The Competitiveness of Nations in a Global Knowledge-Based Economy

Richard Parker

Can Economists Save Economics?



Idiot Savants

Market & Hierarchy

Kiss of Death

Rebellion at the Margin


March 21, 1993

Economics is what economists do.
                                 Jacob Viner

The trouble with Professor Viner's delicate evasion is that economists no longer agree about what they do, or even whether it is all worth doing. Critics outside the profession long faulted economists for a host of sins: their deductive method, their formalism, their over-reliance on arcane algebra, their imperviousness to complex evidence, the bald inconsistency of different facets of the economic paradigm. What's new--after decades of steadfast resistance--is that these same concerns have begun to bother the profession too.

As mainstream economics over the past two decades has splintered into openly warring camps, the profession has found it ever harder to sustain its long-held claim to be "queen of the social sciences." That claim is based on economists' insistence on speaking, especially since World War II, in the seemingly precise idiom of mathematics. George Stigler, a leader of the Chicago School, once rather nastily claimed that "without mathematics, we'd be reduced to the caviling of sociologists and the like."

The very rigor of formal economics, however, has too often ended up offering Procrustean accommodation. Rather than clarifying the real world (a nominal goal for all sciences), it comes between economists and the phenomena they're trying to understand. This weakness matters to the world beyond textbook and classroom, for unlike many associates in less "regal" social sciences, economists have real power. They have substantial influence on how policymakers define problems, perceive choices, and, ultimately, set policy.

With outsiders, economists often in the past denied the scope of their disagreements--or jovially downplayed them as just a "healthy debate" within "the family." Paul Samuelson--to pick a prominent example--has even used both approaches: to his textbook readers, he once sniffed that neoclassical theory "is accepted by all but a few extreme left-wing and right-wing writers." Then, in a lighter vein, he admitted: "If parliament were to ask six economists for an opinion, seven answers would come back--two, no doubt, from the volatile Mr. Keynes."

These days, the debates within economics are sounding rather less good-natured. The churlish responses to Laura Tyson's selection as head of the Council of Economic Advisers and Robert Reich's posting as Labor Secretary are only one measure of the stakes at hand. Both represent a healthy commitment to real-world empiricism and pragmatically grounded policy; in a significant way, their ascendancy is a sign that the reigning neoclassical paradigm may finally be cracking up.  

Despite the overdue revisionism, however, it is not at all clear that economics is capable of fundamental change. For the few postulates that continue to unite economists--the belief that markets normally optimize outcomes, the assumption of a general equilibrium, the premise that self-interested individuals make rational choices in a social vacuum, that institutions don't matter much--are precisely where the stylized model departs most dramatically from the always-messy real world. For respectable dissenters inside economics such as Paul Romer, Robert Frank, or Paul Krugman, attempting to reconcile these complex realities with the assumptions and methods of economics is increasingly like trying to square the circle.

In the 1970s, Samuelson's famous neoclassical synthesis of classical economics and Keynesian macroeconomics began breaking down. The economy itself turned out to be rather harder to tame than the neo-Keynesian apostles of "fine-tuning" had expected. Dissenters from both left and right began challenging the behavioral assumptions, the methodological conceits, and the practical possibility of benign macroeconomic stabilization. In keeping with the increasingly conservative mood of the times, many in academic economics wove together a new fundamentalist classicism that came in several strands but whose common thread was the idea that state intervention could never improve on the outcomes of markets and that public policy's main challenge was to get out of the way.

Then in 1979, the American Economic Review published a major poll intended to gauge the breadth of economic consensus. Instead, the pollsters found intellectual chaos.

Asked 30 questions covering a range of textbook "softballs"--from the merits of free trade to the Federal Reserve's role in stopping inflation to whether the Phillips Curve still mattered--economists were asked whether they "generally agreed," "agreed with provisions," or "disagreed." Far from confirming Samuelson's world of near-universal accord, the study revealed that strong consensus (60 percent accord or more) could be found on only 10 of the thirty questions. On most questions, the profession was divided: on 17 questions, only about half opted for general agreement or disagreement. On 4 of the questions, consensus never reached 40 percent.

