The Academic Spring

The term Arab Spring is now entrenched in the lexicon although what it actually refers to – liberty or more oppression – is now a question in its own right. There is another Spring occurring – smaller, more obscure perhaps, but with significant potential to change the way academic research is disseminated and the way funding agencies treat universities. In the case of the economics discipline it offers significant scope to break down some of the barriers that allow the mainstream economics paradigm to retain dominance despite it being largely bereft of empirical support. I am talking about the Academic Spring, which is a grass roots revolt that is gathering pace. You can find out how to join this revolt at the end of the blog.

There was an article in the New York Times (July 11, 2007) – just before the crisis – In Economics Departments, a Growing Will to Debate Fundamental Assumptions – which investigated the “free-market” bias in economics departments.

The article said that:

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

The article notes that ” free trade is not the only sacred subject …. Most efforts to intervene in the markets – like setting a minimum wage, instituting industrial policy or regulating prices – are viewed askance by mainstream economists, as are analyses that do not rely on mathematical modeling”.

The mainstream of my profession remain firmly in the neo-classical tradition which fervently holds onto the clearly defunct notion that self-regulating markets are stable and deliver optimal outcomes (income and wealth generation).

The NYTs article quoted the then chairperson of the Economics Department at the University of Chicago who said that neo-classical theory is:

… taught to avoid personal biases and conclusions that aren’t found in the data … [and change] … “requires evidence, and if evidence is there, it will accumulate and positions will move … I personally have a lot of faith in the discipline.

Faith being the operative word. The neo-classical model is full of personal biases. A striking example is the discredited theory of distribution. Modern mainstream economic theory (new Keynesian, etc) is still strongly based on the neoclassical theory that emerged in the second half of the C19th. At that time, Marxism was growing in influence and the message was getting through to workers that profits were the reward for ownership of capital not a contribution to production.

It is clear that we could go to the share registry one night and alter all the company ownerships by changing names on certificates and the distribution of income would radically alter without anyone doing more or less work. The capacity of owners of capital to take the surplus labour of the workers – for nothing – was then the central story. It was patently unfair and increasingly violent protests were threatening the capacity of capital to maintain their “unproductive” hegemony over the vast bulk of the population.

Clearly a solution was needed. Leading industrialists hired conservative academics to come up with a counter.

Enter marginal productivity theory which claims that each “factor of production” produces a marginal product and competition ensures that at the margin that factor receives a payment (wage, interest, profit) exactly equal to that marginal product or contribution. A marginal product is the extra production that is forthcoming from adding an extra unit of the factor of production.

Two things emerged. Labour was no longer considered a special productive input – but just one “factor” of production along with the other inanimate factors. This depersonalisation of workers attempted to downplay issues of control and supervision which were designed to ensure the workers didn’t go home once they had produced enough for their own wage and while they were working they were working hard.

More significantly, marginal productivity theory held out that unlike the claims of Marxists, competitive capitalism was a fair system because it rewarded productive input in proportion to the contribution of that input to final output. What could be fairer than that? Profits were now constructed as just another return to effort rather than a misbegotten worker rip-off. Profits and wages – all in proportion to input and contribution.

A major writer in this period was the American John Bates Clark. In 1891 – Distribution as Determined by a Law of Rent, Quarterly of Economics, 5: 313 – Clark wrote the following (which is representative):

With extreme brevity we have stated a law that is as comprehensive as anything in economics. We have not referred to the obstacles that the law encounters in practice, nor have we made an attempt to measure the deviations from the theoretical standard that the actual distribution of the social income reveals … It, in fact, identifies production with distribution, and shows that what a social class gets is, under natural law, what it contributes to the general output of industry …

In his famous book – The Distribution of Wealth – Clark wrote in relation to labour that (pages 16, 71):

All labor is directly paid for; its compensation is the market value of its product … It is the purpose of this work to show that the distribution of the income of society is controlled by a natural law, and that this law, if it worked without friction, would give to every agent of production the amount of wealth which that agent creates

In other words, capitalist social relations were “natural”. This allowed the profession to challenge the class analysis of Marx and hold out capitalism as a system that maximised the outcomes of free exchange between equals – workers, capital, landowners – they were all alike. They brought their inputs to the market and freely traded exchange values (which reflected use values) and received what they contributed.

