What is heterodox economics?

08Jun10

At a conference on economic governance last week, “heterodox economics” was mentioned, and a colleague from another discipline asked what is meant by this expression. The standard answer (also heard the other day), is that heterodox economists share a strong opposition to neoclassical theory but belong to diverse schools of thought, ranging from post-Keynesian and institutionalist to Marxist and neo-Ricardian. I am convinced that this definition is increasingly problematic, and I said that.

Neoclassical economics has recently transformed itself, opening the way to new perspectives which, though grounded in it at least in part, question its essential assumptions and guiding threads. Experimental and behavioural economics have provided convincing evidence that real-world economic agents do not think as the utility maximiser of traditional neoclassical theory. The ideas that information and cognition are not perfect and therefore, there is scope for policy interventions to improve the common lot, are now at the basis of most state-of-the-art economics research. For instance, they inform field experiments and randomised trials –such as those performed by Clark-medal winner Esther Duflo –which have recently moved a long way forward in the fight against poverty.

Along similar lines, greater attention has been recently devoted to economic governance. In contrast to previous emphasis on liberalisation and privatisation, the IMF and the World Bank have increasingly focused on governance and regulation –even before the recent financial crisis.

In parallel, greater recognition has been given to empirical work in economics –thereby strengthening the capacity of the discipline to capture a reality that does not always fit with its traditional assumptions. Today’s economists rarely embrace purely theoretical careers –which was unthinkable only ten-fifteen years ago, when the best PhD students were advised to focus on game theory or general equilibrium.

Though these new ideas are no longer in line with traditional neoclassical economics, there has been no formation of a separate community of scholars. Far from joining the heterodox crowd, behavioural economists, randomistas, and fellow scholars attend the same conferences and publish in the same journals as the neoclassicals.

What remains, then, of the “older” heterodox currents in economics? Perhaps the greatest richness of these currents is the depth of the methodological and philosophical reflections that accompanied their theoretical and applied work in economics –and that led them to explicitly (and sometimes, vehemently) recognise their differences with respect to neoclassicals. For all their novelty and interest, the “new” approaches still lack a comparable level of reflection in this area –a reflection that is now urgently needed, for them and for the discipline of economics as a whole, to understand, define and defend its renewed identity.

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