On this blog I criticise mainstream economics and how it is taught in colleges a lot. In fact that’s one of my main aims with the blog. However, rather than just always criticise and say how things shouldn’t be done, today I would like to put forward a few proposals. Now to list everything that should be taken out of economics would take many, many posts, so this will be a short general overview. It should also be said that the economics curriculum is in dire need of reform (and there are encouraging signs that a growing number of people realise this). For example, my lecturers would tell me that we could buy editions of textbooks either from before or after the 2008 recession; there was no real difference between them. When the greatest crisis in decades doesn’t cause any serious review, then you know we have a problem.
First, let me give a brief overview of how economics is taught (or at least was for me 2010-13). Of course there was a degree of variance depending on the lecturer and module, but there was a strong theme running through most of them (especially the core modules and microeconomics). Occasionally, just after explaining some theory, a lecturer would casually state, “By the way, that’s obviously not how the world works” and then continue on. When even the people teaching the topic don’t believe it, then you know you have a real problem. Looking back over my economic lecture notes and slides, there seem to be two core features of my economics education. They are perfect competition and mathematical questions.
The economy was almost always depicted as a place where supply always equalled demand; markets were efficient and maximised welfare. We were given numerous examples of how government intervention made everyone worse off (a common homework question was to calculate the deadweight loss of taxes or price controls). If there was time market failures might be mentioned but it would be emphasised how rare this was and how it could usually be solved by market forces. More than anything, there was a huge emphasis on how all economic issues could be represented by a demand and supply graph.
The second major part was mathematical equations that are, to be quite honest, useless. For example weeks would be spent on Pareto efficiency (the state where you can’t make one person better off without making someone else worse off), a hypothetical topic that deserves no more than 15 minutes. We would be given Cobb-Douglas functions to solve, a pointless exercise that no one would ever need outside the classroom. A particular bane of my student days was indifference curves. After years having to study them, I still see no point to them whatsoever (basically people want some stuff, let’s draw lines and solve equations). Essentially, half my time was spent solving equations that had nothing to do with the real world and would never come in use.
So the first change in economics would be to ditch the useless parts which take up an unfortunately large part of the curriculum. But what should we replace it with?
Firstly, instead of telling students what the “correct” answer is, students should be taught to figure it out themselves. In other words economics should be taught less like a mathematical or science course and more like a social science (there is a huge degree of snobbery among economists who believe comparisons with social sciences are an insult, this has definitely got to go). So instead of saying to students minimum wages are bad, calculate the deadweight loss in a purely abstract world, students should be told, well one group of economists believe minimum wages are bad for this reason, while others think they are good for this reason. Almost every part of economics has at least two viewpoints, these should be shown to students so they can make up their own mind, instead of only teaching one view and pretending it is the “correct” way. In exams I always had to choose between the answer based on how the world actually operated and the answer the lecturer was looking for.
Part of this problem was due to use of maths and multiple choice questions. In a maths question, there is only one right answer and usually only one right way of getting it. Likewise almost all my economics exams were multiple choice questions, which also promoted the view of only one right answer. If instead students had to explain the issues, this would promote a deeper engagement with economics and give more room for a diversity of viewpoints instead of just regurgitating the one in the textbook. After all, there is no one way of doing economics, no one simple reaction to every event. The current system promotes a narrow, tunnel vision view of the economy, which means there is a huge amount that is unseen.
Secondly, use evidence. I feel a bit silly having to say this, but if you read an economics textbook, there is no evidence or studies mentioned. Considering economists pride themselves on how scientific they supposedly are, this is an embarrassment. For example, every textbook describes prices and wages as being set when marginal supply equal marginal demand. There is no evidence that this is the case in the real world (outside a handful of areas). The evidence overwhelmingly shows that prices and wages are very rigid, yet this is never even mentioned in textbooks (you might get a hint of sticky prices if you are lucky). Economists may find it easier to work with marginal theory out of habit or because it can be stuck on a graph or run through a model, but we must deal with the world as it is, not how we wish it was.
Thirdly, be more open to other social sciences and build on their insights. Psychology has a lot to tell us about how people behaviour and especially how they make decisions (the growth of the field of behavioural economics is one of the most encouraging developments in economics). Sociology is often treated like the poor relative that economists are embarrassed to mention, but people do not act solely as profit or utility maximisers, we interact under conditions of social norms, that without the insight of sociologists, economists cannot explain. Those who fail to learn from history are doomed to repeat it, and the current recession holds many similarities with the Great Depression. Perhaps had more time been spent studying past bubbles and recessions we would have been less likely to think that “this time is different”. Rather than just studying the abstract theory, students should also look at what happened when those theories were put in practice.
So why doesn’t it change then? I think there are two main reasons. Firstly, inertia. People (especially Irish people) generally accept things the way they are and presume there must be a good reason for them. People presume that people much smarter than them have thought about the problem much more than they have so their solution is probably the best. They are the experts after all. If you think differently, it’s probably because you don’t understand them. Do you really think you’re smarter than the experts? Complaints are usually ignored as little more than students whinging about having to work. “Maybe if you spent less time drinking you would understand”. “You’re too young and naive, when you grow up, then you’ll understand.”
There is also the force of habit. Economists have spent years or even decades viewing economics through the lens of supply and demand, so much so that they forget that there’s any other way of doing it. Economists teach perfect competition, not because most of them like it (at least I hope not) but because that’s the way things have always been done. Everyone gets taught markets are efficient, it just seems the natural way of doing things.
Secondly, natural selection is at work. The students who don’t like the way economics is taught or find the theories ridiculous, do badly in exams, switch subjects or follow alternative career paths. The response of most of my friends to nonsense theories was to zone out and lose interest rather than try to change the system. It’s the students who love maths or think perfect competition is great that do well and become professors. The ones most likely to succeed are the ones least likely to change anything.
So in essence, economics needs to become more realistic. Colleges need to dump the blatantly unrealistic view of the world which only leads economists to solve the wrong questions. They need to throw out a lot of the mathematical equations which only scare people off without contributing to our understanding of the economy. Instead it should be replaced theories that describe how the world actually operates. It is no excuse to complain that the real world is too messy, we must adapt to suit it, instead of adapting the evidence to suit our theories. Students should be encouraged to think, debate and challenge viewpoints, instead of just memorising and repeating the “correct” answer. Economics should be a more pluralistic field that incorporates insights from other fields, rather than just imposing its one size fits all view of rational actors on others.
Basically economics needs to be brought into the real world.