Is Economics Self-Correcting?

This article appears in the April 2023 issue of The American Prospect magazine. Subscribe here.

You can tell two stories about what has happened to the economics profession in this century. In the first story, academic economics has changed, significantly and for the better. Economists are less imprisoned by the unreal assumptions of models and more committed to real-world inquiry. Those with once-heretical views have been welcomed into the profession.

In the second story, change has come mainly around the edges. The heterodox thinkers doing important work are for the most part not in elite economics departments or top economics journals. Economics is still substantially captive to the use of abstruse models and ever more elaborate equations. And the teaching of economics, especially to undergraduates and first-year grad students, is depressingly familiar.

There is an ideological dimension to this conflict. Standard economics is a handy commercial for political conservatism. If markets are efficient by definition, then any state intervention must make things worse. So the market paradigm becomes a one-size-fits-all cudgel against regulation, progressive taxation, wage regulation, public investment, and the rest of the arsenal to produce a more just society. And if the math is impenetrable to the laity, so much the better. Best to leave these questions to the experts.

More from Robert Kuttner

Milton Friedman added the claim that market freedom is the essence of liberty. By contrast, job security, the ability to get good health care and education irrespective of private means, or freedom from hidden toxic substances, workplace hazards, and ruined environments, are not really freedoms.

A little autobiography is in order. As a 21-year-old, I explored getting a doctorate in economics. It turned out that the kind of economics I wanted to study was something called political economy—the interplay of power, institution, history, and the question of who gets what. Once, this was the core of economic inquiry, taught at elite schools. My professors advised me that I was born too late. So I went off to UC Berkeley, to study international political economy as a political scientist. I never did get my doctorate and became an economics journalist. I’ve been a critic of academic economics ever since. If the profession is changing, that’s long overdue.

ACCORDING TO THE HOPEFUL VIEW, the unreal assumptions of the Chicago school model, which colonized not only mainstream economics but law and political science as well, have been embarrassed by reality and now have far less influence. They included the ideas that markets are invariably efficient; that prices accurately reflect supply and demand, not manipulation or asymmetric information or market power; that labor markets efficiently pay workers what they deserve based on their marginal productivity; that people behave rationally; that all transactions by definition are voluntary and thus power doesn’t matter; that policy makes no constructive difference because economic actors rationally anticipate the impact and alter their behavior accordingly; and that economic concentration doesn’t matter because if prices get too far out of line, new competitors will enter the market.

Events have blown away such assumptions. Even some key Chicagoans such as Michael Jensen, author of the influential theory that the only duty of a corporation is to “maximize shareholder value,” have recanted in the face of evidence of pervasive share-price manipulation.

After the discrediting of the Chicago model, there has been a profusion of more venturesome theoretical and applied work. Computers have allowed the tabulation of massive amounts of data, which has allowed economists to return to empirical inquiry and be less captive to prior assumptions. The Nobel Prize, and the prestigious John Bates Clark Medal for the best economist under 40, keep being awarded to those with views and research techniques that once might have been shunned. Presidential addresses to the American Economic Association regularly criticize the profession and raise policy questions that defy simplistic modeling.

Two years ago in the Prospect, Harold Meyerson profiled the economics department at Berkeley, which had recruited Emmanuel Saez and Gabriel Zucman, two younger mainstream economists doing pioneering empirical work on income inequality. The economics department worked in close collaboration with other schools, such as the public-policy school where Robert Reich was based. Berkeley became a national center of eclectic applied work, without sacrificing academic rigor.

One key figure in the makeover of Berkeley economics was David Card, who had been recruited from Princeton in 1997, where he and his colleague, the late Alan Krueger, wrote one of the seminal works that overthrew bad theory with ingenious use of data. In standard economics, raising the minimum wage results in increased unemployment. But in 1992, the adjoining states of New Jersey and Pennsylvania offered Card and Krueger something that rarely occurs in economics, a natural experiment.

New Jersey raised the minimum wage; Pennsylvania did not. Closely tracking 410 fast-food places in the adjoining areas of the states, they found no impact on unemployment. Good data had refuted bad theory. The article was published in the ultra-mainstream American Economic Review (AER) and expanded into a book, Myth and Measurement. Card later won the Nobel.

I asked Card if he thought his experience was emblematic of a shift in the profession. “You can find a lot more papers in the AER and the QJE [Quarterly Journal of Economics] that are highly empirical,” he told me. Some subfields of economics, especially Card’s area of labor economics and development economics, are far more data-driven today, but others are still cultish and formalistic.

