By Philip Mirowski, Carl Koch Professor of Economics and the History and Philosophy of Science University of Notre Dame. Professor Mirowski has written numerous books including , and, most recently
Edited and with an introduction by , a journalist and writer living in Dublin, Ireland
A bibliography can be found
During a recent interview with the eminent historian of economic thought, Philip Mirowski, I raised a series of questions relating to how mainstream economists had dealt with the crisis on an intellectual level and what this might mean for the discipline in the coming years. I asked if he thought that they could hope to recover their bearings and, under the tutelage of a figure like Paul Krugman, might re-establish the neoclassical research program by simply tacking on some watered-down Keynesianism, just as Paul Samuelson had done in the post-war era.
Mirowski said that he did not want to answer these questions. “Of course,” he wrote, “I am interested in all of them, but I have been trying to bring the application of history and philosophy of science a bit closer to the earth when it comes to the crisis.” He then sent me an article he had written for a recently published book entitled .
After reading this 40-odd page article I knew that it was easily the most important statement on how the mainstream of the economics discipline had reacted to the crisis and what this might mean for the neoclassical research program in the future. I also knew that the book in which it was published would likely go unread by a broader audience of non-economists – and possibly even many economists – and so I asked him if we could publish an edited version. He kindly complied and the result is what the reader will see appearing on the Cfdtrade website in the coming days.
This is a long and complex article and I feel it might be worthwhile if I highlight a few key points that the reader can use as a thread to follow through this series, especially the later few pieces.
• First of all, we should carefully note what Mirowski says in the coming sentences about the debates surrounding the Dynamic Stochastic General Equilibrium Models (DSGE) models. These are the models that are today taught to economics graduates and used in central banks and the like. They are ‘trendy’ and mathematically sophisticated (relatively speaking, of course) – and some point to them as a major advance in economic theory. Of course, like all advances in this most conservative of disciplines they are no such thing. As Steve Keen has pointed out on Cfdtrade before, they remain essentially static models that assume equilibrium. Thus, they are simply a rehash of the same thing that neoclassicals have been pushing for years: an ideological/metaphysical/theological idea about how capitalist economies work that posits harmony where no such harmony exists. But Mirowski points out that all the naval-gazing going on within the profession right now about the DSGE may be a sideshow – a means to evade the really fundamental questions about neoclassical economics and its foundations. As Mirowski writes in the piece: “The real bone of contention is not the DSGE model per se, but rather the pre-eminence of legitimacy of neoclassical microeconomics. The DSGE model is a herring of the brightest red.”
• This ties into another point that is raised by Mirowski. Those – like Paul Krugman – who attack the DSGE models and seek to return to the old ‘Keynesian’ ISLM models of the post-war era are also engaging in an unconscious, but no less pernicious obfuscation. First of all, Mirowski points out that they are pursuing a hopeless cause. If the post-ISLM economics is thrown out then the discipline has to admit that the vast majority of the work done since 1969 is only so much star-gazing rubbish. Fat chance that is going to happen! Secondly, and more importantly, by returning to the ISLM version of Keynes the neoclassicals in Keynesian garb (like Krugman) are once again avoiding the destabalising of the entire foundations of microeconomics to the point that it becomes self-contradictory and nonsensical that Keynes’ work actually led to (this is what the Sraffians and the post-Keynesians have been pointing out for years – most recently, we can name Steve Keen and his book for a good summary, and Yves raised similar issues in ).
• Then there is Mirowski’s critique of Joseph Stiglitz and other attempts by many in the discipline to distance themselves from the now infamous Efficient Markets Hypothesis (EMH). These critiques, as Mirowski shows, are meaningless when looked at from a larger perspective. They are attempts to pick little holes in the edifice of the Great Equilibrator (The Market) and show where tiny little micro-irrationalities creep in. This insulates the economists from recognising that The Market might be inherently destabalising (think Minsky’s: ‘unstable economy’). Indeed, The Market may not even exist as a tangible entity, it may simply be a figment of the economists’ imaginations; a metaphysical/theological positing of equilibrium and harmony – a religious-like belief that somewhere out there is a Godlike Hidden Hand that ensures benevolence; in short: a primitive belief that real science did away with years ago.
