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« Chris Coyne and Pete Boettke talk Robust Political Economy | Main | The Power of Law and Economics »


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I don't know Joe Stiglitz, so I cannot say what his view of economists is or what his intentions with "dissenting" are. But it is, I would claim, a common perception that the economics profession almost exclusively consists of "free market fundamentalists" (a term that seems to be used ever more frequently, but I'm not sure what it means). So perhaps he is playing on this view? Your point, Pete, that economists are not free market is well taken, though. I agree with you.

This "anti-market" (or should I say "pro-government"?) stance should be a result of decades of blind inductive, data-driven, statistics-focused let's-see-what-we-can-get-out-of-this-database-of-ours pseudo-theorizing. Without guidance to how regression results should be interpreted (or regression models structured!) from sound economic theory, how can we ever end up knowing anything? How do we tell right from wrong? The next run in Stata could very well have us reject all we thought we knew. This is some kind of anti-intellectual, post-modernist alternative version of economics.

My view (admittedly based on my somewhat limited experience) is that the lack of sound basis in economic "pure" theory and the almost complete lack of methodological understanding among economists ("anything goes") is to blame for much of the recent developments (retrogression) in economics. This goes especially for the ambiguous and unintelligible "results" of "economic" data-torturing.

Joe Stiglitz has always been a self-promoter. Right from the outset when he edited the writings of Paul Samuelson, Joe knew what he had to do to make it good for himself. History will judge his work harshly, because self-promotion rather than true scholarship is his guiding light.What is his intellectual legacy? Very little.

He told us to pay attention before buying a car.

Stiglitz's statement that the conventional wisdom is, "let the market decide," is a strawman of his own rhetorical making.

"If only" that was the scholarly conclusions of a majority of economists concerning the nature and works of the market vs. the interventionist-welfare state!

In both micro- and macro-economics, the presumption remains that markets suffer from numerous "failures" and inescapable instabilities that require the intervening hand of the State.

As for Stiglitz's "dissenter" role, it is always easier to gain attention from criticism of some postulated status quo, than a defender of some "mainstream."

What would or could he say? "Macro wisdom has been working brilliantly, that's why we have nine percent unemployment, a sluggish recovery and a fiscal crisis of unending government deficit spending."

Or, "Wise and level-headed regulatory and redistributive policies have assured on-going functional efficiency in markets (no lemons here, due to State paternalism), while establishing social equity and fairness for all in the society."

He is the mainstream, with an unwillingness to think in monetary micro-process terms in understanding the causes behind and the possible cures for the recession. And with his confidence in the economist's "pretense of knowledge" in microeconomic affairs. And certainly with little or no tipping of the hat at all to the insights of Public Choice theory concerning the political economy of government regulation and redistribution.

Stiglitz's statements and their acceptance pretty much at face value by so many inside and outside academia says a lot about the state of economics both as a theortical framwwork and policy tool.

Richard Ebeling

May I suggest that the discussion is unnecessarily focused on Stiglitz's and the mainstream's policy conclusions?

In writing *Engineering the Financial Crisis: Systemic Risk and the Failure of Regulation* (University of Pennsylvania Press, forthcoming, September, coauthored with Wladimir Kraus), I had occasion to read Stiglitz's entire 360-pp. book on the financial crisis, *Freefall,* which the FT named book of the year. Here is where you really find Stiglitz's mainstreamism, *from an Austrian perspective.* By that I don't mean his resistance to any particular hypothesis, such as ABCT, or his advocacy of any particular policy conclusion. (Isn't it a *problem* that Austrians are universally committed to laissez faire policy conclusions, if Austrian economics is a scientific research paradigm?)

No, the mainstreamism of Stiglitz is that he thinks that "incentives" can explain *everything.* So a priori, and indeed *against* the evidence, he insists that the financial crisis must have been caused by perverse incentives, and then he indiscriminately endorses every moral-hazard story he can think of to explain it.

Isn't this the really important difference between Austrians and the mainstream: the mainstream does not recognize the possibility of ignorance-based, rather than incentives-induced, errors on the part of market participants (or for that matter regulators)?

Needless to say, Stiglitz is relentlessly criticized on this score in our book.

Basically, Stiglitz is a hipster? He wants to do all sorts of "counter-cultural" things like eat organic food, listen to NPR, and watch independent films, which are all completely mainstream?

Yeah, I buy it.

Actually, Jeffrey Friedman's comment, above, hits a very central point in distinguishing aspects of mainstream economics from the Austrian approach.

