John Kay, who was at a panel on curriculum reform at the INET conference in Paris last week, published an article at the FT summarizing his findings:
There is alternative medicine, but most alternative medicine remains so because there is no evidence that it works. The medical profession is often resistant to innovation, especially innovation that challenges accepted wisdom — in the 19th century the Hungarian doctor Ignaz Semmelweis struggled for decades to persuade his colleagues that the best thing they could do for patients was wash their own hands.
More recently, much effort was required to gain acceptance of the discovery that many ulcers were caused by the Helicobacter pylori bacterium. But good doctors are, in the end, persuaded by what works for their patients, as they were in these cases. Good alternative medicine becomes orthodox.
This is a very interesting metaphor. Let me stay in his metaphor and expand on what the viewpoint of heterodox economists would be. Heterodox economists would turn this metaphor around and accuse the orthodox view as the “alternative medicine”. Why? Against all the wisdom of heterodox economics and the IS/LM model, somehow the mainstream came up with lots of ideas that can be considered failures by now, like expansionary austerity (a cut in spending leads to a rise in incomes), the confidence fairy, bond vigilantes, Ricardian equivalence, targeting the inflation rate exclusively with complete neglect of everything else (Taylor rule, inflation-targeting), the idea that an increase in reserves can lead directly to more lending to the private sector (QE), that more flexibility on labor markets would increase employment, that cutting wages would increase unemployment, that Chinese savings would cause US interest rates to fall, and the list goes on.
Whereas “alternative medicine” is often a placebo kind of science – no harm done – the contemporary strand of macroeconomics is more like the practice of bloodletting. Instead of fixing problems it creates new and bigger problems! Austerity in Europe – this includes the treatment of the Greek case of insolvency as one ofilliquidity – was what really cause the troubles in the euro zone. The spreads of government bonds really start to increase only after January 2010 when the Greek situation leads to the imposition of austerity policies. These policies where discretionary and are not included in the European laws. It was a deliberate choice of European politicians, based on mainstream economic thinking. However, as Albert Einstein said: “We cannot solve our problems with the same thinking we used when we created them.”
So, I agree with John Kay on his last sentence: “Good alternative medicine becomes orthodox.” It’s just that paradigm shifts take some time – obviously, it can take centuries to root out dogmatic beliefs!