Last year, the Economist--generally a cheerleader for the market model--published a ten-part series on the state of modern economics, frankly acknowledging how the profession's fractiousness and muddle call into question its claim to be a "science" (as commonly understood). "For roughly 25 years after was fair to talk of a broad economic consensus on economic questions...called 'the neoclassical synthesis'. Few of today's leading theorists find it fruitful to cast their ideas in terms of the old framework. [The result is that] in the modern debate among and within the different schools, economists talk past each other."



I am here to report that there is absolutely nothing wrong with the current state of economics....Besides, the discipline's fundamental problems are being remedied as quickly as can reasonably be expected.
--William Baumol

Despite all the external criticism, most economists themselves have shown a steadfast resistance to fundamental change, oddly combined with a growing appetite for searching self-criticism. In 1991, the Journal of Economic Literature published the results of a two-year study by the blue-ribbon Commission on Graduate Education in Economics (COGEE) of the American Economic Association (AEA). This committee could hardly be dismissed for marginal carping by the profession's malcontents: indeed, chaired by Anne Krueger, the commission included Kenneth Arrow, Olivier Blanchard, Alan Blinder, Claudia Goldin, Edward Leamer, Robert Lucas, John Panzar, Rudolph Penner, T. Paul Schultz, Joseph Stiglitz, and Lawrence Summers. The survey drew from the 91 university economics departments that produce 90 percent of the country's PhD economists, with special in-depth research at 35.

The results are troubling. Quite apart from whether its content and method are robust, economics has reason to worry about its success in the marketplace. Measured in terms of the competitive world of academic enrollment, economics today is something of a rust-belt industry. According to the COGEE's statistical annex, enrollment in economics graduate programs, after nearly tripling during the 1960s baby boom, has stagnated for a quarter century, with the annual number of freshly minted MAs and PhDs constant at just over 2,800. Like Detroit, economics graduate programs have languished, while competing academic industries--business administration and public policy, for example--have thrived. In addition to the nearly 70,000 new MBAs each year, business and public policy schools now grant 5,700 new MAs and PhDs--twice the number of new economists produced annually. 

As economics has lost academic market share, it has also faced, like other declining industries, escalating complaints about the quality of its product--its core theory and how it is taught. The problems appear to be, in economists' terms, both a deterioration of human capital and a technology increasingly mismatched to its labor force and customer demands.

Looking at one input, COGEE found that verbal literacy among those enrolling in graduate economics (as measured by Graduate Record Exam scores) has declined in the last 15 years. Major liberal arts colleges--once a source of some of the best students--report roughly an 80 percent drop in economics as a graduate study choice for their top students. And while the mathematical abilities of economics graduate students (again measured by the GRE) have barely changed--with these students consistently ranking 80 points to 100 points below entering grad students in physics, engineering, and mathematics--the math requirements of economics have substantially increased.

Indeed, the heavy reliance on advanced mathematical techniques has led finally to a rebellion within the economics mainstream. Asked by COGEE whether economics training now "overemphasizes mathematical and statistical tools at the expense of substance," 61 percent of graduate professors agreed.

"Our major concern focuses on the extent to which graduate education in economics may have become too removed from real economic problems," the commission writes. "COGEE members from their own experience shared the perception that it is an underemphasis on the `linkages' between tools, both theory and econometrics, and `real world problems' that is the weakness of graduate education in economics." Buttressing the commission's worries, faculty and students alike, when asked to rank what received "more" or "less" emphasis in graduate training, consistently noted how little was taught about economic institutions, real-world applications, and economic history--compared with abstract theory and econometrics.

This complaint about relevance isn't limited to the highly abstract level of core theory and econometrics. Students are also expected to complete so-called "field" subjects in their graduate programs (such as labor, international trade, public finance, economic history, and development), where theory would presumably find practical application. Yet according to the commission, "most students do not find the fields serve this function. Concerns about the absence of an empirical and applied basis in the entire economics curriculum were expressed in the open-ended responses to the questionnaires. Students and faculty both noted the absence of facts, institutional information, data, real-world issues, applications, and policy problems."

