David Colander

The Death of Neoclassical Economics

The term “neoclassical economics†was born in 1900; in this paper I am proposing economist-assisted terminasia; by the powers vested in me as president of the History of Economics Society, I hereby declare the term neoclassical economics dead. Let me be clear about what I am sentencing to death—it is not the content of neoclassical economics. As I will discuss below, it is difficult to determine what that content is, and even if I wanted to kill the content, I have no role in determining content. The role of historians of thought is to record, not determine, content. What I am declaring dead is the term.

The changing face of mainstream economics

This article argues that economics is currently undergoing a fundamental shift in its method, away from neoclassical economics and into something new. Although that something new has not been fully developed, it is beginning to take form and is centered on dynamics, recursive methods and complexity theory. The foundation of this change is coming from economists who are doing cutting edge work and influencing mainstream economics. These economists are defining and laying the theoretical groundwork for the fundamental shift that is occurring in the economics profession.

THE FINANCIAL CRISIS AND THE SYSTEMIC FAILURE OF THE ECONOMICS PROFESSION

ABSTRACT Economists not only failed to anticipate the financial crisis; they may have contributed to it—with risk and derivatives models that, through spurious precision and untested theoretical assumptions, encouraged policy makers and market participants to see more stability and risk sharing than was actually present. Moreover, once the crisis occurred, it was met with incomprehension by most economists because of models that, on the one hand, downplay the possibility that economic actors may exhibit highly interactive behavior; and, on the other, assume that any homogeneity will involve economic actors sharing the economist’s own putatively correct model of the economy, so that error can stem only from an exogenous shock. The financial crisis presents both an ethical and an intellectual challenge to economics, and an opportunity to reform its study by grounding it more solidly in reality.

The financial crisis and the systemic failure of academic economics

The economics profession appears to have been unaware of the long build-up to the current worldwide financial crisis and to have significantly underestimated its dimensions once it started to unfold. In our view, this lack of understanding is due to a misallocation of research efforts in economics. We trace the deeper roots of this failure to the professions focus on models that, by design, disregard key elements driving outcomes in real-world markets. The economics profession has failed in communicating the limitations, weaknesses, and even dangers of its preferred models to the public. This state of affairs makes clear the need for a major reorientation of focus in the research economists undertake, as well as for the establishment of an ethical code that would ask economists to understand and communicate the limitations and potential misuses of their models.

The Spread of Economic Ideas

This book, first published in 1989, contains a spirited debate between eminent economists, journalists, and publishers about the spread of economic ideas. Using many of the same ideas as do the rhetorical and sociological philosophical schools, the contributors to this book discuss the spread of economic ideas in readily understandable English. The examination of the flow of ideas among economists and from economists to the public is followed by a discussion of the public policy use and abuse of these concepts. A final section provides insights into the funding of ideas and the incentives to make economics more relevant. The dialogue among the books contributors provides both the lay reader and the interested professional with fascinating insights into what happens behind the scenes in academia, publishing, and journalism.

Post Walrasian macroeconomics : beyond the dynamic stochastic general equilibrium model

Part I. Where We Are in Macro and How We Got There: 1. Stories from the haunted vault: notes on a century of macroeconomics 2. Post Walrasian macroeconomics: some historic links 3. The DSGE model and the post Walrasian alternative in historical perspective 4. Who is post Walrasian man? Part II. Edging Away from the DSGE Model: 5. Social interactions and macroeconomics 6. Macroeconomics and model uncertainty 7. Restricted perceptions equilibria and learning in macroeconomics 8. Not more so: some concepts outside the DSGE framework Part III. Leaping Away from the DSGE Model: 9. Agent-based computational modeling and macroeconomics 10. Multi-agent systems macro: a prospectus 11. Agent-based financial markets: matching stylized facts with style Part IV. Doing More Good than Harm: Roles of Business and Government in Critical Infrastructure Protection: 12. Characteristics of resilient systems and organizations 13. Networks and interdependencies 14. Public - private risk-sharing: the case of terrorism risk coverage 15. Learning from experience: drawing correct analogies? Letting the data guide theory 16. The past as the future: the Marshallian approach to post Walrasian macro 17. Old world econometrics and New World theory 18. Four entrenched notions post Walrasians should avoid 19. Confronting the economic model with the data 20. Extracting information from the data: a European view on empirical macro Part V. Policy Implications: 21. Economic policy in the presence of coordination problems 22. Monetary policy and the limitations of economic knowledge.

The Complexity Era in Economics

This article argues that the neoclassical era in economics has ended and is being replaced by a new era. What best characterizes the new era is its acceptance that the economy is complex, and thus that it might be called the complexity era. The complexity era has not arrived through a revolution. Instead, it has evolved out of the many strains of neoclassical work, along with work done by less orthodox mainstream and heterodox economists. It is only in its beginning stages. The article discusses the work that is forming the foundation of the complexity era, and how that work will likely change the way in which we understand economic phenomena and the economics profession.

What Economists Teach and What Economists Do

Fifty years ago what was taught in the principles of economics course reflected reasonably well what economists did in their research. That, however, is no longer the case; today what economists teach has a more nuanced relation to what they do. The reason is that the economics profession and the textbooks have evolved differently. The author addresses the implications of the changes that have occurred in the profession for the way economics is taught and the way economics is presented in the micro principles textbooks. First, he summarizes the changes he sees happening in the profession. Second, he discusses the stories that the principles textbooks tell in micro. Third, he discusses how those stories might change to reflect better what economists currently do.

THE COMING OF KEYNESIANISM TO AMERICA

This book is based around a set of interviews with, what might be called, the Keynesian revolutionaries – the individuals most responsible for introducing Keynesian economics to the United States. It includes formal interviews with Richard Musgrave, Abba Lerner, Paul Samuelson, Tibor Scitovsky, Evsey Domar, Robert Bryce, Lorie Tarshis, John Kenneth Galbraith, Paul Sweezy, Walter Salant and Leon Keyserling. These interviews give the reader a sense of what the Keynesian revolution was and how it spread, as well as the hostility these earlier revolutionaries faced, and the similarities and differences in their views. The interviews are introduced by an essay which presents the Keynesian revolution in three parts as theoretical, political and pedagogical, concerned with the development of tools and models to teach macroeconomics. This essay sets the stage for the interviews and relates them to modern macroeconomic debates. The Keynesianization of America is interesting not just to historians of economic thought but also to other economists who want to know about the development of their discipline and to interested lay people and historians who follow the spread of ideas.

Complexity and the History of Economic Thought

A new approach to science has recently developed. It is called the complexity approach. A number of researchers, such as Brian Arthur and Buz Brock, have used this approach to consider issues in economics. This volume considers the complexity approach to economics from a history of thought and methodological perspectives. It finds that the ideas underlying complexity have been around for a long time, and that this new work in complexity has many precursors in the history of economic thought. This book consists of twelve studies on the issue of complexity and the history of economic thought. The studies relate complexity to the ideas of specific economists such as Adam Smith, Karl Marx, Alfred Marshall and Ragnar Frisch, as well as to specific schools of thought such as the Austrian and Institutionalist schools. The result of looking a the history of economic thought from a complexity perspective not only gives us additional insight into the complexity vision, it also gives insight into the history of economic thought. When that history is viewed from a complexity perspective, the rankings of past economists change. Smith and Hayek move up in the rankings while Ricardo moves down.