Computers have allowed the tabulation of massive amounts of data, which has allowed economists to return to empirical inquiry.

Another fine example is David Autor at MIT, a mainstream and empirical economist venturing far afield into realms that would have been unthinkable a generation ago. Autor is also curious about real-world institutions and political feedback loops, a sensibility that was all but driven out of the mainstream profession in the heyday of Chicago.

In 2020, Autor and three co-authors published a pathbreaking research article in the flagship American Economic Review with the startling title “Importing Political Polarization?: The Electoral Consequences of Rising Trade Exposure.” The researchers, using an extensive data set, concluded that areas heavily impacted by free trade and outsourcing populated by the white working class “saw an increasing market share for the Fox News channel (a rightward shift), stronger ideological polarization in campaign contributions (a polarized shift), and a relative rise in the likelihood of electing a Republican to Congress (a rightward shift).” They also became more likely to elect Republican representatives. Majority-minority areas with these characteristics, by contrast, were more likely to elect liberal instead of moderate Democrats.

In addition to the unorthodox subject matter and research questions, it contained a respectful shout-out to “an emerging political economy literature that connects adverse economic shocks to sharp ideological realignments that cleave along racial and ethnic lines.” Political economy is ordinarily disdained by mainstream economists as something less than real economics. The piece also rebukes standard trade theory, which holds that if trade increases economic efficiency (which it does by definition), then the political consequences are of little interest. In any case, we can always decide to compensate the losers with a formulation splendidly oblivious to the political feedback effects.

Several others whom I interviewed pointed to a new openness. In a 2019 essay on the state of post-neoliberal economics in the Boston Review, three of the leading heterodox economists— Dani Rodrik of Harvard’s Kennedy School, Suresh Naidu of Columbia, and Zucman of Berkeley—wrote, “Economists also often get overly enamored with models that focus on a narrow set of issues and identify first-best solutions … Many policy failures—the excesses of deregulation, hyper-globalization, tax cuts, fiscal austerity—reflect such first-best reasoning.”

But they see significant and hopeful change. “The typical course in microeconomics spends more time on market failures and how to fix them than on the magic of competitive markets. The typical macroeconomics course focuses on how governments can solve problems of unemployment, inflation, and instability rather than on the ‘classical’ model where the economy is self-adjusting.”

As good empiricists, they added, “The share of academic publications that use data and carry out empirical analysis has increased substantially in all subfields and currently exceeds 60 percent in labor economics, development economics, international economics, public finance, and macroeconomics.”

I was beginning to be persuaded. Then I got in touch with Luigi Zingales.

ZINGALES HEADS THE STIGLER CENTER at the University of Chicago, and criticized the old orthodoxy in two important books, A Capitalism for the People (2012) and Saving Capitalism From the Capitalists (with Raghuram Rajan, 2003) and in his ongoing work at his center, which includes regular media convenings to expose journalists who cover economics to a broader brand of scholarly economic inquiry.

It is a delicious irony that a heretic like Zingales now heads an institute created to honor and carry on the work of George Stigler, who along with Milton Friedman was among the purest and most influential of the Chicago theorists. In 2015, Zingales, a valued member of the business school faculty as well as the economics department, was being courted by other universities. To keep him at Chicago, he was invited to head his own research institute. The Stigler Institute had been relatively inactive, so naming Zingales to direct it seemed like a win-win proposition.

I told Zingales of my working hypothesis that economics was starting to change for the better, at least in some places and subfields.

“You are being far too optimistic, Bob,” he said. But wasn’t Zingales’s own highly visible presence, in the belly of the beast, evidence of the shift?

“The changes have not been all that dramatic,” he said. “Many people who are not members of the club are having more influence elsewhere in the academy, but don’t conflate that with a shift in the core of the profession.” Plenty of economists and non-economists are tackling the important questions of real-world political economy, but they are doing that in public-policy schools, business schools, law schools, and in second- and third-tier economics departments and journals.

Most important for public policy, the new thinking has not penetrated the economic models that policymakers rely upon. Decades after the widely accepted Card and Krueger analysis of minimum wages and employment, the Congressional Budget Office still routinely publicizes that wage increases will lead to job loss.

Microeconomics, according to Zingales, is particularly unchanged. But what is microeconomics?

The name implies concrete exploration of different sectors of the economy, but that’s not quite it. Rather, micro is the purest form of traditional economics, the old view of supply and demand determining price, ornamented by a great deal of modeling and algebra, but with too little curiosity about actual practices in industries that are a far cry from perfect markets.