As if to compound the indictment of irrelevance, the commission (perhaps not surprising to many noneconomists) found that young PhD economists lacked the ability to communicate coherently what they did know. Surveying academic and nonacademic employers, as well as journal editors and readers, the report notes that "dissatisfaction seems to stem in part from the perception that too much jargon is used, and in part from the conviction that many students lack basic expository skills." (The frustrations vented among nonacademic employers must have seemed particularly tart to the professors: "their assessment," notes the commission ruefully, "is that graduate school does not prepare new PhDs effectively for employment in anything but other graduate economics programs.")

Not surprisingly, over three-fifths of graduate faculty now believe that their department's programs need to be revised, with only 30 percent seeing no such need. Among graduate students, the numbers are even higher: Of those students with the greatest math training, 73 percent want change, and of those with the least math training, 100 percent want change.

Clearly troubled by its findings, the AEA report concludes: "The commission's fear is that graduate programs may be turning out a generation with too many idiot savants skilled in technique but innocent of real economic issues."1

Yet having brought what looks to an outsider like a devastating series of indictments against the profession, the commission's economists struggled valiantly to offer soothing reassurance to their colleagues. On the one hand, the commission suggested more remedial math training for new students and stiffer entry requirements for those without undergraduate economics degrees. But it balanced these recommendations by calling for more application of theory to real-world problems, more field courses with empirical applications, and even greater specialization by graduate departments.



To say that something is wrong with graduate education is to say that something is wrong with the economics profession.
--Robert Solow

In Fall 1987, The Journal of Economic Perspectives published an important study by economists David Colander and Arjo Klamer (their findings were more extensively reported in their 1990 book, The Making of an Economist). They targeted for both polling and in-depth interviews only the top six graduate schools that dominate the profession. (The criteria used to determine school standing included academic citations, awards, and GRE scores, variables that while by no means free of dispute, approximate the perceived standing of various departments.) The most widely recognized ranking, the National Research Council's 1982 study of economics graduate departments, is based on a pyramid of five "tiers," with so-called Tier 1's six (of 120) schools at the top, followed by Tier 2's nine, and so on. 

The Colander-Klamer study sheds light on how economists organize and transmit knowledge and on how they maintain professional cohesiveness. Of the 18,000 or so economics PhDs in the United States, more than 12,000 teach. But only about 3,000 teach at the graduate level. In this small circle, the sorting goes on even more carefully among the tiers, especially at the top-level schools--suggesting what a critic might see as intellectual inbreeding. (COGEE calls this, rather more neutrally, a tendency "for emulation rather than diversification.")

Tier 1 schools, for example, draw nearly two-thirds of new hires from among their own PhDs. Down at Tier 5, more than 80 percent of new PhDs come from higher tier departments. COGEE, ever cautious, notes the effort at status improvement thus: "In an effort to increase their recognition, departments of less distinction emulate top-ranked programs by hiring PhDs from those departments." For Colander and Klamer, this controlled hiring process means that the community that makes up the top echelons of economics professors hierarchically tends to be--as one might expect--more homogeneous than heterogeneous in outlook, especially on mathematical formalism in economics. This outlook inevitably winds its way from faculty hires to admissions committees, to graduate students, and to undergraduate teaching.

Despite this cohesive vertical hierarchy, however, the study shows wide disagreement among the schools at the top. For example, University of Chicago students are the most convinced of the practical relevance of neoclassical economics, while Harvard's are the least. When asked if they saw a sharp dividing line between "positive" and "normative" economics, 75 percent at MIT and 84 percent at Harvard responded "no," while most Chicagoans firmly said "yes." Asked whether inflation is primarily a monetary phenomenon, Chicago students didn't merely agree--they agreed 100 percent. (At Harvard, almost half would disagree.) While MIT students firmly believe that fiscal policy can be an effective macroeconomic stabilization tool, 44 percent at Chicago disagree. Economists themselves are all too aware of these schisms. Asked whether "economists agree on fundamental issues," only 4 percent of these top students strongly agreed, while 52 percent openly disagreed. Forty percent said they "agree somewhat."