The inequality in the exchange relationships that Marx had identified – labour power is exchanged but labour is used – was suppressed. A whole range of nasty inferences then follow. A person becomes unemployed because they are asking a wage that is beyond their productivity. If all workers were willing to accept wages in line with their “contributions to production” then there would be no unemployment. And so it goes.

Juxtapose that construction with that portrayed so strongly by Marx in Capital Volume 1, Chapter 6, The Buying and Selling of Labour-Power. Here he is talking about the chimera of freedom that capitalism portends – the exchange level of reality where workers appear to freely exchange labour in return for a wage. But once you go beyond that superficiality we learn about the essence of capitalism.

Marx wrote that:

This sphere that we are deserting, within whose boundaries the sale and purchase of labour-power goes on, is in fact a very Eden of the innate rights of man. There alone rule Freedom, Equality, Property and Bentham. Freedom, because both buyer and seller of a commodity, say of labour-power, are constrained only by their own free will. They contract as free agents, and the agreement they come to, is but the form in which they give legal expression to their common will. Equality, because each enters into relation with the other, as with a simple owner of commodities, and they exchange equivalent for equivalent. Property, because each disposes only of what is his own. And Bentham, because each looks only to himself. The only force that brings them together and puts them in relation with each other, is the selfishness, the gain and the private interests of each. Each looks to himself only, and no one troubles himself about the rest, and just because they do so, do they all, in accordance with the pre-established harmony of things, or under the auspices of an all-shrewd providence, work together to their mutual advantage, for the common weal and in the interest of all.

On leaving this sphere of simple circulation or of exchange of commodities, which furnishes the “Free-trader Vulgaris” with his views and ideas, and with the standard by which he judges a society based on capital and wages, we think we can perceive a change in the physiognomy of our dramatis personae. He, who before was the money-owner, now strides in front as capitalist; the possessor of labour-power follows as his labourer. The one with an air of importance, smirking, intent on business; the other, timid and holding back, like one who is bringing his own hide to market and has nothing to expect but – a hiding.

Who paid John Bates Clark? He was an academic at Columbia University but received funding from leading industrialists of the day who were concerned with the growing threat of a Marxist-inspired trade union movement. So the mainstream profession has always been conflicted – although I would just say “bought”.

Thorstein Veblen wrote in 1908 that Clark was an apologist for capitalism (‘Professor Clark’s Economics’, Quarterly Journal of Economics, 22(2), 147-195).
Clark also opposed minimum wages (see his 1913 article – ‘The Minimum Wage’, Atlantic Monthly 112: 289-97) calling them “risky” (page 297) and “inhumane” (page 297) if they were set above the marginal product. He also opposed public employment for those who were not able to get work in the private sector saying it “would depart from all American precedents” (page 294).

The point is that marginal productivity theory is still used to defend various policy positions mostly associated with extensive labour market deregulation. Policies implemented in its name have led to the wage share contracting significantly in many advanced economies and real income being distributed to profits. The rise of the financial services industry has used that redistribution to create all the “products” we have seen explode in recent year yet the inventors have rarely suffered the losses.

Marginal productivity theory was also demolished in the Cambridge debates in the 1960s. These debates showed that the neo-classical distribution theory was internally inconsistent – that is, its main conclusions cannot be logically drawn from the starting point.

While this demolition was categorical (even Paul Samuelson, a doyen of the neo-classical school – held up the white flag) the profession largely ignored it and students are still subjected to marginal productivity theory as if it is a natural law.

Some neo-classical economists, who clearly understand the importance of the Cambridge debates, then resort to general equilibrium versions of the theory. They are also internally inconsistent. The theory should not be taught in any decent university. But it is still the centrepiece of mainstream production and distribution theory and underpins explanations of unemployment (as voluntary or temporary) and wage determination.