When Paul Samuelson first published his famous textbook in 1948, the idea was to tame the more radical ideas of Keynes into an invented “neoclassical synthesis” that would leave most of the standard paradigm intact while admitting that at the level of the whole economy, prolonged disequilibria could occur, needlessly depressing output and requiring government intervention. The surviving orthodoxy was called microeconomics; the awkward fact of prices failing to equilibrate at the level of the whole economy was called macro. But if supply and demand could fail the macro economy, then something was fatally wrong with the entire model.

This new synthesis de-radicalized Keynes, who taught that prices could be “wrong” not just during anomalous depressions at the macro level but throughout the economy in normal times, especially in finance and labor. Keynes’s disciple Joan Robinson, a leading theorist of monopsony, aptly termed the so-called neoclassical synthesis “bastard Keynesianism.” It served the profession’s need to preserve most of its model while making some grudging room for the brilliantly embarrassing insights of Keynes, whose broad humanistic and radical work was neutered into a mechanical formula for taming business cycles.

To confirm Zingales’s view that micro remains retrograde, I read through what is still the leading micro text for undergraduates, now in its tenth edition, written by N. Gregory Mankiw. It is a kind of time capsule of crude Chicago economics, circa 1970. He even repeats the thoroughly debunked canard from a 1975 paper by fellow Chicagoan Sam Peltzman that seat belts cause more auto accidents. Why? Because they give false assurance of safety, and lead drivers to drive more recklessly. It’s a classic case of how Chicagoans go to absurd lengths to contend that government regulation invariably backfires.

What’s not in the textbook is any serious, empirical analysis of the economy, sector by sector. The point is to instruct undergraduates in irrefutable axioms, using highly selective evidence to prove why they must be true.

Barry Lynn, author of the prophetic 2005 book End of the Line, on the vulnerability of far-flung global supply chains, tells of his more than 20-year quest to find an economist, any economist, interested in studying supply chain fragility. He had no takers. Paul Krugman met with Lynn, sniffed around the subject, and never followed up. Economists “knew” from free-market theory that just-in-time production using inputs from low-wage countries had to be efficient; otherwise corporations wouldn’t rely on it. Lynn’s concepts of systemic fragility, or vulnerability to disruption, or corporate myopia, were outside their field of vision and professional training.

The fragility of supply chains, ironically, lent itself beautifully to empirical analysis. An economist might have tabulated the dependence on distant supply chains, sector by sector, simulated a disruption that would have blocked or delayed x or y percent of critical inputs, and calculated the impact on supply and price industry by industry. That would have been a perfect topic for a microeconomics worthy of the name, which could have had real-world influence on both corporate practice and public policy, perhaps even moderating the economic costs of the supply chain crisis during the pandemic. But there was no interest among economists.

Even when mainstream economists do take on empirical questions, their work is often misleading because of its reliance on prior assumptions, rather than deep empirical inquiry. The Nobel Committee was pleased with itself for awarding the 2018 prize to Yale economist William Nordhaus for his pioneering work on the environment, which applied economic techniques to models of climate change.

But other economists and climate scientists challenged Nordhaus’s projections and the assumptions on which they were based. Nordhaus claimed that three degrees Celsius of warming would reduce global GDP by only 2.1 percent. He systematically overstated the economic costs of preventing further warming and understated the benefits, leaving out both technological breakthroughs induced by tighter regulation, and the catastrophic economic losses caused by the interaction of natural systems as the Earth continues to warm.

A YOUNG MAINSTREAM ECONOMIST whom I sought out was Gabriel Chodorow-Reich, another brilliant Ph.D. from the Berkeley department, now teaching at Harvard. Like others whom I interviewed, he made the point that the increasing use of data is evidence that the profession is becoming less theory-bound and more empirical.

But are these data being used to ask the right questions? Chodorow-Reich and two colleagues wrote a paper on the dynamics of the Greek fiscal crisis and subsequent economic collapse. The paper, titled “The Macroeconomics of the Greek Depression,” is available on the Harvard website, awaiting publication in a major journal.

The paper combines a great deal of data with a “rich estimated dynamic general equilibrium” model and an immense amount of algebra, and is technically unimpeachable. Its broad finding is that external demand, government consumption, and fiscal transfers fueled the pre-2007 boom, while fiscal contraction was implicated in the collapse, with wages and prices falling precipitously. This is illuminating as far as it goes. What’s missing is the political story of what drove the perverse fiscal policies that in turn deepened the Greek collapse.