Austrians, obviously, do not deny or underestimate the role of incentives. For part of the Austrian "story," a crucial question is: Why have people been led to act or react incorrectly in the way they might have in the market?

The answer: Prices (and the expectations generated from estimates and appraisements as to what the future might hold in store as a guide for deciding on more current actions) may have given "false" information due to monetary and related policies and have resulted in distorted picture about the shape-of-things-to-come in terms of undertaking various production and investment activities.

I was talking to a student the other day and explaining how the "Austrians" conceive of the informational role of prices in a world of uncertain change and decentralized, imperfect knowledge; and the market process as one of continuous dynamic competition in which the economic order is always tending toward patterned coordination, but rarely may ever be in an actual "equilibrium" in and across markets.

The student told me (he recently transferred to Northwood University, where I teach, from another institution of higher learning) that they had never before heard in any economics class they had taken that market prices did not assure and continuously establish equilibrium. Agents were presumed to have fairly wide and sufficient knowledge and equilibrium prices acted as the incentives to bring suppliers and demanders together.

This latter world is one that represents, still, much if not most of the "mainstream."

Richard Ebeling


Hmmm. So, you have picked up the idea that "mainstream" is a sociological category that Colander and Holt and I introduced back in 2004 in our _The Changing Face of Economics_, and that the other is an intellectual category. I would suggest that your label for that, "mainline," is too close to "mainstream" for people to keep them straight, as the discussion in the comments above makes clear. We used the term "orthodox" for that, with indeed Stiglitz viewing himself as a mainstream but non-orthodox economist (heterodox in our view being both intellectual and sociological).

I think the point where Stiglitz began to view himself as more seriously non-orthodox and "dissenting," to use his own phrase, despite his many awards and high positions, was in fact back when he was Chief Economist of the World Bank and he went toe to toe with Summers over the 1997 Asian financial crisis and dissed the IMF and its staff pretty badly. He lost the policy dispute, but he may have won the intellectual argument, although that is a matter of opinion.

I know that you are down on Stiglitz, having been so ever since his "Whither Socialism?" book, which probably did put too much emphasis on the asymmetric information argument, althought that is also a part of the Hayekian version of the public choice argument that you also like. It may be easy to poke at Stiglitz or make fun of him, but he has a lot more credibility than Krugman in my view, and is in fact publishing with people like Mauro Gallegati these days, who is the co-founder of the Workshop on Heterogeneous Interacting Agents and is most certainly neither orthodox nor "mainline," although it looks like maybe you think "mainline" is good as opposed maybe to a new Chicago "orthodox."

If George Soros can rebrand himself as a socialist culture hero, why can't Stiglitz do it too?

What do I take away? These people are less than honest -- and Harry Frankfurt's _On Bullshit_ remains the most important essay of our age.

Stiglitz's approach to "explicating" and engaging Hayek's rival conception is well captured by Harry Frankfurt's _On Bullshit_ -- Stiglitz shows an utter disregard for honesty and truth, he coukd care less how badly he mischaracterizes and falsifies Hayek's conception, so long as whatever he puts on paper advantages his own case.

And this pathology is a dime a dozen in the econimcs profession, a genuine social pathology in the discipline.

Stiglitz's _Whither Scialism_ is a gigantic embarrassment, isn't it?

Stiglitz is not a dissenter. Mostly a failure as a human being, an even bigger one as an economist, but not a dissenter. He likes to say he is because he would be in a nice position: you are at the forefront of the you science, but when everything you teach fails, hey I'm a dissenter. Pure PR.

I've read his article on Mauritius. He says nothing there, but absolutely nothing. Interestingly, when some people point out the flows with exactly the points he most loves (free education, free health care etc), the only come back is "you guys can't accept this is a great country." A plus is that they don't censor the comments.

As far as I see, the economists still dream for communism, somewhere. It is still their holly grail. Fortunately there aren't enough psychopaths anymore to listen to them. What a dangerous profession ...

I am going out the door to China for IEA meetings for two weeks so may not be on here for awhile (indeed, ride is at the door). I shall only say that personal criticisms of Stiglitz are unfair and off-base. How many of you know him? I do. Criticize his ideas all you want (and I do not agree with all of them), but he is one economist who is not personally a scumbag.

It doesn't make one a scumbag to believe that if you are knowledgeable in an area that you can use that knowledge to control that aspect of reality. It makes one human, all too human. It is hard to be wiser than that.