Economists who teach this stuff as if it is a serious representation of the world we live in are in my view do not uphold a high degree of integrity in their professional work.

Then think about the comments made by Nobel Prize winner Robert Lucas Jr (University of Chicago) in his 2003 presidential address to the American Economic Association:

My thesis in this lecture is that macroeconomics in this original sense has succeeded: Its central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades. There remain important gains in welfare from better fiscal policies, but I argue that these are gains from providing people with better incentives to work and to save, not from better fine tuning of spending flows. Taking U.S. performance over the past 50 years as a benchmark, the potential for welfare gains from better long-run, supply side policies exceeds by far the potential from further improvements in short-run demand management.

A year earlier, the Nobel Prize went to Daniel Kahneman who produced psychological evidence that undermined all the mainstream macroeconomic thinking (rational expectations and expected utility theory).

It is clear that the mainstream of my profession spend their time propagating macroeconomics literature that has zero predictive content. We know that because Robert Lucas was wrong – the business cycle was far from dead and just four years later the financial system collapsed and we are still picking up the pieces.

It is no surprise that the mainstream macroeconomic models didn’t predict the crisis – their macroeconomic models assumed stability, did not have financial sectors (banks etc) built into the models, and were underpinned by the biased view that free market would optimally self-regulate.

Last week – Sociopaths, closed minds and a bit of Mayan cosmology – I introduced the concept of a degenerating research program as defined by Imre Lakatos as being characterised by a lack of vitality and a failure of the protective belt to generate new ways of understanding the world or deal with the empirical evidence confronting it

This is in contrast with a progress research program which is growing through the discovery of new and stunning facts, new techniques, and “more precise predictions”.

Mainstream macroeconomics is clearly a degenerating research program, but as Thomas Kuhn argued, practitioners within such a program hang on grimly to their theoretical core, until such time that a “scientific revolution” occurs.

Lakatos’ idea does not relate to a single idea being refuted – but rather sees a research program as being constituted by “clusters of interconnected theories”. Once the empirical world starts delivering anomalies to the program, a degenerating paradigm starts adding a series of ad hoc responses to fill the gaps that are left by the empirical failure.

So we are now seeing New Keynesian macroeconomists rushing to include banks in their models. But these ad hoc adjustments merely cover the rotting core.

Trying to build these anomalies into their models from the first principles that they start with is virtually impossible. Typically, they just add some arbitrary terms to their models (for example, lagged terms). So like most of the mainstream body of theory they claim virtue based on so-called microeconomic rigour but respond to anomalies that are pointed out when that “rigour” fails to deliver anything remotely consistent with reality, with ad hoc (non rigourous) tack ons.

So at the end of the process there is no rigour at all – using rigour in the way they use it which is, as an aside, not how I would define tight analysis.

Clearly, the claimed theoretical robustness of the New Keynesian models has to give way to empirical fixes, which leave the econometric equations indistinguishable from other competing theoretical approaches where inertia is considered important. And then the initial authority of the rigour is gone anyway.

Of-course, the point that the New Keynesian authors appear unable to grasp is that these ad hoc additions, which aim to fill the gaping empirical cracks in their models, also compromise the underlying rigour provided by the assumptions of intertemporal optimisation and rational expectations.

The NK approach is another program of theoretical work designed to justify orthodox approaches to macroeconomic policy. In the orthodox tradition, it also denies the existence of involuntary unemployment. However, it categorically fails to integrate its theoretical structure with empirical veracity.

Please read my blog – Mainstream macroeconomic fads – just a waste of time – for more discussion on this point.

Practitioners within a degenerative research program – such as mainstream economics – become dogmatic in their defence of the theories. They ignore the growing counter-evidence and define non-problems as their major research tasks.

The colleges and universities still teach doctrine that has been discredited years ago (for example, rational expectations theory which underpins efficient markets theory). The latter theory was used as the authority for the massive financial market deregulation, which led to the crisis the world is still enduring.

