There is an article by Tim Thornton in today’s Age with the title I might have written myself, The problem with the way we educate economists. He thinks the problem is neo-classical economics which is the standard mainstream taught to everyone who seeks to become an economist. In saying he doesn’t like the way we teach economics, he is really saying he doesn’t like the standard theory found today or more particularly, the quality of the economics profession itself. These are the three problems with the way we teach he lists which are problems with the people who make economic policy:
Firstly, there is generally no required study of economic history or the history of economic thought. This produces graduates with dangerous levels of historical amnesia in regard to the world and to the discipline they assume they understand.
Secondly, contemporary economics students will rarely encounter any of the schools that compete with the neoclassical school: institutional, post-Keynesian, behavioural, Marxian, Austrian, feminist or ecological. These economics schools, which come from all points of the intellectual and ideological compass, make crucial contributions to building up our understanding of a complex and ever-changing economic and social world.
Thirdly, the curriculum fails to incorporate crucial insights offered by other disciplines such as politics, philosophy, history, sociology and psychology.
With any discipline what you teach depends on the question you want to answer. If you are interested in knowing how goods and services end up produced, incomes earned and output distributed, neo-classical theory is pretty reasonable. I say this even having major differences with the mainstream. The course I teach and the book I wrote cover all three of issues raised. I embed my course in history and the history of economic thought. I contrast modern theory with its classical alternative so no one comes away thinking there is only one answer to any question. I introduce politics, philosophy and history, although I must admit seeing little value in either sociology or psychology in answering any of the questions economists have traditionally asked.
Typically, those who would like to root out our modern neo-classical inheritance do so for some quasi-Marxist reason. They are seeking answers to different questions. Their interest is in explaining the distribution of power within a society. This is, of course, politics or sociology but it is not economics since even if you knew the answers to any of the questions a political scientist or sociologist might ask, you still wouldn’t understand how goods ended up being produced, what economic structures would give you the greatest output, how the community’s command over goods and services could be increased, what to do in recessions, or even what causes recessions in the first place. Instead what would be taught is some variant on the unfairness of the system and how it needs to change to ensure those who have the least wealth, which typically means those who have contributed the least to our communal flow of goods and services, can get a larger share of the pie.
Economics emerged as a separate study over two hundred years ago when our societies were extremely poor as they had been since the beginning of time. Now we, who live in economies where markets predominate, are astonishingly wealthy by any and every standard that an economist two hundred years ago might have listed as an aim and ambition. And because of the innovation machine that has been set in place by these same economic structures, we have a reasonable expectation that our wealth will continue to grow.
If someone has a better answer to the questions economists wish to answer, then they must convince other economists first. To take your ball and bat and go off somewhere else may make it easier to find someone to agree with what you say, but then you are talking into an echo chamber of your own construction. There is lots wrong with economics – lots – but to ask for a separate discipline, or encourage a schism within economic theory because you have a different view, is not the way these issues will ever be resolved.
But where I can overwhelming agree is that the economics establishment has built an edifice as strong and formidable as the one built by mediaeval theologians. The answers it gives to many questions seem wrong to me and many others. I hate to show disrespect to Her Majesty, but when she asked after the GFC why no one had forecast the recession, she was asking a question for which there will never be a solution. Recessions happen and it is precisely because they are unexpected that they turn out so badly.
What economists can, however, do is explain why that is, and try to provide answers on how to recession-proof our economies as best we can and hasten recovery when they turn down. Neo-classical theory, being drenched in Keynesian structures, will unfortunately never be able to find the answer to either question which is why a genuine review of economic theory and policy is so urgently required. But because a bunch of twenty year olds are dissatisfied with the answers that modern economic theory has devised is the worst possible reason for looking out for new answers to old questions, which in their case really turns out to be looking for old answers to different questions.