But on one issue, the Colander-Klamer study found depressing consensus--what it takes to succeed as a professional economist. Most students cited "being good at problem-solving" and "excellence in mathematics" as paramount. Fewer than 3 percent thought "having a thorough knowledge of the economy" was "very important"; 68 percent thought it was "unimportant."

Asked whether being good at empirical work was very important for professional success, barely one in eight students agreed. Having a broad understanding of economic literature fared even worse: only one in ten thought it very important, while almost half said it was "unimportant."

To some prominent economists, including the profession's most notable mathematicians, these findings come as small surprise. Nobel laureate Wassilly Leontief warned nearly two decades ago in his AEA presidential address that "uncritical enthusiasm for mathematical formulation tends often to conceal the ephemeral substantive content of the argument behind the formidable front of algebraic signs." Fellow laureate Kenneth Arrow feels likewise. Having served on the COGEE commission, he now worries that the problem is not just graduate education. "The math," he says, "takes on a life of its own because the mathematics pushed toward a tendency to prove theories of mathematical, rather than scientific, interest."



Economics (before World War II) was a sleeping princess waiting for the invigorating kiss of Maynard Keynes...but...economics was also waiting for the invigorating kiss of mathematical method.
--Paul Samuelson

While excess abstraction would seem to be a recent complaint, rooted in the heavy reliance on mathematics since World War II, the criticism is more than a century old. A recent review by Deborah Redman of methodological disputes among American economists begins its survey in 1860 and counts no fewer than 80 examples of basic "methodological" debates before 1900.

Though few remember, the American Economic Association itself was founded in dispute--and not just over early mathematical methods but over the very intent and use of economics itself. Founded in 1885 by Richard Ely, the AEA was organized as a progressive counterweight to what its members saw as the social Darwinism then emerging in the social sciences. The founders considered the better established "English economics" an especially dangerous influence on America's fledgling democracy. The British school was, in American eyes (as historian A.W. Coats writes), "out of touch with the living reality, too ahistorical, and too wedded to the view that economic life was organized around an immutable and universal natural law. Moreover, its predisposition in favor of laissez faire was pernicious."

Ely himself was a powerful advocate of the Christian Social Gospel and felt that "the right-minded citizen should work for uplift of society's downtrodden, should encourage the formation of voluntary associations (such as labor unions and cooperatives) to protect the weak, and should promote active intervention by the state to correct injustice in the distribution of income and of economic power." That kind of talk resonated among America's first economists. At a time when academic faculties and the Protestant clergy still overlapped heavily, 30 of the 50 founders of the AEA were in fact ordained ministers.

By the early decades of the twentieth century, the debates over the purpose of economics and the appropriate uses of mathematics were still raging. Regionalism--always a powerful factor in American life--was also at play. On the conservative and "high-math" side stood the elite Eastern universities that invoked presumably value-free "scientific economics" in lieu of the more troublesome and less rigorous "political economy." Arrayed against them were the Midwestern and Western land-grant colleges whose faculties comprised many social activists and well-known critics of laissez faire (despite widespread attempts by local industrialists and politicians to curb their voices).

At Wisconsin, California, and elsewhere, institutionalist economists such as Ely, John Commons, Wesley Mitchell, John Bates Clark, and Thorstein Veblen openly warred with their Eastern competitors. As one of the Midwesterners would write at the time, "Nobody cared when we dealt in abstractions...but talk of trusts, etc.--and conversation grows personal." Veblen, in a then-famous phrase linking the interests of the new industrial wealth to the Eastern academics, taunted the latter as "the captains of erudition."

By the 1920s, however, the twin triumphs of industrialization and professionalism, the decline of farmers as a majority, and the partial successes of the reformers on issues from antitrust to child labor all contributed to a growing dominance by "scientific economics." In universities, keen-eyed trustees, alarmed by the perceived threat of Bolshevism, scrutinized faculty appointments. Marshall and Taussig replaced Ely and Commons as the accepted undergraduate texts. The German historical and sozialokonomie approach of Frederich List, Gustav Schmoller, Werner Sombart, and Max Weber--once so vital to the anti-British school--was undercut by the anti-German patriotism of World War I.