Demonstrating virtuosity with models is what young scholars at the top economics departments are socialized to do.

I’ve addressed this dimension of the Greek crisis in two of my own books. To make a long story short, George Papandreou, a moderate socialist, won the 2009 election just in time for the crisis. When he took office that October, he learned that the outgoing conservative government had cooked the budget books. The deficit, reported at 3.5 percent of GDP, was actually more like 12 percent. The budget had been falsified with the help of special bonds created by Goldman Sachs, to disguise borrowing as money management.

When Papandreou learned the truth, he dutifully reported it to the European Commission and the European Central Bank. This was the cue for hedge funds to make massive bets against Greek bonds. Instead of taking the other side of those bets and stabilizing the bond market, the ECB and the EC, joined by the IMF and directed by the deficit obsessives from Germany, punitively piled on, making austerity demands in exchange for paltry aid that went mainly to bail out banks and bondholders and not to help the real Greek economy. (Imagine if such demands and policies had been imposed on FDR’s New Deal during the Great Depression.)

As we talked, it became clear that Chodorow-Reich knew that part of the story as well as I did. In the article, it is mentioned only in passing. I asked him if there was any way of integrating the political-economy story with his elegant technical analysis in one piece that might be accepted in one of the top economics journals. He thought there wasn’t.

In fact, there are mainstream economists who do manage to integrate political and institutional analysis with large data sets, and get published in the top journals, including Chodorow-Reich himself in some of his other work. But as Berkeley economic historian Barry Eichengreen observes, demonstrating virtuosity with models and algebra-heavy methodology is what young scholars at the top economics departments are socialized to do, in order to win tenure, publication, promotion, and acclaim. When they are older, they can take more risks and write bolder articles.

THERE WAS ONCE A HIGHLY EMPIRICAL brand of institutional economics known as industrial organization (IO). Economists looked at actual industries, their structures and dynamics. In a sense, the first IO economist was Adam Smith, with his famous analysis of a pin factory. (Smith was far less rigid than many disciples who practice economics in his name.)

You might think that IO would be undergoing a revival today. That’s only partly true. The “new” IO has also become among the most formalist branches of economics—an extreme case of economists competent in abstruse theory and methods talking to each other. Eichengreen says, “People who work in IO are hung up on purity of technique and statistical theory. That can cause you to miss the real story.”

Antitrust economics, a branch of IO, epitomizes the good news/bad news aspect of recent shifts in how economists conceive of their work. In the late 1970s and 1980s, led by Chicagoan Robert Bork, economic concentration was defined out of existence as a problem. The old-school test of oligopoly, the degree to which a few companies dominated a sector, was sidelined in favor of new dogmas like “consumer welfare.” Bork presumed that greater size and market power was likely to produce greater efficiency. If consumer prices didn’t rise (compared to what?), then concentration was not a problem. Other harms from monopoly and monopsony were ignored. So was institutional, empirical inquiry about how monopolies actually used market power. Bork further argued that antitrust enforcement itself could retard the greater efficiency of mergers.

A generation of economists grew up doing research whose purpose was to validate the Chicago view. This pseudo-scholarly work had great (and malicious) influence. Judges were acculturated to buy the Bork view. The FTC and the Justice Department under several presidents of both parties essentially ceased blocking abusive mergers, either because they bought the Bork doctrine themselves or because they feared being overruled by Chicago-influenced courts.

When a new generation rediscovered antitrust and the abuses of ever-worsening concentration, much of the pathbreaking work was done by scholars in the law schools, such as Lina Khan, mostly not in elite economics departments.

John Kwoka of Northeastern University’s economics department, who recently has been chief economic adviser to Lina Khan, is one of their leaders. His generation of scholars, he tells me, was criticized for being “a-theoretical.” The Bork generation went to the other extreme: all theory, and proof by deduction. Kwoka, who has always done applied work looking at the actual impact of concentration, says there is still too much abstract formalism in antitrust economics, but also evidence of progress toward a new, empirical happy medium.

For example, the work of Michael Whinston at MIT’s Sloan School combines technically sophisticated modeling and econometric work with careful empirical analysis. A 2022 paper in The American Economic Review co-authored by Whinston with Volker Nocke looks at the impact of actual mergers, and benchmarks them against the evolving merger guidelines of the FTC and the Department of Justice. The paper finds that the guidelines have been “too lax” to prevent price increases, to the disadvantage of consumers. The article even resurrects the long-disparaged Herfindahl-Hirschman index of industry concentration as an important analytical tool.

