Across the world, there are signs that there is a growing disconnect between the academic and political elite and the ordinary citizen.
“It is time to rethink some of the basic building blocks of economics,” said the Bank of England’s newly appointed Chief Economist Andrew Haldane two months ago.
“[Economic] models have failed to make sense of events such as crises, recessions and depressions, which matter most to society. The expectations of agents, when push came to shove, proved to anything but rational, instead driven by the fear of the herd or the unknown.”
Mr. Haldane’s blistering analysis of the fallout of the 2008 global economic slowdown was not delivered, as one would expect, at a central bank or think-tank event. It is instead part of the introduction to a student manifesto seeking reform in the way economics is taught across Europe.
Across the world, there are signs that there is a growing disconnect between the academic and political elite and the ordinary citizen. The latest manifestation of this is, without doubt, French economist Thomas Piketty’s Capital in the Twenty-First Century, which is a withering indictment of growing economic inequality.
The debate and discussion, however, is quickly shifting from the central bank boardroom to the humble classroom.
Last month, students from four continents got together to call for a change in the content and structure of economics in the university curriculum. In an open letter, the students assert that not only is the world economy in a crisis, but that the teaching of economics “is in crisis too.” They feel that the mainstream economics taught to them today is disconnected from reality and has become a branch of mathematics instead.
The signatories—which include the Javadhpur University Heterodox Economics Association and the ‘Rethinking Economics India’ society at the Mahindra United World College from India— demand that professors abandon their focus on a single way of analysing the economy and instead provide more discussion of alternative theories and methods. It is, however, the students of the University of Manchester who have come out with most comprehensive list of demands, with the thrust being that neoclassical economic theory has excluded all dissenting opinion. The 2008 financial crisis, the students say, is the ultimate price of this exclusion. The students aren’t wrong: the last few decades have seen alternative approaches such as Austrian, Post-Keynesian and Marxist economics slowly fall to the wayside. The research funding engine in universities, which ensures that neoclassical perspective is rewarded, also contributes to this.
As renowned economics professor Robert Skidelsky recently put it, “by assuming perfect rationality and complete markets, society is automatically debarred from exploring the causes of large-scale economic failures. Unfortunately, such assumptions have a profound influence on policy.”Wholesome perspective
Another glaring issue with the way university curriculums are structured is that economics at the under-graduate level is often divorced from subjects such as psychology, philosophy and history.
U.C Berkely economics professor J. Bradford DeLong, who jumped in on the debate last week, has pointed out that universities have no business offering a narrow economics B.A at all. The thrust “should be to offer some flavour of history and moral philosophy, with economic majors spending due time on government and bureaucratic failure.”
Support for reform has also come from surprising quarters, with policy makers such as Mr. Haldane, Austrian National Bank Executive Director Peter Mooslechner and European Central Bank Executive Board Member Benoit Coeure echoing the students’ call for greater real-world applicability and pluralism.
The battle, however, remains an uphill task. The University of Manchester refused its students’ demands to introduce an optional module on alternative theories of financial crashes.
And, the critics aren’t completely wrong; many other schools of economic thought often come with methodologies that lack the analytical rigour of neo-classical economics.
Nevertheless, the financial crisis has reminded us that economics is not a science like chemistry and physics. It is influenced by a rich heritage of human culture and history and textbooks must be changed to reflect this.
As Czech economist Tomas Sedlacek shows in his book Economics of Good and Evil, what we refer to as “economics” today is merely a small sliver of a much wider range of thinking about economic life. It is a partly cultural phenomenon that stretches from the Sumerian epic of Gilgamesh to the statistical models of Wall Street and must be taught as such.