The Great Depression and New Deal, of course, brought a resurgence of "social" interests among younger economists. Washington's demands for economists mushroomed, and the brightest young talent had a more interventionist inclination. With the publication of John Maynard Keynes's The General Theory, moreover, these young economists finally had what Thomas Kuhn claims is necessary for a "scientific revolution"--an alternative paradigm, not just a mass of "troubling facts" the older paradigm failed to explain.

But as Samuelson's remark above makes clear, economics --ever the fickle maiden--shared her favors with others. (Extending the conceit, one might even count Samuelson himself, with Foundations of Economic Analysis, as the chief paramour proffering the seductions of the calculus.) By the late 1950s, economics' fixation on its advanced mathematical skills in econometrics, game theory, and computer-based modeling led the way to a conservative counterrevolution. The math invited a mechanistic conception of society and allowed a rather tepid version of Keynesianism to be wedded to the self-regulating machine of classical theory.



Two kinds of people I distrust: architects who profess to build cheaply, economists who profess to give simple answers.
--Joseph Schumpeter

Through the postwar era of economic science, there have been stirrings of rebellion. Schumpeter--whom Samuelson, among many, ranks as the twentieth century's second-greatest economist (after Keynes)--worried late in life about the postwar direction of economics. In the 1930s, he had argued strongly for increased use of mathematics by economists and was one of the founders of the journal Econometrica. But he was keenly aware that for economics to call itself a "scientific" pursuit, it could not simply mime sciences like physics.

To the consternation of Samuelson (who suggested but then retracted the idea that his former teacher was growing senile), Schumpeter laid out in his last great work, The History of Economic Analysis, what he considered the four core fields of economics: economic theory, economic history, economic sociology, and statistics. No one of these fields, he stressed, should be allowed to dominate the others. For Schumpeter, the danger latent in economists' fascination with physics was that unlike physical objects and phenomena, human social relations require that economists deal in "meanings"--whether the assigned meanings of formal theory or the observed meanings of everyday economic life. Without a much broader knowledge of economic history and institutions and the byways of day-to-day economic life, Schumpeter warned, the "tools" of formal economic analysis were not only useless but deceitful.

History foremost was where Schumpeter located the foundations of modern economics--for, he said, three crucial reasons. First, because all economic events occur within history, economics cannot possibly claim meaning outside historical facts and a sense of historical experience. Second, history offers the best means for understanding "how economic and noneconomic facts are related and how the various social sciences should be related." Finally, Schumpeter warned, lack of historical knowledge was one of the commonest sources of error in economics. Reflecting on Schumpeter's conception of economics 40 years later provides at least one road out of the briar patch into which the discipline has fallen. One is reminded that even in the years after Schumpeter wrote, the very pedagogy he affirmed was still alive in American economics.

In 1953, Princeton economist William Bowen (now president of the Mellon Foundation) completed the last major study of economists' graduate education comparable in scope to the COGEE report. Two things stand out. Bowen's report is assiduous in its willingness first to prescribe what economists ought to know and second to assert how subordinate a role advanced mathematics played in such teaching and practice. (As Robert Heilbroner reminds me, math played a tangential role in verbal expression as late as the early 1950s.)

Bowen found that emphasis was on ensuring young professionals were deeply grounded in a broad understanding not only of theory but of economic history and real-world functioning. Regardless of their field, Bowen wrote, all economists "should have some acquaintance with international economics, public finance, banking, agricultural economics, industrial organization, labor, insurance, business cycles, transportation, public utilities, etc. The need for this general knowledge extends to the various fields of business such as management, investments, corporate finance, personnel, accounting, and marketing." Advanced mathematics, far from defining what economists do, should be one of several "research tools" that "can be put to the service of economics."