Embedded in this critique is a smaller but no less substantial critique of behavioural economics. In this regard Mirowski points to popular exponents of the behavioural tradition like Robert Schiller. As Mirowksi clearly shows, behavioural economics is but another shallow, but superficially appealing defence of orthodoxy. It fundamentally alters nothing because its concepts of ‘rationality’ and ‘irrationality’ are largely ad hoc. This is important because anyone who has ever critiqued economists’ conception of ‘rationality’ is often met with apologists saying that the mainstream has now moved into the behavioural sphere and are thus becoming more scientific. This is nonsense of the highest order. Again, Mirowski puts it eloquently: “Two decades of behavioral research certainly has not resulted in any consensus systematic revisions of microeconomics, much less macroeconomics. Beyond wishful thinking, why should one even think that the appropriate way to approach a macroeconomic crisis was through some arbitrary set of folk psychological mental categories?”
There is much more in what follows and, indeed, these are only the key points that I would pull out of Mirowski’s excellent article. The piece does not drop into these critiques straight away. Instead it provides the reader with an excellent overview of the institutional critiques and counter-critiques of economics within the media. In this, the reader will see the second reason to engage fully with Philip Mirowski’s work (the first being that it is the most pressing and far-reaching critique of neoclassical economics that has ever existed): Mirowski’s work is entertaining. It is ironic, light-hearted and even at times genuinely funny. It engages the reader on a number of different levels – now theoretical, now literary. And in this I believe that Mirowski is one of the most important writers working today – and not only in the field of economics, but also in the fields of philosophy and the history of thought. Anyone interested in any of these areas who has not engaged with Mirowski’s work is far, far behind the times.
– Philip Pilkington
Part I: Them Crazy Seekers
After the financial crisis of 2007-08, the economics profession were in a particularly vulnerable position. No sane person could welcome a worldwide economic contraction; but the economics profession was particularly vulnerable to scorn and derision with its onset, because the orthodox majority had been boasting of unprecedented success in guaranteeing prosperity during the first decade of the millennium, often under the rubric of ‘The Great Moderation’. 
Furthermore, the economists had grown so confident in their orthodoxy that they had driven out most rival views and approaches from the richest and most powerful academic settings. This relative homogeneity of their disciplinary convictions helped to set the stage for what has become a rolling come-uppance. Once the contraction proceeded in earnest in 2008, it became commonplace in newspapers, blogs and symposia at various universities to query openly why these economists had apparently been caught unawares. Disparagement grew sharper as time passed, such as in movies like Charles Ferguson’s Inside Job (2010). Individual economists have responded with a bewildering array of diagnoses, qualifications and bald excuses, in ephemeral blogs and interviews, but also in durable print. How can an observer extract signal from noise in order to come to understand the modern predicament of economics? Has it all really been just a flash in the pan? How did economists acquit themselves during the shellacking? As the reader will appreciate, this is eminently a methodological question; but by 2008 the economists were bereft of methodological and philosophical resources to inform their responses.
After a brief flirtation in the 1960s and 1970s, the grandees of the economics profession took it upon themselves to express openly their disdain and revulsion for the types of self-reflection practiced by ‘methodologists’ and historians of economics, and to go out of their way to prevent those so inclined from occupying any tenured foothold in reputable economics departments.  It was perhaps no coincidence that history and philosophy were the areas where one found the greatest concentrations of skeptics concerning the shape and substance of the post-war American economic orthodoxy. High-ranking economics journals, such as the American Economic Review, the Quarterly Journal of Economics and the Journal of Political Economy, declared that they would cease publication of any articles whatsoever in the area, after a prior history of acceptance.
