My National Interest review of finance books has provoked a few blog responses. Actually, it's one paragraph in particular of that review that's sparked some discussion:
[John] Quiggin thinks he’s only writing [in Zombie Economics] about the failure of free-market ideas, but he’s actually describing the intellectual life cycle of most ideas in political economy. All intellectual movements start with trenchant ways of understanding the world. As these ideas gain currency, they are used to explain more and more disparate phenomena, until the explanation starts to lose its predictive power. As time passes, the original ideas become obscured by ideology, caricature and ad hoc efforts to explain away emerging anomalies. Finally, enough contradictions build up to crash the paradigm, although current adherents often continue to advance the ideas in zombielike form. Quiggin demonstrates with great clarity how this happened to the Chicago school of economics. How he can think it won’t happen with whatever neo-Keynesian model emerges is truly puzzling.
Now, this point is not original to me -- this was a combination of Thomas Kuhn's Structure of Scientificd Revolutions, with a dash of Alan Blinder's Hard Heads, Soft Hearts. But it's prompted something of a blog kerfuffle.
Henry Farrell in particular takes me to task:
I don’t buy Dan’s arguments here. As with most stage theories (not only Marx, but also Kuhn), the mechanisms of institutional reproduction and change in his account are sorely underspecified. ‘Contradictions accumulate’ isn’t a much more helpful empirical claim than ‘shit happens.’ To really understand what is happening, you need a proper theory of the underlying conditions for ideational retention and reproduction. Why do some ideas decay into self-parody, while others do not? After all – not all ideas decay (or at least: not all ideas decay at the same rate). Some economic ideas have continued for centuries (the limited liability corporation), while others have disappeared completely, while others yet have disappeared and reappeared. We don’t know why – but if we want to make the kinds of claim that Dan is making, we need to know why, or at the least, have some rough idea. Otherwise, what we have is at best a sometimes-observed empirical regularity melded to a smidgen of intuition, which is not enough (in my book at least) to dismiss a counter-claim (that one particular idea may have a longer shelf life than previous versions) out of hand.
I'm not sure that the idea of the limited liability corporation falls into the same category as ideas like Keynesianism or the Chicago school of economics. The former is an institutional innovation that was designed to solve a well-defined problem limited in scope; the latter set of ideas address a fuzzier but more intellectually ambitious domain of how a national economy functions. Still, Farrell makes a interesting observation.
This is a blog and not an academic journal, so I'm not going to be able to satisfy all of Henry's criteria, but here goes:
First, I do wonder if ideas in political economy function a bit like self-similarity in a Mandlebrot set, in that different sets of ideas have different lifespans but nevertheless follow roughly the same arc. It is possible that some ideas that appear to persist indefinitely are merely slower-moving in their half-life than the macroeconomic paradigms that Quiggin discussed in Zombie Economics. Now, that's just intuition -- I have no idea if it's true. But I think it's an interesting intuition.
Now, Farrell wants "a proper theory of the underlying conditions for ideational retention and reproduction." OK, if I were to sketch this out, I'd assume that the demand for ideas comes from living in a causally complex world in which intellectuals and policymakers want cognitive road maps to provide some clarity about what to do and what to say. I'd further assume that the political and social world in which we live is in a constant state of change, making it difficult to develop "timeless" theories of political economy.
With those assumptions, I'd postulate the following:
First, ideas in political economy are more likely to survive birth pangs when:
A) The theory's predicted effects appear to hold -- not necessarily via causal mechanisms internal to the theory, but the outcome is nevertheless consistent with the theoretial predictions.
B) The theory yields policy implications favorable to at least one important interest group. In other words, there's a political incentive for at least one power bloc to support this particular model.
Second, the longer the predicted effects of the theory appear to hold up, the more entrenched the idea becomes in intellectual and policy discourse. There are path dependent effects to ideas. The ones with longer pedigrees will have greater ideational power -- even if the initial conditions that led to the original theory no longer apply.
Third, the longer that a particular idea appears to explain its particular domain, the greater the incentive for intellectuals to engage in ideational arbitrage and apply the idea to more disparate phenomena. Indeed, Quiggin's book demonstrates this trend within the Chicago School, in which ideas that seemed to hold up pretty well in microeconomic price theory get applied to a whole range of other range of economic behavior.
Fourth, the longer a theory stays in circulation and the more cultural cachet it acquires, the greater the incentive for political institutions to appropriate the idea -- and in the process, adjust the content of the idea to fit their own preferences.
Fifth, the longer a theory stays in circulation, the more likely that propagandists will simplify the content and causal mechanisms of the idea. This allows for a greater spread of the model beyond intellectuals to more powerful actors: policymakers with actual line authority, journalists who write about said policymakers, etc.
Sixth, the longer a theory stays in circulation, the greater the likelihood of underlying conditions in the real world shifting to the point where the original model's empirical claims do not hold up. This will necessarily require the development of auxiliary hypotheses that might contradict some of the original arguments made in the paradigm.
The third through sixth postulates increase the likelihood that, over time, an idea's explanatory power will erode to the point when new challengers can potentially overtake it.
Now, a fully-fleshed theory of ideational change would need to state the conditions under which these dynamics are likely to be more or less powerful. Some theorie, for example, might develop expectations and behaviors that reinforce the original hypotheses. These theories would be expected to last longer. That said, I will leave this part of the model to the commenters.
*As an aside, I find it fascinating that, of all my book reviews, it's the ones when I provide a largely favorable review with a soupcon of criticism that provokes the author (click here for one past example). I've also written some not-so-nice book reviews in my day -- but never heard a peep from those authors.