Their new book is called Identity Economics, and they think it's a pretty big deal.On p. 114:
we can explain a large number of phenomena, including the nature of African-American poverty, the reasons why students drop out of school, the role of the Women's Movement, and why organizations work.
Identity economics means that people do things because they believe they are supposed to, based on group affiliation. I believe that this is true.
But if African-American poverty comes from being trapped in an identity as outsiders, then we also have an explanation for the intractable poverty of the descendants of Yiddish-speaking Jewish Americans. And I'm not sure what empirical phenomenon is meant by "the role of the Women's Movement." At one point, the authors cite increased smoking among women in the 1970's. But as with other gender-related phenomena, such as labor force participation, I suspect a graph from, say, 1910 through 1990 would look more like a smooth trend and less like a regime change around 1970.
One more excerpt, from p. 125:
Politics, too, is often a battle over identity...Some of the most dramatic examples of regime change involve changes in norms regarding who is an insider and who is an outsider...The French Revolution changed subjects into citizens. The Russian Revolution turned them into comrades.
The first sentence in that paragraph could have been written by a Masonomist. The last sentence could not.
Identity does matter. Robin Hanson would tell you that group identity matters because of the way it affects our sense of status. When our team wins, we perceive that as a gain in our status.
[My prediction would be that if Scott Brown wins in Massachusetts, Democrats are not going to react by recalculating the political situation. Instead, they will take offense at the loss of status. The election may have little or no effect on health care legislation, but it could affect the Democrats' mood on other issues (will they be feeling less generous toward Haiti? More eager to punish bank shareholders and CEO's?)]
Since Adam Smith, economists have noted "self-regard" as a motive for people. Nowadays, Hanson and others use "status" in place of "self-regard." I think that if you focus on status, and if you take into account the fact that people derive feelings of status from group affiliation, you will get whatever insights Akerlof and Kranton can provide by talking about identity.
I think that Akerlof is one of the most valuable, creative economists around. For me, his ideas have a high mean and a high variance. Unfortunately, Identity Economics mostly served to increase my estimate of the latter.