Stephanie Kelton led a podcast on the topic:


Mon, 28 April 2014

[log in to unmask]" align="left" alt="" title="" v:shapes="Picture_x0020_1">Randy Wray on Krugman and the Frustration of the Heterodox

A broad-ranging discussion of conventional economics and the heterodox alternatives to IS/LM, Ricardian equivalence, etc.


If the link does not work, go to her site:


And if that does not work, look on the RHSidebar at NEP:


From: AFEEMAIL Discussion List [mailto:[log in to unmask]] On Behalf Of Mayhew, Anne
Sent: Sunday, April 27, 2014 11:26 AM
To: [log in to unmask]
Subject: Re: [AFEEMAIL] Krugman's latest dismissal of heterodox economics


Bob Lucore's good reminder of Ayres' (and, I would add, Veblen's) treatment of the word "capital" as justification rather than explanation for the division of total output, also calls to mind Wesley Mitchell's observation that American economists of the 19th century took as universally true dogma what British economists wrote about the problems of the United Kingdom, a nation in which there were three pretty clearly defined classes--landowners who were not themselves farmers, labor (including those who did the actual tilling of the land), and those who acquired and provided capital (the wool of the putting out system and then the factory-based machines of the industrial revolution).   In the U.S. of the 19th century, where we had urban laborers, farmers who owned their own land, capitalists, and relatively few landowners in the British sense,  the old divisions of interests should have been abandoned or modified  but they were not.  Mitchell likened American economists to an earlier group of "American poets who wrote many verses to the skylark without observing that the skylark is not an American species" (Mitchell, TYPES OF ECONOMIC THEORY, p. 234).

This is important to keep in mind in reading Piketty's book, because it is in so many ways a good book but one that is a logical mess because Piketty is a well-trained economist of modern ilk writing for economists.  He simply does not question the categories with which he has learned to reason, even when those categories do not fit the processes that he is describing and analyzing.  I think he is on fairly sound ground when he writes (on p. 46):  "capital is defined as the sum total of nonhuman assets that can be owned and exchanged on some market."  That gives us a workable test for classification:  is there a market on which something can be sold?  But, of course, that means that the word "capital" can no longer be used in the 19th century British (and following them, American) way as factory-based machines.  This needs to be said loudly and clearly but it is a dangerous thought for it leads right back to the Veblen-Ayres proposition that there may be no good reason to reward those who own pieces of debt generated in financial markets that more closely resemble poker games than they do enterprises that turn out goods.

It may be that Piketty's book will provide an opportunity to reintroduce this now old idea but not if Krugman and others manage to sanitize it so that it fits into traditional categories of thought.   For more on this I second Jim Cypher's recommendation that you read Phil Mirowski's 2013 book.  It is deeply disturbing.


From: AFEEMAIL Discussion List [[log in to unmask]] on behalf of Bob Lucore [[log in to unmask]]
Sent: Sunday, April 27, 2014 7:04 AM
To: [log in to unmask]
Subject: Re: [AFEEMAIL] Krugman's latest dismissal of heterodox economics

Because I long ago left the comforting environs of academic institutionalism, I usually am satisfied to lurk quietly here.

However, I cannot resist the opportunity to say that--with all this talk about the capital controversy and the marginal productivity gadget--this would be an excellent time to revive some ideas from Clarence Ayres. I have in mind especially chapter 3 of The Theory of Economic Progress, "The Concept of Capital." or the more popularized version in The Divine Right of Capital.The concept that capital is productive is no less a justification for our current oligarchs than was the concept of divine right for the feudal lords.

Ron Stanfield once told me that Joan Robinson spent some time discussing capital with Ayres before she launched the famed two Cambridge controversy.


Bob Lucore

MILS Student San Jose State University

Former Director of Research and Policy

United American Nurses (AFL-CIO)


On Sat, Apr 26, 2014 at 4:41 PM, Chasse, John <[log in to unmask]> wrote:

I find it strange that Krugman continually dismisses Minsky.  Supposedly Krugman studied under Charles Kindleberger who in Panic, Mania, and Crises used Minsky's framework for analyzing crises.  In that book, Kindleberger specifically rejected the rational actor assumption.  Krugman is very smart, but smart people often lack the capacity for self-doubt that afflicts us ordinary folk.

From: AFEEMAIL Discussion List [[log in to unmask]] on behalf of Kelton, Stephanie A. [[log in to unmask]]
Sent: Friday, April 25, 2014 5:26 PM
To: [log in to unmask]
Subject: Re: [AFEEMAIL] Krugman's latest dismissal of heterodox economics

Hi Geoff,


I think Jamie G. commented beautifully back in 2009!  It's as if he saw Krugman's post coming.

