Economics Stars Swing Left
By Noah Smith
Economics has been shifting from singing the praises of free markets toward a greater focus on inequality and the ways that markets break down.
A lot of people see economics as a “conservative science” that makes up unrealistic theories in order to push a free-market agenda. I don’t know if that was ever true -- maybe in the 1970s? -- but if so, those days are long gone.
At the latest American Economic Association meeting -- the big annual economist convention, which ended Monday -- some people turned out to protest against what they claim is too much mathematical formalism in economics. In an act of supreme irony, their main target was Carmen Reinhart, a Harvard economist whose most famous work was a book about the history of financial crises -- a famous example of modern econ that isn’t mathematical.
Why did the protesters go after Reinhart? Because she’s in favor of cutting government debt. What the protesters want has nothing to do with methodology -- they want economics to lean more to the left.
But if the protesters bothered to look around, they would see that their wish has been coming true for decades. Over the past quarter-century, economics has been shifting from singing the praises of free markets. Instead, it has moved toward a greater focus on inequality, human welfare and the ways that markets break down.
In academia, the shift has come partly through the introduction of new tools, and models that reveal the shortcomings of unfettered capitalism. Game theory shows how competition can lead to waste, and models of asymmetric information also show how markets can fail. Decision theory, learning theory and behavioral economics have poked holes in the old assumptions of perfect rationality. Even in macroeconomics, all the focus is on incomplete and imperfectly functioning markets, as Karthik Athreya explains in his recent book, “Big Ideas in Macroeconomics.”
The move away from pure free-marketeerism has been helped by a flood of new data. Economics has become much more empirical, and that has made it much harder to wave away the possibility of market inefficiencies.
But academic economists themselves aren’t very ideological in the first place. Where the shift from right to left has really been more pronounced isn't in the ivory tower, but in the public sphere.
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