I just returned from the meetings of the European Economic Association (EEA) in Glasgow. It was a good opportunity to assess the state of economics (as a science) after the collapse of the global financial system in 2008.
As remarked by Phil Mirowski in a recent article, the state of economics is not very good and the response of economists to the major failure in understanding the basic aspects of the global economy is disturbingly little. This was confirmed in Glasgow, where the overwhelming majority of contributions had no connection to any of the important questions raised by the failure in the global economy. It even seems worse than that; the majority of economists does not seem to be interested in contributing to understanding these questions.
An exception was the invited lecture by Joseph Stiglitz. He delivered the so-called Adam Smith Lecture and asked the question how macroeconomics should change in light of the observed phenomena. Although he is to be commended for thinking about these issues, I do not think that his presentation resolved any of the problems; he was essentially not radical enough in his assessment about economics.
In his presentation, Stiglitz delivered a very long and complicated story of which elements were missing from macroeconomic models that would help understand the global economy, and its financial sector in particular. He reasoned completely from within the paradigm. There is nothing wrong with the foundations of economics; we “only” need to include certain aspects into these models to arrive at a better understanding of the world. The result was a very complex presentation that promoted an extremely complex theory of everything.
According to Stiglitz, there are no serious deficiencies in microeconomics. We just need more complex models. But is this not a standard defense of a failing paradigm? Instead of arguing for fundamental changes in the paradigm as a proper response to its failings, the established elite promotes more of the same to solve all these problems. It is a clear sign that the paradigm is at its end.
Economists act as hard-core ideologists rather than as proper scientists. Failures of the prevailing paradigm are not accepted and simply ignored by the overwhelming majority. In his recent book, Roger Backhouse discusses this aspect of economics in length. The EEA meetings in Glasgow and Stiglitz’s lecture confirm this sad fact very clearly as well.