I don't know if a comment along these lines has already been posted, but I think that Stiglitz can reasonably be categorized as a "dissenter", along with any "true" Keynesian. I think anybody who approaches economics as a problem of coordination and discoordination is outside of the mainstream (where what rules is equilibrium and rational expectation models). The little I've read of Stiglitz (his book on globalization and his report on the current economic crisis), and his work on assymetrical information, does seem to support the idea that he is a dissenter and outside of the mainstream. Now, it's also clear that "outside of the mainstream" can mean a great deal of things, and two economists outside of the mainstream don't necessarily need to agree with each other.

Now having read some of the above comments, I think it's worth considering that reaching an anti-market conclusion does not necessitate a lack of reason or methodology. It may be true that not adopting certain theoretical aspects of a theory (including a focus on micro-foundations and micro-phenomena, including capital theory) may be a cause for a deviation, but the fact is that these deviations are much more specific in nature than just a lack of scientific rigor (where this rigor is defined by yourself).

I think there is a tendency for some Austrians to study other bodies of theory by placing them in wide categories based on how closely they adhere to our own line of thinking. This approach, in my opinion, is highly erroneous and leads those Austrians (and anybody else who follows the same approach) to miss many of the minutiae that compose the opposing theory. A more dedicated approach might lead, perhaps to our/your surprise, to a great deal of greater appreciation for what we are criticizing.

I am more and more thinking that the essence of the mainstream is the mathematical axiomatic method. Even behavioral economics who simply want to replace the neoclassical axioms are mainstream in this sense. So even if you question the neoclassical orthodoxy (eg, efficient markets, perfect rationality) you can still be mainstream, in my view.

None of this has much to do with the role of the state in regulation per se. Nevertheless, in the public eye the inadequacy of laissez faire is being stressed. What laissez faire? All this talk is at the margin.

So, in my sense, Stiglitz probably remains mainstream -- although I would have to study his recent statements more closely to be sure.

If one starts with false premises, one can, using reason and good methodology, reach false conclusions.


This is basically my position as well. In my paper with Chris and Pete entitled "Man as Machine" --- we term the current status of economics as "formalistic historicism" --- pretty much that one can prove anything they want with formal tools and the freedom to make certain assumptions. The "language" in which economic ideas is what determines mainstream status, not the "content" of the economic ideas being expressed. Compare that to the position in the 1930s, where when Mises's sums up the foundations of the neoclassical positions and he says that they only difference between Menger, Walras, and Marshall is in the way the core propositions are expressed, and not the propositions themselves.

@Jonathan --- that is the right attitude to have congratulations. I do hope you will consider applying to GMU for your PhD studies.

Smoking Joe Stiglitz's dissident ways did not prevent him from saying the following as many have reminded, but never often enough, including in Morgenson and Rosner's Reckless Endangerment:

"Fannie Mae also published its own series of studies on housing, known as Fannie Mae Papers.

In these reports, Fannie would ask prominent academics to discuss topics near and dear to the company's heart.

In March 2002 Joseph Stiglitz, a Nobel Prize winner, and Peter Orszag, who would later become the head of the Congressional Budget Office under Obama, along with Jonathan Orszag, published a paper entitled "Implications of the New Fannie Mae and Freddie Mac Risk-Based Capital Standard."

The noted academics pushed back against the companies' critics who argued that both Fannie and Freddie posed significant risks to the taxpayer.

For example, their paper concluded that even though Fannie and Freddie held much smaller capital cushions than other financial institutions, these would never have to be used. "The probability of a shock as severe as embodied in the risk-based capital standard is substantially less than one in 500,000-and may be smaller than one in three million,"

the authors wrote.

"If the probability of the stress test conditions occurring is less than one in 500,000, and if the GSEs hold sufficient capital to withstand the stress test, the implication is that the expected cost to the government of providing an explicit government guarantee on $1 trillion in GSE debt is less than $2 million.""

How can you be a dissident and a paid consultant to a financial sector rent-seeker?

Mario and Pete: To the extent that mainstream economics is still stuck on an axiomatic method, Goedel-type math is very important. I'm not personally so clear on how important axiomatics properly speaking might still be with the mainstream. Let's assume it is still essential, however. Goedel and Turing showed that Hilbert's program failed. This failure matters and computability theory is the key to showing that it matters and how it matters. That's over in pure math. If we import those tools and arguments to "mainstream" economics and deploy them wisely, we should be able to create powerful internal criticisms of such work.