Kwoka also cites another important empirical research paper titled “Employer Consolidation and Wages: Evidence From Hospitals,” showing how hospital consolidation can depress wages. The authors, Elena Prager and Matt Schmitt, like Whinston, work at schools of management and not in economics departments.

Some leading economics departments, however, are receptive to this new empiricism. Joseph Harrington at Penn Wharton does work that is entirely empirical. One of Harrington’s recent research papers is titled “Collusion in Plain Sight: Firms’ Use of Public Announcements to Restrain Competition,” with extensive data, narrative analysis, and no algebra. His colleague Aviv Nevo, who has written on bargaining models in merger enforcement, is now on leave from his academic job to head the FTC economics bureau. And there are dozens of others working in this spirit.

On the other hand, the leading IO journals still publish the same outmoded formal modeling. Here is an emblematic example from the prestigious RAND Journal of Economics. The article is titled “Mergers and Innovation Portfolios.” Ostensibly, it addresses the important question of how mergers affect investment in innovation. The abstract states: “We show that when the project that is relatively more profitable for the firms appropriates a larger (smaller) fraction of the social surplus, a merger increases (decreases) consumer welfare by reducing investment in the most profitable project and increasing investment in the alternative project. The innovation portfolio effects of mergers may dominate the usual market power effects.”

Aside from the sheer opacity of the prose, there is nothing in the article that displays any study of the impact of an actual merger on actual innovation, or compares investment in innovation before and after a firm was acquired by a larger firm. Rather, the article begins with a massive literature review and then models possible behavior with several pages of algebra. The conclusion of the piece basically repeats the premise. The fact that young scholars are trained to show their prowess in this brand of technical work—in a field that cries out for genuine empirical investigation—shows how much of the profession remains unchanged.

Economists are made to learn long-discredited modeling, and then the safe way to win promotion and tenure is to publish articles in the same genre.

Outmoded textbooks intensify the syndrome. When I was contemplating getting an economics degree, I spent a year at the London School of Economics to acquire some technical skills. My graduate-level micro textbook, which is still on my shelf, Price Theory by W.J.L. Ryan (16 shillings), was 95 percent algebra, which manipulated assumptions and inferences. There was just about nothing on the real world. Texts like this beat the institutional curiosity out of many apprentice economists, who then either become professionally invested in the math and the formal proofs, or quit the profession.

David Card explains that bad textbooks survive because the prime market for them is courses taught by adjuncts, who are harried and underpaid, and don’t have time to master new coursework required by newer textbooks. You might call the fallout from the overreliance on adjuncts yet another form of market failure.

“Students are made to walk over the coals of theory, and not until you get past the straight theory do you get to reality,” Kwoka said. This helps explain the self-reinforcing vicious circle. Economists are made to learn long-discredited modeling in order to get their Ph.Ds. And then, the safe way to win promotion and tenure is to publish articles in the same genre.

In 2018, economists James Heckman and Sidharth Moktan published a statistical analysis of the role of the top five economics journals as “filters” in incestuously reinforcing conventional methods and biases. After collecting data on tenure-track faculty hired by the top 35 U.S. economics departments between 1996 and 2010, they found that publication in the top five journals “greatly increase[s] the probability of receiving tenure.” They added: Using this system “creates clientele effects whereby career-oriented authors appeal to the tastes of editors and biases of journals … It raises entry costs for new ideas and persons outside the orbits of the journals and their editors.”

Many younger economists curious about the real world who do manage to get their Ph.D.s eventually leave economics departments to study questions of political economy in other venues. Perry Mehrling, author of the important new book Money and Empire, taught economics for 30 years at Barnard College, becoming department chair. But there was little sympathy among colleagues for his brand of historical and institutional work. So in 2018, Mehrling took a post at Boston University’s School of Global Studies, a haven for economists doing political economy. Mehrling is also playing a leading role with one of the most important transformational institutions in the effort to reclaim a usable economics, the Institute for New Economic Thinking (INET).

INET WAS FOUNDED IN OCTOBER 2009 with an initial grant of $50 million from George Soros. As the financial collapse deepened, Soros had been pressed by financial reform groups, which were hopelessly outspent in the struggle for better regulation, to donate to their cause. Instead, given his somewhat contradictory role as both hedge fund speculator and progressive philanthropist, Soros agreed to put serious long-term money into a project to build an alternative but mainstream economic research network.