Stephanie Kelton

Chair, Department of Economics

University of Missouri - Kansas City

211 Haag Hall

5100 Rockhill Rd.

Kansas City, MO 64110

Twitter @StephanieKelton


On Apr 25, 2014, at 4:12 PM, "Geoff Schneider" <[log in to unmask]> wrote:

Dear Afeefolks,


Any comments on Krugman's piece today? 


-Geoff Schneider




Frustrations of the Heterodox

 APRIL 25, 2014, 10:09 AM

It’s kind of a sideshow in the larger scheme of things, but something worth noting is taking place on the fringes (literally) of economic discussion: an upwelling of frustration on the part of heterodox economists. You see it in Thomas Palley’s complaint about gattopardo economics, which I discussed yesterday; you see it in the demands for a radical change in the economics curriculum, which Simon Wren-Lewis wrote about yesterday.

I understand the frustration, but the heterodox need to realize that they have, to an important extent, been working with the wrong story line.

Here’s the story they tell themselves: the failure of economists to predict the global economic crisis (and the poor policy response thereto), plus the surge in inequality, show the failure of conventional economic analysis. So it’s time to dethrone the whole thing — basically, the whole edifice dating back to Samuelson’s 1948 textbook — and give other schools of thought equal time.

Unfortunately for the heterodox (and arguably for the world), this gets the story of what actually happened almost completely wrong.


It is true that economists failed to predict the 2008 crisis (and so did almost everyone).


But this wasn’t because economics lacked the tools to understand such things — we’ve long had a pretty good understanding of the logic of banking crises. What happened instead was a failure of real-world observation — failure to notice the rising importance of shadow banking. Economists looked at conventional banks, saw that they were protected by deposit insurance, and failed to realize that more than half the de facto banking system didn’t look like that anymore. This was a case of myopia — but it wasn’t a deep conceptual failure. And as soon as people didrecognize the importance of shadow banking, the whole thing instantly fell into place: we were looking at a classic financial crisis.

What about the lousy policy response — austerity and all that? The key point here was that policymakers weren’t basing their decisions on conventional economics. On the contrary, they decided to blow off textbook macroeconomics and embrace exotic doctrines like expansionary austerity and a mysterious growth cliff at 90 percent debt relative to GDP. The disastrous policy responses that have perpetuated the slump are the result of mainstream economics having too little influence, not too much.

Now, to be fair, there is a civil war within academic macroeconomics, and what I’m calling “mainstream” is the saltwater side of that civil war. But the critics want much more than to boost saltwater macro at the expense of the new classical guys — they want to drive people like me out of the temple, too. And the thing is that they want to do this even though, as Wren-Lewis says, Keynesian macro has actually performed very well since 2008.

What about the new respect given to heterodox thinkers like Minsky, and heterodox ideas like secular stagnation? I agree that mainstream economists didn’t pay enough attention to such people — way back, one of my principles for working in economics was “listen to the Gentiles.” But it’s hard to claim that such work is deeply incompatible with mainstream economics when Janet Yellen embraces Minsky and Larry Summers becomes a secular stagnationist.

And what about inequality? Some people are annoyed at Thomas Piketty by presenting his data and ideas in a form that is fairly comfortable for conventional economists, at least those of eclectic disposition. But doesn’t that show that conventional economics is indeed capable of accommodating big concerns about inequality? You fairly often find heterodox economists insisting that to accept the idea that capital and labor are paid their marginal products, even as a working hypothesis to be modified when you address things like executive pay, is to accept that high inequality is morally justified. But that’s obviously not the case: there are plenty of economists who are willing to use marginal-product models (as gadgets, not as fundamental truth) who don’t at all accept the sanctity of the market distribution of income. So this complaint is, in its own way, as much of a distortion as the right-wing claim that anyone who so much as mentions inequality is a Marxist.

How should the crisis and the reemergence of very high income inequality affect how we do and teach economics? For sure, it says that we need to do a lot more history, including deep history. Events have also reflected very badly on the style of economics that prizes “microfoundations” based on ultra-rational behavior over evidence, and rules any kind of ad hockery out of bounds. But the heterodox want more than that; they want to interpret recent events as a refutation of the kind of economics Wren-Lewis, or Janet Yellen, or Larry Summers (as economist, not public official), or yours truly does. And that interpretation just doesn’t work. By all means, advance heterodox ideas if you believe they’re right. But don’t claim vindication from events that didn’t actually follow the script you wish they did.


Geoff Schneider
Professor of Economics
Director, Bucknell University Teaching & Learning Center
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