Oh, sorry, I should have clarified something. "Hilbert's program" is basically the idea that axiomatics can resolve all paradox in math and generate every bit of math there is to generate. Here's the Wiki link:

As anecdotal evidence, I have heard behavioral economists at NYU say that it is important to give behavioral economics "axiomatic foundations." This is to avoid, they say, making ad hoc assumptions about biases and errors.

There is a lot to think about here.

From whence do the axioms come?

By definition they are self-evident, are they not? Even if unprovable.

In geometry, the axiom of the parallels was always the troublesome one. Replace it with something else and you get a non-Euclidean geometry. In modern math, the continuum hypothesis is independent of the other standard axioms. In a sense, then, there are different co-existing maths. That's perfectly fine in math; in economics, not so much, as Jerry seems to suggest. Jerry is right IMHO to question the source of the axioms.

All of the conflicting theories make my mind hurt. What matters most to me is how well does your viewpoint compare with reality. In this respect Jim Rose makes the most damning comments about Stiglitz. I don't know or much care how he characterizes his own theoretical beliefs. If those beliefs led him to fail to see the danger of the Fannie/Freddie debt debacle, then they are ipso facto not of any real value.

But do the coexisting maths which arise from the different axioms give rise to coexisting realities which those maths describe? It seems obvious that they do not. One math gives rise to the best precise approximation of reality, while the rest are merely theoretical. One could argue the same to be true of economics axioms. One could have various coexisting economics(es), but only one would match reality. That may perhaps not be a bad way of approaching things, as it would help to point out the absurdities of different economics and help to discover which is the most precise approximation of reality.

I dunno, Troy, I think you're off base here. Does the continuum hypothesis or its negation give rise to a more precise approximation of reality? I don't think question makes sense. Is "reality" Euclidean or non-Euclidean? Again, I just don't think the question is entirely sensible. Which appeals more to your intuition and why: the continuum hypothesis or its negation?

As confirmation of Mario's hypothesis (and Pete's) on what constitutes the test of being mainstream, I am in the midst of reading a Sargent paper. In the introduction, he states "I play by the rule that it takes a model to beat a model."

It is that simple. If you don't have a model, you have nothing to say. If you do have a model, you are swimming in the mainstream.

This thread quickly became fascinating. Seeing Goedel and Turing applied to modern theory would yield some pretty crazy stuff, I would imagine.


There is a literature already. Tsuji, da Costa, and Doria use computability theory to argue that the Austrians were right in the calculation debate. Binmore showed that computability problems arise in game theory. S. Markose has a piece in the 2005 EJ on Hayek and computability theory. And Velupillai is the main guy for "computable economics." Anderlini, Canning, and others are also cites. And there is Mirowski's stuff on "machine dreams."

See my paper in the December 2010 for many of the cites and for some of my views on all this sort of thing. Computability problems are ubiquitous and, IMHO, important.

Like Roger I don't see how the continuum hypothesis or goedel's theories directly relate either.

I have a review of Stiglitz's book Freefall forthcoming in The Freeman where, like Pete, I note the incongruity of Stiglitz viewing himself as an outsider. Barkley is right: Stiglitz thinks he's an outsider because he didn't carry the day on every policy move he argued for while working within the establishment. His claiming that "free market fundamentalism" did carry the day is a bit much, I think.


FWIW, I do see relevance in "goedel's theories." My skepticism on the continuum hypothesis was about Troy's idea that somehow there is the one best math according to what somehow approximates "reality." I strongly affirm, actually, that Goedel-type math relates to economics. It's a big deal IMHO.


Free Market Fundamentalism! I realize that economists think about margins, but...

If I advocate at some margin no more regulation or no more regulation of a certain type, then at that margin -- by this Stiglitzian logic -- I am for laissez faire. Now further: If for some reason the new issue (margin) is unprecedented such that there is little direct evidence on the effects of regulation here, but nevertheless I oppose regulation, then I am a "fundamentalist" at that margin. Presumptive non-interventionist thinking in this framework is dogmatic or fundamentalist.

I think this analysis captures the way language is being used by Stiglitz and Soros and friends.

Has anyone read philosopher Harry Frankfurt' _On Bullshit_?

When Stiglitz rails against "Freemarket Fundamentalism" that is self evident bullshit -- the man is outside of the domain of people conscientiously interested in and worried about speaking honestly and truthfully -- the categories of true and false, reliable and unreliable don't matter to them. Other interests and goals are what they care about.