The director of INET for its entire existence has been Soros confidant Rob Johnson, a Princeton Ph.D. in economics and expert on finance who served on the staff of the Senate Banking Committee (where I once worked) and also spent several years working for a Soros hedge fund. INET has attracted some of the profession’s leading thinkers. After more than a decade, INET’s impact has been formidable, sponsoring conferences, underwriting research, and publishing an online journal. INET Oxford is now a major independent research center.

In 2011, Perry Mehrling became one of the leaders of INET’s Young Scholars Initiative, which introduces a far more eclectic brand of economics to students and junior faculty worldwide. “Academic economics is extremely well defended,” Mehrling says. “So do not attack the citadel. You will fail. You need to go around it. There are a lot of people who want to study economics, but not the way it is taught at elite universities. We can create a parallel universe.”

Mehrling’s intellectual hero is economist Charles Kindleberger, whose classic The World in Depression remains one of the best books on the Great Depression. It was Kindleberger who originated what became known as the theory of hegemonic stability, demonstrating that it took a hegemonic power to stabilize the global monetary system. Britain played that role before 1914 and the U.S. after 1944; Kindleberger attributed the monetary and financial chaos of the interwar period to the absence of a hegemon. Mehrling’s new book adds the insight that monetary hegemony is also a useful engine of empire. It is doubtful that an economist like Kindleberger, whose method was mainly historical, but whose insights were profound, would be tenured at an elite economics department today.

Others have joined the effort besides INET. The Hewlett Foundation’s Economy and Society Initiative, launched in 2018, will spend upwards of $120 million from Hewlett to underwrite research at six new academic centers and support and convene scholars from economics and other fields. Hewlett, which now has several other foundation partners and new plans for centers in the Global South, makes the connection between the standard economic model and the broader incursions of neoliberalism as a governing philosophy. (The Prospect, along with many other institutions, is a grantee.)

A prominent project of INET’s called CORE Econ, which stands for Curriculum Open-Access Resources in Economics, has the goal of creating a rigorous and engaging alternative to the way economics is taught. CORE, whose areas of inquiry include “climate change, injustice, innovation and the future of work,” offers online free courses and a free interactive digital textbook, which is giving standard textbooks a run for their money. In Britain, it is already used in two-thirds of university economics departments.

CORE Econ is led by two great figures in dissenting economics, Sam Bowles and Wendy Carlin. Bowles initially taught at Harvard, where he was denied tenure despite a sterling record as teacher and scholar because he was a neo-Marxist. He then went off to UMass Amherst, where he and his colleagues created one of the great programs in radical economics. Carlin, who got her doctorate at Oxford as a Rhodes Scholar, is professor of economics at University College London.

Bowles, now based at the Santa Fe Institute, offers a number of free textbooks. He counts himself in the optimistic camp on the issue of the degree of change in the economics profession, but shares Mehrling’s view that the change has to come from outside.

In an article published in the Journal of Economic Literature in 2020 titled “What Students Learn in Economics 101: Time for a Change,” Bowles and Carlin surveyed what subjects interest young economics students most. The top ones, everywhere in the world, are inequality, unemployment, poverty, and climate change, subjects relegated to the periphery of macro and micro courses and textbooks. “If you start the book with inequality and climate,” Bowles says, “you’re going to have to rewrite the whole book.”

SO, HOW MUCH HAS THE ECONOMICS profession changed since its models and methods were overtaken by reality? Some, but not enough. Change is proceeding from the outside in. And one of the most potent forces retarding change is the continuing indoctrination of undergraduates and young assistant professors pursuing tenure.

Teresa Ghilarducci, an economics professor at the New School and a leading researcher on pensions, says, “Heterodox economics is not as heterodox as you might think.” In a forthcoming paper that surveys the field, she and five colleagues write, “Alternative or ‘heterodox’ visions have achieved little traction in most economic departments, and modern economics is isolated from other social sciences and fields of inquiry.”

The conflict about economic modeling is most acute where methodology meets ideology. In a journal article titled “Shrinking Capitalism,” Bowles and Carlin write that the standard market model of supply and demand giving people precisely what they deserve grants “a kind of moral extraterritoriality to economic interactions that suspends ordinary ethical judgments within its compass.”

The efforts of INET and others to transform the profession begin with an appreciation that the formalism in economic modeling, and the presumption that markets are efficient until proven otherwise, serve as pseudo-scientific rationalizations for corporate power and gross inequality. Inequality of wealth has political spillover effects that preclude the reforms that society needs. The project of changing economics goes hand in hand with the project of changing capitalism.