Disentangling Economic Thought: Orthodoxy, Mainstream, Heterodoxy, and the Rise of Complexity & Behavioral Economics

J. Barkley Rosser Jr., along with David Colander and Richard Holt, discusses their ongoing work to understand the nature and future direction of economics, particularly by distinguishing between orthodox, mainstream, and heterodox economic thought. They argue against a simplistic dichotomy, proposing that orthodoxy is primarily an intellectual category characterized by standard neoclassical assumptions like equilibrium, individual maximizing, and rationality. In contrast, the mainstream is a sociological category, representing those in positions of power and influence within the discipline, who may or may not adhere to orthodox intellectual ideas. Heterodoxy, however, encompasses both intellectual non-orthodoxy and a sociological position outside the established power structures.

The discussion highlights the emergence of a "non-orthodox mainstream" over the past couple of decades, where influential economists, while respected leaders, do not necessarily subscribe to standard neoclassical ideas. Rosser's research also delves into complexity economics, which challenges the neoclassical assumption of homogeneous agents by incorporating heterogeneous agents, nonlinear dynamics, and feedbacks, thereby allowing for a more realistic understanding of economic interactions. This approach acknowledges that individual preferences and actions are not isolated but interact in complex ways, leading to outcomes not captured by traditional models.

The podcast further explores econophysics, an interdisciplinary field drawing heavily from physics, which critiques standard economic models for their reliance on Gaussian normal distributions. Econophysicists, including figures like Doyne Farmer, advocate for the use of power law distributions (fat tails) to accurately model phenomena such as wealth distribution, capital income, and financial market returns, which exhibit greater extremes and nonlinear dynamics. This leads to a methodological debate, with econophysicists emphasizing empirical facts and a scientific approach, while some traditional economists question the lack of explicit economic theory in these models.

Finally, the conversation touches upon behavioral economics, which has gained significant recognition, including Nobel Prizes, for its focus on how people actually behave in economic contexts, often deviating from the rationalistic models of neoclassical theory. This field underscores the necessity of observing real-world human behavior to truly understand the workings of the economy, rather than relying solely on theoretical constructs of rational actors. The overall message is that economics is a more complex and evolving discipline than often portrayed, with diverse schools of thought and interdisciplinary influences challenging established paradigms.

"orthodoxy is really an intellectual category so this is when we think about standard neoclassical economics equilibrium and individual maximizing and rationality"

"mainstream though is really a sociological category it's it's the people who are in charge"

"heterodoxy however combines the both so it is both intellectual and sociological"

"some of the this whole emergence of you might say this sort of non-orthodox mainstream that that's something that's happened over the last couple of decades"

"the standard neoclassical model just usually assumes homogeneous agents especially at least at the macro level"

"these interactions allow for nonlinear dynamics and feedbacks that don't happen in standard models and complexity economics is sort of a major theme of my research"

"standard economists think about gaussian normal distributions but we know that wealth distributions and capital income distributions and also financial market return distributions these are not unrelated issues i have what are called power law distributions so they have fat tails"

"you can pick up graduate textbooks by like say john cochran or somebody very advanced graduate textbooks hundreds of pages long and you will find no mention of of of leptokurtotic or fat tail distributions"

"behavioral economics tells you because behavioral economics is they don't always follow what economic theory says they don't follow you know the neoclassical individual rationalistic kinds of models"