The same thing can be seen when Stiglitz or Krugman "address" the work of Hayek -- Hayek's actual arguments, positions, insights and framework don't matter, being truthful or engaging the world of truth or facts isn't the agenda.

They are out to win an intellectual aguments, and whether what thry say is true or false or accurate or not is besides the point.

As Frankfurt point out, bullshitters are outside the category of lies and lying -- they coukd care less ine way or the other.

This is why bullshit is so damaging in economics.

And make no mistake - the engagement of Hayek's arguments by math economists and left economists has consisted overwhelmingly of bullshit -- it's been the great non-engagement, the great non-sequitur festival.

And the mainstreamers like Stiglitz are happy with that -- they coukd care less about getting to the truth here or telling the truth here, because truth or falsity doesn't matter to them. They are happy in the world of bullshit and "who's smart" math games.

And there is overwhelming evidence supporting my position.

And note well. Being a bullshitter doesn't make Stiglitz so different from great masses of other people. The miracle when we can achieve small islands like hard science or math where bullshit has little place -- mathematical economics has NOT achieved this.

Greg: Are you saying Hurwicz was a bullshitter?

Stiglitz publicly endorsed Naomi Klein's nasty, dishonest, stinking rot -- a little scumbaggish or a lot scumbaggish?

Roger, there are all kinds of bullshit, and everyone produces his share.

My bullshit detector went off a bit when reading Hurwicz's reply to Kirzner when Kirzner engaged Hurwitz on Hayek and the the knowledge problem -- Hurwitz if I remember bullshitted his way around acknowledging the existence of Kirzner's substantively vital point

Producing formal work for formal work's share isn't inherently bullshittery, if you are honest without yourself about the puns which are involved in the English language labels given to the elements of your construct.

Can someone bullshit themselves with formal work that depends on use of puns vitiating the the assumptions of the construct? Hayek clains that Lerner does just that with his illiterate appeals "given data", etc. in the socialist planning literature.

The "information" literature arguable does the same -- knowledge and judgment doesn't come in the form of "information" and isn't given to anyone.

The construct may have value, but the temptation is to bullshit your way to giving it a meaning it can't sustain or support, and to bullshit yout way to retaining that bogus interpretation in the face of legitimate challenge. One cares more for the construct and the game of construct than one has for truth about the world or honest engagement with those revealing the insuperable limitations of your desiderata for "good science".

Now if you are trying to sell that to someone else as something other than what is is, you are moving into a full on bullshit -- the key here is that you aren't trying to lie to anyone, you aren't worried aboit what is true or false, valid or invalid, you will use either valid or invalid, true or untrue means to achieve your end -- you couldn't care less between them -- you have a higher committment to something else.

There is a good deal of bullshit built into every formal construct -- almost whereever they use an ordinary language term to label some part of the construct. But there are different degrees to which individual economists are self awafe of the bullshit in their models. A great bullshit detector has been Ronald Coase. Hayek was another.

This is one of the polite forms of language people use to identify bullshit. AsHarry Frankfurt point out thereis a wide vocabulary in this domain, but no word really owns the territory like "bullshit"', a term that actually sometimes provides surprising clarity.

Larry writes,

"His claiming that "free market fundamentalism" did carry the day is a bit much, I think."

I confess to some surprise, Greg. I did not expect you to call Hurwicz a bullshitter.


In the case of Euclidian or non-Euclidian geometry, it depends on what you are measuring. It seems that the universe at large is non-Euclidian, yet Euclidian geometry is "good enough" for middle-sized objects (much like Newtonian physics is similarly good enough for middle-sized objects). Similarly, linear equations are perfectly find for the simplest of processes/systems, but are utterly misleading for complex processes and systems. As for the continuum hypothesis, I would argue that whichever one gives us a math that describes reality best is most likely to be correct. Of course, I happen to affirm the existence of paradox as a driving force in the creation of ever-more complex levels of reality in the world, so I would also not be surprised if both were correct simultaneously, and that the resultant mathematics was what most correctly described reality. In any case, with math all you ever have, with increasing levels of complexity, is less and less precise approximations of reality, meaning that it becomes less and less clear what maths are useful. That seems problematic to me.

Roger, putting it that way is a bit reductive -- some nuance is lost:

"I confess to some surprise, Greg. I did not expect you to call Hurwicz a bullshitter."

So we are afraid of a word that has been technically defined and explicated and used to gain insight about a significant aspect of what takes place in the world of human communication -- and dare I say it -- the world of rhetoric?

Really? We are afraid of a word now?

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