Bowen was not offering a personal prescription for what the "renaissance" economist ought to know. When surveyed about the ideal ranking of a graduate curriculum, 98 percent of faculty listed broadly defined "economic theory" as what first ought to be taught, 55 percent listed economic history, 53 percent statistics--and only 10 percent mathematical economics or econometrics. 

Others since Bowen have consistently pointed toward the need for economics to recover breadth in order to recover both coherence and relevance. Some, such as John Kenneth Galbraith and Albert Hirschman, have simply proceeded to do economics, ignoring postwar preoccupations with game theory, stochastics, and advanced modeling. In one of his most-quoted observations, Galbraith declared that "there are no useful propositions in economics that cannot be stated accurately in clear, unembellished and generally agreeable English." Robert Heilbroner, in a recent colloquium on economics teaching, stressed again the need for historical and institutional grounding as a precondition for theory--for the important teaching of "some sense of economic geography; of occupational trends; of the relative size of sectors; the extent and kind of stand and local, as well as federal, governmental operations; of the structure of proprietorships and corporations; the workings of the stock market, and other such lowly information." Beginning students, Heilbroner urges, would be best served by using the Statistical Abstract and Karl Polanyi's The Great Transformation in place of most modern economics textbooks.

The likes of Galbraith and Heilbroner have long criticized economic formalism. But they had done so as distinguished insider/outsiders with broad public affection but little influence on economic pedagogy. What has changed lately is the growing self-criticism by members of the profession closer to mainstream, formalistic methodology.

Donald McCloskey of the University of Iowa created a major stir with his 1985 book The Rhetoric of Economics, adopting a deconstructionist strategy drawn from the humanities. Arguing that its mathematical method needs to be viewed as an elegant metaphor, McCloskey subjects economics to a close textual reading designed to reveal not only its story-telling nature but the moral and analytical premises hidden in its seemingly value-free stories. He persuasively argues (not without some horrified detractors) that doing economics involves using mathematics as a story-telling defense against the simpler, natural-language forms of arguing meaningfully about how we allow the social and economic order (and its privileges and disadvantages) to be ordained. McCloskey therefore proclaims not that economists should abandon mathematics but that self-conscious awareness--"knowing what we do"--in choosing images, symbols, and forms would enrich professional insight.

Robert Frank, at Cornell, underscores both the prejudices of those who end up choosing economics as a career and the effect of economics' normative claims on their value systems. Surveying the charitable giving patterns of economists versus other academics, he finds the profession profoundly influenced, to the detriment of altruistic behavior, by its own premise of the self-maximizing individual. In fact, to the dismay of conventional economists, he argues that far from being "rationally self-maximizing," we are all constrained to foresee the wishes and goals of others and behave in ways that take into account mutual interests. If taken seriously, this challenging hypothesis could have a profound effect not only on theory but on the ability to model consumer behavior. 

This restiveness with the old order has gained pace in recent years among the brightest younger economists. Paul Krugman and Paul Romer, to pick two examples, have added smart, yet conventional, mathematically driven models of societies in which neoclassical laws are not merely "violated" but turned on their heads. Krugman's work, especially in strategic trade policy and the new international economics, argues against one of economics' most sacred tenets, the Ricardian theory of comparative advantage. Under it, economists have long held that free trade "equalized" the benefits of differences among countries, with only each country's specific "comparative advantage"--of land, skilled (or cheap) labor, technology, and so on--determining what a country eventually will produce. Krugman's "new view" has shown in detail--commonsensical, though revolutionary for economists--that the location of production is substantially arbitrary and that historical location of industries, national policies like taxation and technology training, and economies of scale all help determine where industries are located throughout the world. Yet as a good neoclassical, Krugman recoils from many of the implications of his revisionism.

