The UMKC economics department is featured in an article in the current Playboy that discusses the failure of theoclassical economics and economists to admit their theoretical and policy errors. The devotion of theoclassical economists to those errors has proven so dogmatic that their disastrous policies have created the ever more criminogenic environments that drive our recurrent, intensifying financial crises.
The title of the article is: These Rogues Of The Dismal Science Have Been Vindicated By The Economic Crash. How Much Longer Can Mainstream Economists Ignore The Heterodox? You now have a valid excuse to purchase Playboy, care of the UMKC economics department.
Tim Schultz, the author of his article sets out his purpose in attending the 2011 annual meeting of economists in Denver.
“Black is not alone. He is a leading voice among a small group of economists who believe modern economic science simply doesn’t understand the real world. Members of this loosely organized group call themselves, a bit dramatically, the heterodox. Many of them had predicted the financial crisis before it occurred and are now calling for real reforms in order to avoid an even bigger one. Like Black, they are ignored or belittled by most in their profession. Yet reality has issued a wake-up call. The financial crisis and ongoing recession have largely validated many of the heterodox positions on fraud, deregulation and debt. Could the mainstream still refuse to publish, cite or listen to them? I went to Denver last year to find out if the rogues of the dismal science were finally going to have their day.”
Schultz asked one of America’s leading quants, John Cochrane, to critique heterodox economics.
“I mean, every· now and then there’s an excluded subgroup that turns out to be right,” said John Cochrane of the University of Chicago. Cochrane speaks proudly for mainstream, also known as neoclassical, economics. Talking with me over the phone before the conference, he made clear that his condemnation was general: “I haven’t read their specific work. I’m busy, and I try to read what is considered interesting and valid.” His position on heterodox economists was unambiguous: They’re kooks. “They are about two percent of academe and about zero percent of finance.” He was dismissive of their prediction of the credit-bubble collapse. ‘Beware those who predict nine of the last two crashes, okay? They’re just not rigorous and don’t use modern mathematical tools. This business is a wide-open meritocracy. You have to distinguish between closed minds and a lack of quality. The perception is that this is 1969 stuff. Give me new data and new ideas.’”
To review the bidding, Cochrane hasn’t read any of our work. Like all of us “he’s busy.” He reads “what is considered interesting and valid.” The key word in that phrase is “considered.” It means by him and like-minded colleagues. In plainer English, Cochrane doesn’t read anything we write because the people he hangs with don’t read anything we write. They know without reading anything we write that our work is not “interesting and valid.”
A prominent economist at an even more prominent university recently denounced ad hominem criticisms made by Paul Krugman because he alleged that Krugman criticized without taking the time to read the works of the economists he was criticizing. The economist wrote that “many colleagues” at one of the most prestigious universities in the world helped him draft his denunciation of Krugman, but that he needed to keep their names secret “for obvious reasons” so that they would not also be criticized.
“I like it when people disagree with me, and take time to read my work and criticize it. At worst I learn how to position it better. At best, I discover I was wrong and learn something. I send a polite thank you note.
Krugman wants people to swallow his arguments whole from his authority, without demanding logic, or evidence. Those who disagree with him, alas, are pretty smart and have pretty good arguments if you bother to read them. So, he tries to discredit them with personal attacks.
This is the political sphere, not the intellectual one. Don’t argue with them, swift-boat them. Find some embarrassing quote from an old interview. Well, good luck, Paul. Let’s just not pretend this has anything to do with economics, or actual truth about how the world works or could be made a better place.
It gets worse Krugman hints at dark conspiracies, claiming “dissenters are marginalized.”
Any astute reader knows that personal attacks and innuendo mean the author has run out of ideas.
That’s the biggest and saddest news of this piece: Paul Krugman has no interesting ideas whatsoever about what caused our current financial and economic problems, what policies might have prevented it, or what might help us in the future, and he has no contact with people who do (emphasis in original).”
That extended quotation comes from Cochrane’s response to Paul Krugman’s column September 6, 2009 article entitled “How Did Economists Get It So Wrong?”
Cochrane exemplifies our family’s rule that one cannot compete with unintentional self-parody. I am proposing to my colleagues that we create a new economic medal for hypocrisy: The Cochrane. Cochrane is so logically inconsistent (violating what he terms in his article “the first siren of beauty”) that in his statements to the author of the Playboy article he proves the point he had so recently mocked Krugman for advancing: economic “dissenters are marginalized” by Cochrane and his colleagues. Dissenters are dismissed without ever being read – automatically “considered” beyond the pale. Again, here is what Cochrane told Schultz:
“He was dismissive of their prediction of the credit-bubble collapse. ‘Beware those who predict nine of the last two crashes, okay? They’re just not rigorous and don’t use modern mathematical tools. This business is a wide-open meritocracy. You have to distinguish between closed minds and a lack of quality. The perception is that this is 1969 stuff. Give me new data and new ideas.’”
This is what passes for “rigorous” “crystal-clear” “logic” in Cochrane’s world. He denounced Krugman for failing to understand that Cochrane’s views are driven by ineluctable logic, for Cochrane claims that economics as practiced by Cochrane is a “discipline that requires crystal-clear logical connections.” Does Cochrane know how many crashes we predicted? No, because he has never read any of our work. He, a leading neo-classical quant, made up his numbers to support his conclusion – an all too revealing demonstration of how purportedly “modern mathematical tools” are abused. Cochrane is to logic as “truthiness” is to truth.
UMKC economists, white-collar criminologists, financial regulators, public administration scholars, and law enforcement officials have given the world “new data and new ideas” for decades, but since Cochrane refuses to read the “new data and new issues” he gets to display his “crystal-clear logic” by claiming in an exasperated tone that he has not read any “new data and new ideas” from us. Heterodox views will always fail Cochrane’s test – because he will not read their “new data and new ideas” he will not receive “new data and new ideas” from those with heterodox views.
Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.
Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network author page and at the blog New Economic Perspectives.
Follow him on Twitter: @WilliamKBlack