It is a popular mythology by politicians and intellectuals to claim the economics profession is a bastion of free market fundamentalism. Consider Fred Block's recent book on The Power of Market Fundamentalism and how these ideas in practice impoverish the many while enriching the few. Here is his interview for INET on his work. Of course, Block is in some sense a long time critic of the economics profession for its market fundamentalism, so this isn't new. The attitude he expresses has been voiced for generations.
Even in the heyday of Samuelson and the neoclassical synthesis --- which combined neoclassical market failure theory micro with Keynesian macroeconomic theory, the heterodox critics found a way to claim that the economics profession was dominated by free market fundamentalism. One of the most interesting social theorist of the second half of the 20th century, Albert Hirschman talked about the incredible influence as market fundamentalist that Mises, Hayek and Friedman had over our intellectual culture -- while he was secure with his royal academic position at the Institute for Advanced Study. I personally do not stress the martyrdom narrative for Mises and Hayek, but the reality is that their positions were relatively speaking far from the academic royalty status that their critics enjoyed. They persisted (and James Buchanan should be included here as well) against all odds.
One of the most absurd claims I ever read was in the work of Alice Amsden and Lance Taylor, The Market Meets its Match, which was originally published in 1995. The book claims that free market reforms in post communism must be declared an utter failure, and that the entire move toward market reforms was because of the intellectual dominience in the economics profession and the policy community of the aprioristic reasoning of Ludwig von Mises and the dogmatic quasi-religious faith in Hayekian spontaneous order. Readers should note that post-communism begins in 1989, and goes through a variety of starts and stops, and post-communism in Russia proper, only begins in 1992. So the time frame for this "natural experiment" is very short-lived if you consider the time delays in publishing an academic book. So the arm chair theorizing Amsden and Taylor accuse the market fundamentalist of engaging in to the great harm of humanity must not be limited to the fundamentalist, but also to the critics as well since "experience" could not have been the reason for the judgment passed in this book. Amsden siting at MIT and Taylor in New York at the New School, both endowed professors, theorized that somehow they and their ideas were the downtrodden in the world of economics, and Mises and Hayek were the annoited royalty of the profession.
I was an assistant professor at NYU when I read those words in The Market Meets Its Match, and I remember thinking as the probability of earning tenure was slouching toward zero that if only it was the case that the work of Mises and Hayek was so valued by the scientific establishment in economics then those of us working in the Austrian tradition would not be viewed so suspiciously methodologically, analytically, and yes ideologically. But in now close to 30 years of actively submitting articles and books for review by academic peers, the suspicion at a methodological, analytical and ideological level has not eased, and thus one must work that much harder to persuade one's peers of the merits. Please note, I am not complaining --- this is the business I signed up for. But it is surely an act of utter intellectual delusion to insist that the economic profession at large is free market fundamentalist.
John Cassidy might say that; Phil Mirowski might claim it, but the facts are so contrary that it has to be presented as an unbelievable conspiracy otherwise it couldn't be sustained. From Samuelson to Stiglitz; from Keynes to Krugman, the bottom line is that the royalty of the profession of economists has "leaned left". Of course, not as "left" as their colleagues in the humanities and other social sciences. Economists in general, or at least for the most part, understand that there are constraints, and the trade-offs must be negotiated. But economists are, like their counter parts in the humanities and the social sciences, members of the general intelligentsia. And our intellectual culture leans toward the progressives, and has for a century. My colleague Dan Klein actually found this out in survey data on voting and campaign contributions among economists.
Does modern economic theory bias toward this leftward lean? That is actually the claim that Noah Smith recently made in his article "Economic Stars Swing Left". I highly recommend the article for a variety of reasons. First, Smith is right that contemporary economics is filled with superstars who lean left. But as I suggested above, this has been true for almost 100 years. Second, Smith is unaware that in each manifestation of the so-called arguments for market failure, there have been sustained arguments from more market oriented thinkers to counter them conceptually, empirically, and comparative institutionally. Smith skips completely the work of Nobel econonmists such as Buchanan, Coase, North, V. Smith, and E. Ostrom. He also skips Nobel worthy thinkers such as Alchian, Demsetz, Kirzner, Tullock, etc. The modern models and the use of "big data" have simply put new trappings on conceptual arguments about agent rationality, market structure, asymmetric information, inefficiency, instability, and inequality. Go back and read Keynes's "The End of Laissez Faire" carefully, you will see a good number of these same arguments surfacing -- and not merely in hidden form, but very explicitly so. And with the same conclusion. The market fundamentalist believe in the "invisible hand" but there belief is based on perfectly rational actors interacting in a perfectly competitive market, and if we can show either one or both assumptions to be wrong than the argument for the invisible hand disappears. Adam Smith to Vernon Smith took on these arguments and showed that markets are far more robust than the critiques believe and demonstrated this with illustrations from "natural experiments" in the world, to the lab experiments, to now with simulation with a variety of agent types. But Noah doesn't talk about that.
As I mentioned yesterday, if you look at the very brilliant and thorough talk by Raj Chetty, what still is missing? Well, something Buchanan identified as wrong with public economics in 1949 -- the fiscal brain idea, or to put it more concretely, a stable objective function for the social planner. This is the comparative institutional analysis that Noah needs to put those left leaning insights through, let alone pay attention to the dynamic entrepreneurial adjustments on multiple margins that failures provoke.
Market fundamentalism is far from the mainstream of economic thought. The mainstream folks consider their work non-ideological and merely technical because they all share the same tacit presuppositions of political economy. It would be healthy if they looked through a different window, and spent some time reading those Nobel economists I mentioned above, or the Nobel worthy economists I mentioned as well.
The soul of economics as a scientific discipline is ultimately what we are discussing. Perhaps someday, if we economists who sit in the seat of Adam Smith and practice mainline economics are successful, then Fred Block, Alice Amsden and Lance Taylor's fears will be a reality, and the research program as developed by Mises and Hayek (as well as the other more recent figures I mentioned) will be accepted as the standard bearer for scientific progress in economics. On that day, the mainline will be the mainstream. But until that day, the mainline remains outside of the mainstream, and only acts of scientific entrepreneurship will shift that reality.