Economists question dominance = of free-market ideas - Print Version

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Economists question = dominance of=20 free-market ideas

By Patricia Cohen

Wednesday, July 11, = 2007=20

NEW YORK:=20

For many economists, questioning free-market orthodoxy is akin to = expressing=20 a belief in intelligent design at a Darwin convention: Those who doubt = the=20 naturally beneficial workings of the market are considered either = deluded or=20 crazy.

But in recent months, economists have engaged in an impassioned = debate over=20 the way their specialty is taught in universities around the United = States, and=20 practiced in Washington. They are questioning the profession's most = cherished=20 ideas about not interfering in the economy.

"There is much too much ideology," said Alan Blinder, a professor at=20 Princeton and a former vice chairman of the Federal Reserve Board. = Economics, he=20 added, is "often a triumph of theory over fact."

Blinder helped kindle the discussion by publicly warning in speeches = and=20 articles this year that as many as 30 million to 40 million Americans = could lose=20 their jobs to lower-paid workers abroad.

Just by raising doubts about the unmitigated benefits of free trade, = he made=20 headlines and had colleagues rubbing their eyes in astonishment.

"What I've learned is anyone who says anything even obliquely that = sounds=20 hostile to free trade is treated as an apostate," Blinder said.

And free trade is not the only sacred subject, Blinder and other = like-minded=20 economists say. Most efforts to intervene in the markets - like setting = a=20 minimum wage, instituting industrial policy or regulating prices - are = viewed=20 askance by mainstream economists, as are analyses that do not rely on=20 mathematical modeling.

That attitude, the critics argue, has seriously harmed the = discipline,=20 suppressing original, creative thinking and distorting policy = debates.

"You lose your ticket as a certified economist if you don't say any = kind of=20 price regulation is bad and free trade is good," said David Card, an = economist=20 at the University of California, Berkeley, who has done groundbreaking = research=20 on the effect of the minimum wage.

Most economists are still devoted to what is known as the = neoclassical model.=20 Philip Reny, chairman of the economics department at the University of = Chicago -=20 the temple of free-market economics - said the theory and methods were = "taught=20 to avoid personal biases and conclusions that aren't found in the = data."

Like any science, he said, the field changes course slowly: "It = requires=20 evidence, and if evidence is there, it will accumulate and positions = will move."=20 He added, "I personally have a lot of faith in the discipline."

But as issues like income inequality, free trade and protectionism = have=20 become part of the presidential candidates' stump speeches, more = thinkers have=20 joined the debate.

In addition to Blinder, other eminent economists like Lawrence = Summers and=20 the Nobel Prize winner George Akerlof have pointed out what they see as = the=20 failings of laissez-faire economics.

"Economists can't pretend that the consensus for free markets and = free trade=20 that existed 30 years ago is still here," said Robert Reich, a public = policy=20 professor at Berkeley who served in President Bill Clinton's = cabinet.

Part of the reason is the growing income inequality and dislocation = that=20 global markets and a revolution in communications have helped create. = Economists=20 who question the free-market theories "want to speak to the reality of = our=20 time," Reich said.

Meanwhile, critics have also pointed out the limits of standard = cost-benefit=20 accounting to measure items like the cost of inequality or damage to the = ecosystem.

The degree to which economists wander from the mainstream varies = widely.

Dani Rodrik, an economist at the Kennedy School of Government at = Harvard, for=20 instance, said, "I fall into the methods of the mainstream, but not the = faith,"=20 which he defines as the belief that more markets and free trade are = always good=20 and government regulation is always bad.

Thinkers like these may come up with controversial ideas but are = hardly=20 marginalized. Other economists, however, go much further, and try to = chip away=20 at the field's underlying theoretical foundations. So while Blinder, = Card and=20 Rodrik might be considered mere heretics, this second group has earned = the label=20 "heterodox."

Although the meaning of the term is slippery, Frederic Lee, an = economist at=20 the University of Missouri-Kansas City who edits the Heterodox Economics = Newsletter, says it refers to those who reject the neoclassical model, = which=20 Milton Friedman helped create, and which Ronald Reagan championed when = he took=20 over the White House.

Reny and others point out that the increasing popularity in the = mainstream of=20 behavioral economics, which looks at people's complex psychological = reactions to=20 events, has offered a fuller picture of how consumers operate in the=20 marketplace. Still, Lee criticizes neoclassical economics for = maintaining that=20 the market, if left alone, would ultimately find a happy balance.

He also takes the discipline to task for relying on abstract theories = and=20 mathematical modeling instead of observation and sociological = analysis.

In Lee's view, for example, oil companies - not the natural workings = of the=20 market - determine gas prices.

According to his estimates, 5 to 10 percent of America's 15,000 = economists=20 are heterodox, which includes an array of professors on the right and = the left=20 (post-Keynesians, Marxists, feminists and social economists).

Heterodox economists complain that they are almost completely shut = out by=20 their more influential neoclassical colleagues who dominate most = American=20 university departments and prestigious peer-reviewed journals that are = essential=20 to gaining tenure.

There are a few university departments where these iconoclasts are = welcome,=20 like Amherst in Massachusetts, the New School in New York and Lee's home = base,=20 the University of Missouri-Kansas City, but these are exceptions.

The New York Times

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