Please read my blog – The myth of rational expectations – for more discussion on this point.

A degenerative research programme maintains its hegemony in a number of ways, including control of teaching programmes in universities; control of the hiring process within the Academy; control of key publication outlets; control of major research funding bodies; and a dominance in the linkages between the Academy, business and government.

The control of the academic journals by the mainstream is relevant to today’s theme.

The vicious cycle for a heterodox economist within the Academy is as follows.

1. To get a job one needs to have a good PhD and a few publications. The more mainstream the PhD is the better. Esoteric topics which depart from mainstream modelling are especially problematic.

2. To keep the job (move through tenure processes) one has to publish in “good journals”. Good journals are defined by the mainstream profession and are dominated by some of the concervative universities. For example, Chicago (Journal of Political Economy), Harvard and MIT (Quarterly Journal of Economics) etc.

Many journals have editorial screens where the main editor just skims the content and rejects papers if he doesn’t like the look of them. For the high-ranked journals, this screen may weed out around 90 or more per cent of submissions.

A 1999 paper (‘The Editors and Authors of Economics Journals: A Case of Institutional Oligopoly?’, by Geoffrey M. Hodgson and Harry Rothman, which was published in teh Economic Journal) found that:

… 70.8% of the journal editors were located in the United States, and twelve U.S. universities accounted for the location of more than 38.9%. Concerning journal article authors, 65.7% were located in U.S. institutions and twelve U.S. universities accounted for 21.8%. Arguably, the degree of institutional and geographical concentration of editors and authors may be unhealthy for innovative research in economics.

3. To get research funding you need to have published in the “good journals”. Research funding then leads to further promotion which leads to positions of importance in terms of the hiring process within academic departments. Like then recruit like and so the process unfolds.

This bias then feeds into the major research ranking exercises that national governments are increasingly introducing. So a department is ranked highly and gets better funding if it is well published in the “good journals”.

In the Australian context, an economics paper which analyses policy or is applied is not likely to get published in a “good international journal”. Developing a framework to count the number of angels on a pin-head with lashings of mathematical modelling is a better approach for a young economist to take if they want to do well in the research ranking exercises.

The knowledge quotient of such articles is virtually zero – the paradigm is degenerative after all. The social utility of such articles is probably negative – given they lead to nasty policies that make recessions worse!

The Academic Spring is one response to the power that journal publishers have over our profession.

There was an article in the UK Guardian (April 9, 2012) – Academic spring: how an angry maths blog sparked a scientific revolution – which was interesting.

It reports how a “distinguished mathematician” at Cambridge (UK), one Tim Gowers wrote a blog expressing his discontent about the “rising costs of academic journals”.

He (and his colleagues):

… were upset that the work produced by their peers, and funded largely by taxpayers, sat behind the paywalls of private publishing houses that charged UK universities hundreds of millions of pounds a year for the privilege of access.

Gowers took the plunge (in his blog) and declared that “he would henceforth decline to submit to or review papers for any academic journal published by Elsevier, the largest publisher of scientific journals in the world”.

A WWW site sprung up – The Cost of Knowledge – which is acting as an on-line petition to gather more names. At last count (16:00 today) there were 9106 signatories who variously committed themselves to not publishing, not refereeing, and/or not offering editorial services.

There are only 85 people from the Economics Discipline who have signed up.

The protest is against one publisher although I think the principle extends well beyond that publisher.

It is clear that:

The current publishing model for science is broken, argue an ever-increasing number of supporters of open access publishing, a model whereby all scientific research funded by taxpayers would be made available on the web for free.

Expensive paywalls not only waste university funds, they say, but slow down future scientific discovery and put up barriers for interested members of the public, politicians and patients’ groups who need access to primary research in order to exercise their democratic rights.

In the case of economics, they also serve to perpetuate the dominance of the mainstream paradigm despite its degenerative status.

As a note: taxpayers do not fund anything – please read my blog – Taxpayers do not fund anything – for more discussion on this point.

