Joseph Stiglitz (with and without George Akerlof) has announced it’s time to “let a hundred theories bloom.”* His starting point is the familiar one: “the failure of much of the economics profession to see the crisis coming.” And to his credit, he notes
there is, in fact, a much greater diversity of ideas within the economics profession than is often realized. . . Economics has generated a wealth of ideas, many of which argue that markets are not necessarily either efficient or stable, or that the economy, and our society, is not well described by the standard models of competitive equilibrium used by a majority of economists.
Much of the most exciting work in economics now underway extends the boundary of economics to include work by psychologists, political scientists, and sociologists. We have much to learn, too, from economic history.
The problem is, Stiglitz’s view of the theories that should be encouraged to bloom is remarkably truncated. It includes
agent-based models that emphasize the diversity of circumstances; network models, which focus on the complex interrelations among firms (such as those that enable bankruptcy cascades); a fresh look at the neglected work of Hyman Minsky on financial crises (which have increased in frequency since deregulation began three decades ago); and innovation models, which attempt to explain the dynamics of growth
but not all the other economic theories—including the Marxian critique of political economy—that couldn’t be more distant from “the idea of self-regulating, fully efficient markets that always remain at full employment.” I wonder if these other theories will be encouraged to contend in the newly created Initiative for New Economic Thinking funded by George Soros at the Central European University in Budapest.
*The actual quotation from Mao, who borrowed it from a Chinese poem, is “let a hundred flowers bloom; let a hundred schools of thought contend.”