James Galbraith, author of THE PREDATOR STATE, featured in the New York Times

Ivory Tower Unswayed by Crashing Economy
By PATRICIA COHEN
New York Times, March 4, 2009

For years economists who have challenged free market theory have been the Rodney Dangerfields of the profession. Often ignored or belittled because they questioned the orthodoxy, they say, they have been shut out of many economics departments and the most prestigious economics journals. They got no respect.

That was before last fall’s crash took the economics establishment by surprise. Since then the former Federal Reserve chairman Alan Greenspan has admitted that he was shocked to discover a flaw in the free market model and has even begun talking about temporarily nationalizing some banks. A Newsweek cover last month declared, “We Are All Socialists Now.” And at the latest annual meeting of the American Economic Association, Janet Yellen, president of the Federal Reserve Bank of San Francisco, said, “The new enthusiasm for fiscal stimulus, and particularly government spending, represents a huge evolution in mainstream thinking.”

Yet prominent economics professors say their academic discipline isn’t shifting nearly as much as some people might think. Free market theory, mathematical models and hostility to government regulation still reign in most economics departments at colleges and universities around the country. True, some new approaches have been explored in recent years, particularly by behavioral economists who argue that human psychology is a crucial element in economic decision making. But the belief that people make rational economic decisions and the market automatically adjusts to respond to them still prevails.

The financial crash happened very quickly while “things in academia change very, very slowly,” said David Card, a leading labor economist at the University of California, Berkeley. During the 1960s, he recalled, nearly all economists believed in what was known as the Phillips curve, which posited that unemployment and inflation were like the two ends of a seesaw: as one went up, the other went down. Then in the 1970s stagflation — high unemployment and high inflation — hit. But it took 10 years before academia let go of the Phillips curve.

James K. Galbraith, an economist at the Lyndon B. Johnson School of Public Affairs at the University of Texas, who has frequently been at odds with free marketers, said, “I don’t detect any change at all.” Academic economists are “like an ostrich with its head in the sand.”

“It’s business as usual,” he said. “I’m not conscious that there is a fundamental re-examination going on in journals.”

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