But the general point remains. Universities should generate public information which is freely available – government funding should generate public goods. In the case of private universities, the case might be different but then the link between the journal ratings system should be scrapped in favour of open access.

The publishers claim that the peer-review process is costly and so the paywall is justified. But as the Guardian reports:

Academic publishers charge UK universities about £200m a year to access scientific journals, almost a tenth of the £2.2bn distributed to them by the government, via the funding councils, for the basic running costs of university research.

Despite the recession, these charges helped academic publishers operate with profit margins of 35% or more , while getting their raw materials and the work of thousands of taxpayer- and charity-funded scientists free.

The big three publishing houses – Elsevier, Springer and Wiley – own most of the world’s more than 20,000 academic journals and account for about 42% of all journal articles published. And, even as library budgets over the past few years in the UK and North America have been flat or declining, journal prices have been rising by 5-7% a year or more.

The question is why should the academic system be built on a reward structure that involves the researchers giving their work up for free to the publishers who then make millions by effectively privatising the research outcomes. More profound questions of this nature relate to the patent system (for example, who owns the human gene research).

The other question is what is the most effective means of the distribution and dissemination of “scholarly communications”. Clearly, the answer depends on what the aim is. If it is to make money from the research for the oligopoly of publishers then the current publishing model is effective.

If it is to make the work broadly available, then open access is preferable.

As Tim Gowers noted:

Academics write the papers, academics referee the papers, academics select the papers that are going to be published – it’s almost as though the publisher does nothing that we need except perhaps their organisational role and lending the name of the journal that confers a certain reputation.

Or in the case of my profession, signifies that one has gained membership of the dominant paradigm.

The Guardian article also notes that disciplines within the Academy also introduce hurdles into the publishing process:

Publishers are not the only hurdle to enabling wider adoption of open access – academics themselves are too. Academics are assessed on their publication record in scientific journals and the metrics of the system mean that the more prestigious the journal, the higher the chance there is of promotion or a research grant.

This problem is exacerbated by the Research Excellence Framework (REF), an exercise carried out every few years by the UK funding councils to assess the quality of every university department.

So the “good” economics departments are those that publish in the highly-rated journals, which are, in turn, controlled by the cabal of economists who watch the gate to ensure that non-mainstream articles rarely get published.

There was a related report in the Guardian (April 9, 2012) – Wellcome Trust joins ‘academic spring’ to open up science – which noted that:

One of the world’s largest funders of science is to throw its weight behind a growing campaign to break the stranglehold of academic journals and allow all research papers to be shared online.

The Wellcome Trust, a large private source of scientific research funds in the UK, is apparently about to “adopt a more robust approach with the scientists it funds, to ensure that results are freely available to the public within six months of first publication”.

The article noted that if researchers “do not make their work open access” then future grant applications might be excluded.

I will comment more on this as more information comes to light.

There is now a WWW site – The Cost of Knowledge – which allows academics to join the revolt and nominate the extent of their “membership”.

Conclusion

The Academic Spring is currently about the profit-model that the academic publishers deploy. I hope it becomes more general and challenges specific issues within the disciplines.

Certainly a move to open access – and a refusal by a significant number of a specific discipline to continue to publish and assist the mainstream journals – will undermine the current assessment and ranking systems which are increasingly important in who gets research funds and promotion.

If open access becomes the norm then it will be a little harder for the mainstream of my profession to hold back the degeneration. More and more people will begin to learn how bereft the mainstream models really are. Ridicule will lead to oblivion.

As I noted last week – the developments in the Internet, including self-publishing platforms such as blogs have allowed non-orthodox views to gain a wider exposure than would otherwise be the case.

But I am not holding my breath.

I should add that most of my top-ranked academic publications are in the field of regional science (economic geography) where I deal with geographers etc, who are much more civilised and tolerant than economists of diverse research programs. This has allowed me to gain considerable research funding and is the reason I have been able to gain a full chair in economics.

If all my work was in Modern Monetary Theory (MMT) then I would have been out the door a long-time ago!

That is enough for today!