Once this policy was put in place, and then algorithmic journal rankings were used to deny hiring and promotion at the commanding heights of economics to those with methodological leanings. Consequently, the grey- beards summarily expelled both philosophy and history from the graduate economics curriculum; and then, they chased it out of the undergraduate curriculum as well. This latter exile was the bitterest, if only because many undergraduates often want to ask why the profession believes what it does, and hear others debate the answers, since their own allegiances are still in the process of being formed. The rationale tendered to repress this demand was that the students needed still more mathematics preparation, more statistics and more tutelage in ‘theory’, which meant in practice a boot camp regimen consisting of endless working of problem sets, problem sets and more problem sets, until the poor tyros were so dizzy they did not have the spunk left to interrogate the masses of journal articles they had struggled to absorb. How this encouraged students to become acquainted with the economy was a bit of a mystery – or perhaps it telegraphed the lesson that you did not need to attend to the specifics of actual economies (Klamer and Colander, 1990). Then, by the 1990s there was no longer any call for offering courses in philosophy or history of doctrine, since there were very few economists with sufficient training (not to mention interest) left in order to staff the courses.  Methodology had been effectively defined as ‘not economics’. As one of the original interviewers noted about a follow-up survey of economics graduate students at major departments just before the crisis:
These students furthermore do not show a great deal of ability to reflect on their discipline. They are satisfied with the commonplace, the things that economists conventionally say about their discipline. This cohort appears to be mindless, or at least resourceless, when it comes to reflections on the nature of their science. They have no literature to fall back on. (Klamer in Colander, 2007, p. 231)
Consequently, when the Great Mortification followed in the wake of the demise of the Great Moderation, both those occupying the commanding heights of the profession and those in the trenches were bereft of any sophisticated resources to understand their predicament comprehensively. In a pinch, many fell into a defensive crouch, falling back on the most superficial of personal anecdotes, or else the last refuge of scoundrels, the proposition that ‘we’ already knew how to handle the seemingly anomalous phenomena, but had unaccountably neglected to incorporate these crucial ideas into our pedagogy and cutting-edge research. Streaming video sometimes captured these pageants on the Internet.  It takes some thick skin not to cringe at the performance of four famous economists at the January 2010 meetings of the American Economics Association in Atlanta, in a session expressly titled, ‘How Should the Financial Crisis Change How We Teach Economics?’  Three out of the four were not even bothered actually to address the posited question, so concerned were they to foster the impression that they personally had not been caught with their pants down by the crisis. The fourth thought that simply augmenting his existing textbook with another chapter defining collateralized debt obligations and some simple orthodox finance theory would do the trick.
For the ragged remnants of economic methodologists, it was a dreary sight to watch a few older economists rummaging around in the vague recesses of memories of undergraduate courses criticizing Milton Friedman’s little 1953 benediction for believing whatever you pleased as long as it was neoclassical (Maki, 2009), and coming up with nothing better than badly garbled versions of Popper and Kuhn. Of course quite a few had premonitions that something had gone very wrong, but the sad truth was that they were clueless when it came to abstract philosophical argument isolating just where the flaws in professional practice might be traced, and assessing the extent that they were susceptible to methodological remedies. Mired in banality, the best they could prescribe was more of the same. No wonder almost every eminent economist took their philosophical perplexity as a convenient occasion to settle internecine scores within the narrow confines of the orthodox neoclassical profession: MIT v. Chicago, blinkered econometrics v. blinkered axiomatics, New Keynesians v. New Classicals, Pareto suboptima v. rational bubbles . . .
In what follows I shall try not to pay much attention to such local settling of scores, but instead attempt to comprehend these responses as a case study in the social psychological problem of cognitive dissonance.