Romer's work on growth modeling--once the grand hope of postwar economists for their predictive usefulness--provides challenge to another hoary shibboleth: the "law" of diminishing returns. Under it, the rate of return on capital stock and growth of per capita output are expected to be decreasing functions of per capita capital stock levels. What Romer has ingeniously shown is that by incorporating technology into competitive equilibrium models, not only can growth rates increase over time but effects of small innovations and disturbances multiply over time. Thus rather than "converging" economically over time (as the conventional model comfortably promises), growth rates may diverge. As an institutional story, the appropriability of technology, its pricing and diffusion, becomes at least as important as standard macroeconomic elements and factor endowments in explaining growth. By looking at technology as a key explanatory variable and noting that markets do not price innovation optimally--hence governments must contrive patents, copyrights and trademarks--Romer builds on a Schumpeterian economics of imperfect competition, though in a mathematically elegant fashion that keeps him (barely) within the paradigm.

Taken alone, work such as McCloskey's, Frank's, Krugman's, and Romer's suggest troubling inconsistencies in the formalism of modern economics. Taken together, they suggest that blind men have been grasping not different parts of the same elephant but a chimeric pachyderm of their collective making.

The state of play today is something of a stand-off. Clearly, economists can now no longer speak--as Samuelson once did so confidently--of a consensus about what they do. The only consensus in economics today is that things must change. At the same time, the heretics have not quite defined a competing paradigm and are not even comfortable confessing that aspiration. If economists acknowledge that far from approaching the "hard science" toughness they claim to admire they are actually awash in conflicting aims, methods, and ideals, perhaps the profession will begin to change.

One small sign of that change appeared this spring in the American Economic Review: a quite extraordinary full-page ad, titled "A Plea for a Pluralistic and Rigorous Economics" and signed by some of the most respected and well-known names in the profession. In it, these tribal elders--including Nobel laureates Paul Samuelson, Jan Tinbergen, Franco Modigliani, and Herbert Simon--denounce the "monopoly of method or core assumption" and call for "new spirit of pluralism" in the profession. The key analgesic they offer is a continued commitment to "rigor" even while rigorously identifying the problem they face: "Economists advocate free competition but will not practice it in the marketplace of ideas." As an acknowledgment of professional chaos, the ad is a courageous bit of work; perhaps the fig leaf of "rigor" is all the cover needed to let the fraternity move on.

A larger sign has arrived with President Clinton and his new economic team. Tyson and Reich, and other Clinton political economists such as Ira Magaziner, Alan Blinder, Lawrence Katz, and Derek Shearer, represent a strong public policy perspective, a technically sophisticated understanding of real-world issues, an international orientation, and an openness both to government action and improved market functioning that stands in sharp contrast to the current fundamentalist upsurge inside the academy. Not simply updated Keynesians, but concerned (as Stuart Holland has termed it) with the "meso-economics" of social, market and political structures that lie between the micro world of the firm and individual consumer, and the macro world of national economies, they may well represent the dawn of the fresh new debate that their elders, especially in their call for a "pluralistic and open economics" say they want. Just as Keynes and The General Theory enlisted the state as deus ex machina to rescue the rent fabric of the market economy half a century ago, government in the personas of Tyson, Reich, et al engage the state to rescue the torn economic paradigm today simply by posing a different way of doing economics. 

But then, as far as academic economics is concerned, all this may not matter. As it did with older, once-honored disciplines like rhetoric, classics, and "moral sciences," time may inflict the ultimate wounds on this obdurate fraternity. Economists no longer command the prestige they once did. Some of the most influential people "doing economics" today are noneconomists. Much of what economists do is being done more effectively outside economics departments, in schools of public policy, business schools, and beyond the academy's walls. It is being done by demographers and pollsters, sociologists and historians, and even journalists. The grand theorist has been displaced by the personal computer (much of major economic-modeling forecasting can be done on PCs). With decreasing respect or need for economists in the outside world and declining enrollments in the grad schools, economics teaching may have to face the brutal inevitability of a diminished role: for undergrads, economics will be little more than prep school for an MBA; for grad students, a stepping stone into the hermetically circular world of what remains of the old paradigm.

Inside the academy, economists will survive--there is no truer lover of free markets than the academic with tenure--but their survival may become finally of little note. For they are in danger of failing to become even what Keynes thought the best they could hope for: the "dentists" of social science--competent technicians in a distant but better world.

The Competitiveness of Nations in a Global Knowledge-Based Economy