Noah Smith says that “heterodox” economics is occult (mystical) because someone in his Twitter feed was bothering him.¹  Noah also says there just isn’t any accessible research on heterodox economics.²  Both of these statements are incorrect.

I’ve noticed a strong trend in the last 10 years where heterodox economics is becoming increasingly mainstream where the rubber meets the road – on Wall Street.  Now, Noah has a different perspective on things than I do because he teaches economics in a university, but as far as market practitioners go I don’t see heterodox economics as being all that heterodox anymore.  I personally know dozens of people at large banks  and financial institutions who use a heterodox model for understanding the financial system and the economy. Some more public figures include:

  • Jan Hatzius, Chief Economist of Goldman Sachs.
  • Paul Sheard, Chief Economist of Standard and Poors.
  • James Montier, Market Strategist at GMO.
  • Those aren’t exactly lightweights. We’re talking about some of the heaviest hitters in the most important institutions in the world.  This makes sense since heterodox theories like Post-Keynesian Economics focus a good deal on accounting, stock-flow consistent models, banking, etc.  The fact is, A LOT of people on Wall Street find PKE insights to be very useful because they reflect a highly accurate description of the way the financial system works. In my opinion, if you work on Wall Street and you don’t understand Post-Keynesian Econ then you’re at a major disadvantage.

    Meanwhile, mainstream economics went into the Great Financial Crisis basically saying that banks and money don’t matter.  So yes, maybe heterodox economics is still in the shadows in mainstream university economics where the models still reflect some alternative reality where the financial system doesn’t matter, but it’s becoming increasingly mainstream on Wall Street where people rely on economic models that reflect the world we live in and not the one academics dream up.