My dad was an economics major in college and I enjoy the subject even though I don’t understand all of it. That said, I started reading a post this morning in the UK Guardian referencing current economics students and how they need to expand their training to more than neoclassical theory.
First, go read the full post, then come back.
Are you a bit confused? It’s not an easy subject, but there are a few lines and paragraphs I’d like to point out. The article starts off…
Would the ordinary person regard how economics students are educated as a significant political issue? Probably not, but the way economics students are educated has much wider implications for society than is commonly imagined.
It may not be a “significant” political issue, but economics is absolutely related to politics since the left and right in the United States and other nations are almost certainly tied to specific economic theory. It’s as simple as Option 1: Use government spending to drive economic growth, and Option 2: Keep the government out of it as much as possible and let the free market drive economic growth. Yes, I know that’s pretty simple, but that’s what it comes down to right?
Economics graduates are…
the guardians of our economy, charged with its upkeep, and they play an important role in shaping political narratives around economics. Yet British universities are producing economics graduates who are not fit for this purpose.
Why not? My emphasis in the second paragraph.
The financial crisis represents the ultimate failure of this education system and of the academic discipline as a whole. Economics education is dominated by neoclassical economics, which tries to understand the economy through modelling individual agents. Firms, consumers and politicians face clear choices under conditions of scarcity, and must allocate their resources in order to satisfy their preferences. Different agents meet through a market, where the mathematical formulae that characterise their behaviour interact to produce an “equilibrium”. The theory emphasises the need for micro-foundations, which is a technical term for basing your model of the whole economy on extrapolating from individual behaviour.
Economists using this mainstream economic theory failed to predict the crisis spectacularly. Even the Queen asked professors at LSE why nobody saw it coming.
I disagree! Tons of people – both economic students like my dad and others – definitely saw this coming. They may have not seen the specific date or what the reaction would be, but they knew governments – both in the US and UK – were mandating banks loosen access to credit. No-money-down mortgages in the private sector and huge growth in government spending in the public sector combined for a perfect storm. To reference Top Gun, we were writing checks our body could not cash. Instead, we just wrote more checks to cover the checks we couldn’t cover.
The authors suggest expanding student experiences.
The Post-Crash Economics Society is a group of economics students at the University of Manchester who believe that neoclassical economic theory should no longer have a monopoly within our economics courses. Societies at Cambridge, UCL and LSE have been founded to highlight similar issues and we hope this will spread to other universities too. At the moment an undergraduate, graduate or even a professional economist could easily go through their career without knowing anything substantive about other schools of thought, such as post-Keynesian, Austrian, institutional, Marxist, evolutionary, ecological or feminist economics.
Post-Keynesian is based on Keynes but a little different. Kind of like re-defining liberals as progressives. At a high level, Keynes supports government re-distribution and is associated with the American left and Democrats. Austrian economics references Friedrich Hayek, and supports free-market thinking in many ways. Remember the Keynes vs. Hayek videos?
Institutional, Marxist and evolutionary economics are tied together through history and none are associated with free-market capitalism. (Yeah, I know the previous definitions are way too simplistic and can be argued to death.)
I’ve always thought those five branches of economics were taught in college. Certainly Keynes, Hayek, the free market and socialist design all worked into the curriculum did it not? But then the author mentions ecological and feminist economics which is new to me. I’m not sure at all why those would need to be a specific branch to themselves and I think those subjects are more driven by politics than anything else.
I agree with the author, schools should present a broad-based curriculum if they have not been doing so. I did not realize some schools are focusing on neoclassical economics – which really just revolves around the math of the supply and demand curves – and not going further. Certainly the neoclassical stuff is a huge part of Economics 101, but has the higher-education system dumbed down economic theory and its graduates to the point where they come out with just the basics?
Econ grads … what say you?