out of the last six recessions."
Hi Barkley,
Have you noticed significant differences in how and what you teach in intro micro and macro classes compared to your more orthodox colleagues, be it at JMU or elsewhere? Or does a classification like "heterodox" really not impact that way and what a prof teaches until the higher level econ courses?
Thanks in advance for your reply.
-Dan F
You left out BIS chief economis Wlilliam White and several other who used Hayekian macro to "call it".
The "stopped clock" charge against those using Hayekian macro is fraudulent. The far below nature rate policies of the Fed and the housing bubble and the Fannie/Freddie "ownership society" stuff all have a particular time stamp.
I'm so sick of dishonesty in the public debate.
Dan F.,
I would say that for a long time one has tended to see much greater similarity in what is taught in micro than in macro, at all levels.
Presto Pundit,
This is not just a matter of Hayekians, although I have seen some egregious cases, but others as well. Thus, both Baker and Roubini essentially called it a year too soon, both forecasting a US recession for 2007 because of the decline in housing construction, which started in late 2006. Not an unreasonable forecast, but the low value of the dollar at the time and continuing growth in the rest of the world had US exports rising sufficiently that year to keep the US out of recession until the end of 2007.
That really does raise the question further of just exactly what is involved in having "called it." How many of the details does one have to have had exactly right, and how accurate on timing should one be? I don't know the answers to these questions.
Steve Keen has asked me to be clear that indeed the list comes from Dirk Bezemer's paper. He had some criteria for who got on, including sufficiently public analysis with some sort of modeling or theory and some element of timing. He heard me call chunks of it in a speech a couple of years ago, but says I did not fulfill the criteria. I tended to avoid being too precise about timing, for one thing.
How many market crises did the heterodox school predict that never played out?
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