What Should Economists Study?
Robert Vienneau relays a question:
Thoughts On Economics: Mainstream Economists Unable To Discuss Economics: Over on Economics Job Market Rumors, an anonymous poster asks:
Despite the neoclassicals admitting that the Post-Keynesians were right, why has the impact of heterogeneous capital on an economy left out of the macro models?
It will not surprise me if he or she receives no coherent answer. I recently had a chance to skim the transcripts of David Colander's interviews with graduate students at the "best" economics departments in the United States. These are in his book The Making of an Economist Redux. The following phrases seem no connote nothing to such students: "Cambridge Capital Controversy", "Neoclassical Economics", and "Post Keynesian Economics".[1] One student responded to a question about Joan Robinson by asking, "Who's that?" The best students seem to realize that they will have to get an education by themselves in their "spare" time after they receive their doctorate.
There are two parts to the answer:
It's really hard to build models with heterogeneous capital.
Heterogeneous capital is not of the essence of the globe's current economic problems. Yes, at the peak of the bubble we had three million extra houses between Los Angeles and Albuquerque--capital that would have been more usefully deployed in other forms. But malinvestment does not produce a depression: we had four times as much in unprofitable capital invested in dot-coms at the start of 2001 than we had invested in housing at the peak... yet no deprssion. And by now construction has been so depressed for so long that as Richard Green points out our housing stock is back on trend: Our economy's problem is not that we have too large a proportion of our capital stock invested in the "clay" of housing. Our economy's problem is the collapse of risk tolerance and of all risky asset prices for all ventures which had led financial markets to send "shutdown" signals to the real economy. To waste time modeling heterogeneous capital when you should be modelling the credit channel and the effect of asset deflation on market risk tolerance is, with a high probability, to waste your time.
Study Fisher, Wicksell, Keynes, Hicks, Minsky, Kindleberger, Bernanke and Gertler. IMHO, Joan Robinson has little to say.
[1] As one of the students interviewed for the original The Making of an Economist, let me say that there was a distressingly wide gap between what we told Colander and Klamer and what they heard: we were not nearly as stupid and as narrow as they wanted us to be.