The father of ‘cognitive dissonance theory’ was the social psychologist Leon Festinger. In his premier work on the subject, he addressed the canonical problem situation which captures the predicament of the contemporary economics profession:
Suppose an individual believes something with his whole heart…suppose that he is then presented with unequivocal and undeniable evidence that his belief is wrong: what will happen? The individual will frequently emerge, not only unshaken, but even more convinced of the truth of his beliefs than ever before. Indeed, he may even show a new fervour about convincing and converting people. (Festinger et al., 1956, p. 3)
This profound insight, that confrontation with contrary evidence may actually augment and sharpen the conviction and enthusiasm of a true believer, was explained as a response to the cognitive dissonance evoked by a disconfirmation of strongly held beliefs. The thesis that humans are more rationalizing than rational has spawned a huge literature (Fischer et al., 2008), one that gets little respect in economics. Cognitive dissonance and the responses it provokes goes well beyond the literature in the philosophy of science that travels under the rubric of ‘Duhem’s thesis’, in that the former plumbs response mechanisms to emotional chagrin, whereas the latter sketches the myriad ways in which auxiliary hypotheses may be evoked in order to blunt the threat of disconfirmation. Philosophy of science reveals the ways in which it may be rational to discount contrary evidence; but the social psychology of cognitive dissonance reveals just how elastic the concept of rationality can be in social life. Festinger and his colleagues illustrated these lessons in his first book (1956) by reporting the vicissitudes of a group of Midwesterners they called ‘The Seekers’ who conceived and developed a belief that they would be rescued by flying saucers on a specific date in 1954, prior to a great flood coming to engulf Lake City (a pseudonym). Festinger documents in great detail the hour-by-hour reactions of the Seekers as the date of their rescue came and passed with no spaceships arriving and no flood welling up to swallow Lake City. At first, the Seekers withdrew from representatives of the press seeking to upbraid them for their failed prophecies, but soon reversed their stance, welcoming all opportunities to expound and elaborate upon their (revised and expanded) faith. A minority of their group did fall away, but Festinger notes that they tended to be lukewarm peripheral members of the group before the crisis. Predominantly, the Seekers never renounced their challenged doctrines. At least in the short run, the ringleaders tended to redouble their proselytizing, so long as they were able to maintain interaction with a coterie of fellow covenanters.
In a manner of speaking, the legacy of renunciation of philosophy and methodology led much of the orthodox economics profession to behave in ways rather similar to the Seekers from 2008 onwards. The parallels between the Seekers and the contemporary economics profession are, of course, not exact. The Seekers were disappointed when their world didn’t come to an end; economists were convinced their Great Moderation and neoliberal triumph would last forever, and were disappointed when it did appear to come to an end. The stipulated turning point never arrived for the Seekers, while the unsuspected turning point got the drop on the economists. The Seekers garnered no external support for their doctrines, indeed, quitting their jobs and contracts prior to their Fated Day; the economists, on the other hand, persist in being richly rewarded by many constituencies for remaining stalwart in their beliefs. The public press was never friendly towards the Seekers; it only turned on the economists with the financial collapse. (There are already signs it may be reverting to its older slavish adoration, however.) But nonetheless, the shape of the reactions to cognitive dissonance was amazingly similar. The crisis, which at first blush might seem to have refuted most everything that the economic orthodoxy believed in, was in the fullness of time more often than not trumpeted from both the Left and the Right as reinforcing their adherence to neoclassical economic theory. Thus was made manifest the ‘spontaneous methodology of the economics profession’.
1. Federal Reserve System (Fed) Chair Ben Bernanke had begun in 2004 in speeches and writings to proclaim the onset of a ‘Great Moderation’ in the US macroeconomy since
1984 (Bernanke, 2004). Briefly, this was an assertion that economists had attained such an advanced understanding of the economy that macroeconomic fluctuations had been tamed relative to previous experience, and thus we had entered into a new era of capitalist stability and prosperity. His repeated citation of this thesis went some distance in explaining why Bernanke’s Fed did essentially nothing to counter the worst financial abuses which led up to the crisis of 2007–08; Bernanke was insisting that the mortgage market was sound right up to the failure of Lehman Brothers. It is difficult to convey in any short space just how much the orthodox economics profession loved this thesis; so much so that it spawned a huge academic literature in its own right, one which has yet to be curtailed by events.
2. Here is not the place to document this trend, but see Paul Samuelson’s setting the tone for the community in the 1970s: ‘Those who can, do science; those who can’t prattle on about its methodology’ (quoted in Holcombe, 1989).
3. This dynamic is described from various vantage points in Weintraub (2002).
4. See, for instance, John Cochrane attacking Paul Krugman: http://www.youtube. com/watch?v5HO4E1bs4CbE; or Cochrane on the PBS News Hour, 17 February
2010: http://www.youtube.com/watch?v57hQb1qkQUu0; or for some more nuanced defences of orthodoxy, see the speakers at the April 2010 meetings of the Institute for New Economic Thinking at: http://ineteconomics.org/video (last accessed 10 July
5. Available at: http://www.aeaweb.org/webcasts/assa2010.php.