Pluralism in economics part 2: the broader benefits

Pluralism in economics part 2: the broader benefits

My first piece on this topic argued that a more pluralistic curriculum in economics would mean a richer and more stimulating academic experience and graduates that are equipped with the diverse range of skills that employers are seeking. However the benefits of pluralism in economics run far, far deeper than this. It has the potential to improve the quality of the analysis and policy advice economists produce.

The questions that economics asks are often at the heart of the questions that everyday people around the globe want answers to. They are the kind of questions that are pursued because knowing the answers would make the world a better place. Economics is often maligned for seemingly failing to answer these questions adequately, thereby failing to give much-desired understanding and certainty to people and policymakers. This is a somewhat valid yet fundamentally unfair sentiment. It is valid in the sense that it is mostly self-inflicted – economists are prone to assuring people that they can answer questions with a reasonable degree of certainty. Yet it is unfair in the sense that the phenomena that economics attempts to make sense of in order to answer these questions is so intensely complex and full of fluidity that often, attaining a state of reasonable certainty is absurdly difficult, if not impossible. An ever-shifting complex reality raises immediate uncertainties as to the answers we offer and also whether we have gone about our analysis in the most intellectually warranted manner.

The neoclassical framework that currently dominates economics is a distinctive way of making sense of this complex reality. By pre-supposing closed, simple systems, elegant models can use formal (mathematical) methods to draw conclusions about the present and make predictions about the future. This framework is useful in many respects; however its general rigidity has some real limitations. In particular, the assumptions required to underpin this mode of analysis are often starkly at odds with what we know about ourselves and the world around us. It is also difficult to adequately incorporate political, historical, psychological and sociological factors.

One can shrug off these limitations, yet they compromise our capacity to understand economic phenomena. There are absolutely some questions that are best understood through formal modelling. But others are fraught with context-specific factors that are fluid and vague, and absolutely not quantifiable. This renders the quest for a precise, single answer that is valid for all economies at all points in time, futile. In other words, pre-supposing a closed system can be an inappropriate ontological position to take. With some questions, pre-supposing a complex open system and accepting a degree of uncertainty may be more appropriate; invoking Keynes’ advice that it is better to be vaguely right rather than precisely wrong. (1)

No one framework can legitimately claim to offer all the answers to all the economic questions. This is a dangerous and overconfident assertion. The most obvious conclusion is that answering different economic questions can require different approaches. In other words, the holistic pursuit of economic knowledge may require a pluralism of frameworks.

Pluralism takes economics further in a three stage process. Firstly, the collision of different frameworks forces their strengths and weaknesses to become evident. Secondly, the absence of intellectual monism – the unhealthy dominance of one framework – means weaknesses cannot be ignored, forcing them to refine and adapt. Lastly, this continual refinement and adaptation that comes from valid critique creates something that is better equipped to help answer the critical economic questions: it is a process of intellectual free trade. With a well-defined direction, complementarity and competition between frameworks is likely to produce something greater than the sum of their parts. Capturing reality and answering the critical questions would be something of a team effort.

Far and away, the biggest benefit of pluralism would be that economic policy would be informed by a stronger understanding of economic reality. Consider just one example – IMF policy prescriptions in Russia at the end of the Cold War. Rapid price liberalisation and asset privatisation led to dangerously high inflation, a 60% drop in GDP for the period 1990-99, and the flourishing of crony capitalism in a deficient regulatory and legal framework. Notably absent from these policy prescriptions was any consideration of the often sub-optimal, path-dependent nature of historical forces, or the importance of social and political institutions. This was because the sole theoretical framework from which they came paid virtually no attention to them. Had the economists who advised Russia had a better understanding of areas such as institutional economics and economic history, they would likely have been in a position to offer better advice.

Russia is only one example, but there are countless more found in international and national settings. The Global Financial Crisis was, arguably, at its core, a product of a similar analytical deficit in policy making. It is clear that economics would be more useful if it were to embrace a pluralism of frameworks. As a pathway toward stronger understanding and better policy, it offers immense potential without asking for any real sacrifice. Voices in concurrence with this sentiment have been getting progressively louder in recent years. I would anticipate this trend continuing and, if granted liberties, would predict a transformed economic policy approach in the not-so-distant future.


Read more

The International Student Initiative for Pluralism in Economics

The Institute for New Economic Thinking

Rethinking Economics

Ha-Joon Chang’s and Jonathan Aldred’s (Cambridge) perspective

(1)    John King, “Arguments for Pluralism in Economics” in Readings in Political Economy: Economics as a Social Science, ed. Frank Stilwell and George Argyrous (Tilde University Press: 2011) 54-57.