This issue of the Newsletter comes straight from...

This issue of the Newsletter comes straight from this year’s ASSA-conference, which took place in Philadelphia. As always, I had the opportunity to visit a series of excellent sessions on current research in heterodox economics (see, for instance, here, here, here, here or here). In visiting these sessions, I had the impression that there are a lot of interesting developments in our field, so I strongly recommend to check out the heterodox sessions and the corresponding papers and presentations, which can all be found on the ASSA webpage.

However, I also visited a series of sessions in mainstream economics and found, much to my surprise, that these sessions incorporated various novel perspectives and unconventional attitudes within the mainstream. There were sessions and papers on the culprits of financial deregulation and its contribution to the recent crisis, on the adverse effects of globalization, on the importance of increasing market concentration for explaining the fall of the wage share or on the possibility to use instruments from mechanism design to bring forth a socialist economy in the sense of Marx’s “free association of free individuals”.

The greatest surprise to me in these mainstream sessions was a talk on “Micro-Foundations of Aggregate Production Functions”. I basically visited this talk because I expected a rather dogmatic approach trying to relate aggregate production functions to individual optimization, which would represent the classic take on “micro-foundations” within the economic mainstream. However, it turned out to be quite different. In his introduction, the speaker, Emmanuel Farhi from Harvard University, revisited the Cambridge Controversies from the 1960s, where famous heterodox economists from Cambridge (UK), like Kaldor, Robinson or Sraffa, questioned the internal consistency of the aggregate production function as suggested by authors such as Solow or Samuelson from Cambridge (US). Farhi also emphasized, correctly, that the heterodox side won this debate, while Cambridge (US) admitted its theoretical defeat; this is highly remarkable since correct accounts on this debate are hardly found in the mainstream as these are typically swamped by the usual “whig history” prevailing in standard economics that presents currently dominating approaches (like the aggregate production function) as an outcome of a sensible historical learning process. Moreover, the proposed microfoundations were – again much to my surprise – not based on individual maximization, but, rather, built with reference to Input-Output tables, that is, to the interlinkages between different sectors of production. This emphasis on (sectoral) relations is actually not too far away from heterodox approaches to this question and partially takes up arguments that are typically associated with more unconventional economists such as Wassily Leontief or Piero Sraffa.

However, make no mistake: of course, the mainstream has not fully opened up and many important aspects still remain unnoticed. For instance, the criticism of financial deregulation is seen as a purely institutional phenomenon - quite unrelated to the general stability-properties of capitalism. On another front, the issue of increasing market concentration is primarily observed , but not rationalized as a typical outcome of market activities in the sense of endogenous concentration processes. And, similarly, the troubles with globalization are not understood in terms of path dependent processes (e.g. Kaldor, Myrdal) or power relations (e.g. Wallerstein), but are rationalized with very traditional means such as the Stolper-Samuelson Theorem or references to asymmetric information. In sum, what we observe is a conceptual broadening of mainstream economics, which can be understood as a reaction to current and more turbulent economic and political trends. Regrettably, some form of paradigmatic change or, at least, some major reforms of basic economic textbook-thinking does not seem to be on the agenda ;-)

On a personal note, I want to add one major reason why I really enjoyed this year’s ASSA-conference: I took part with a team of four researchers from the Institute for Comprehensive Analysis of the Economy located at Johannes Kepler University Linz (Austria), which also serves as a base for the Heterodox Economics Newsletter. It was a real pleasure to take part in this event as a team and so my thanks go not only to all those people, who helped to organize the fantastic heterodox sessions taking place here, but also to Bernhard Schütz, Claudius Gräbner and Stephan Pühringer, who joined me in taking part in this highly interesting event.

I hope you could somehow enjoy my personal report from this year’s major economic conference and I will, finally, leave it at that!

All the best,

Jakob