A Problem with Economics

Words by Andrew Vonnegut

Andrew Vonnegut (@wolandonomics)

Economists are increasingly pluralist, but universities’ approach to teaching the discipline have changed little over the years, argues The University of California (Santa Barbara)’s Andrew Vonnegut

A newly published textbook, Inside the Global Economy: A Practical Guide offers a broadly based perspective on the global economy. The Amazon description concludes, “Vonnegut enlightens readers on the people, behaviors, and institutions behind trade and investment flows in today’s globalized economies, and how they all contribute to the volatile and dynamic world we are experiencing.”

I’m not convinced there is a crisis in economics as a discipline. Nobel Memorial Prize recipients of recent decades span diverse corners of the field, from Richard Thaler’s behavioural economics and Freakonomics co-author Steven Levitt’s social economics to the economic history of Douglass North and Elenore Ostrom’s new institutionalism. Meanwhile, evolutionary economists such as Richard Nelson and Sidney Winter teach at some of the world’s top research institutions, while Thomas Piketty’s work on inequality made him a best-selling minor celebrity.

Top economists are increasingly embracing a diverse and productive breadth of ideas – more so than when I was in graduate school. Some criticise the dominance of neoclassical economics, but while it certainly remains influential I’m not convinced it is either as dominant or unidimensional as it once was. The good news is that among top academics, neoclassical or not, many useful viewpoints are represented.

If the discipline has a problem, it is not the diversity of the field but the absence of its most exciting and relevant ideas from introductory economics courses. For some reason, we don’t entrust economics students with the complexity of the real world until they have trod through years of stultifying foundations of questionable merit. This does us no good. The perception of the field as rigid and tedious turns off qualified students, and by favouring simplistic theory over real-world application it squanders an opportunity to impart useful knowledge to students who will encounter real economic problems to solve. That void is especially problematic in introductory courses because they may be the only economics classes ever taken by our future business leaders, policymakers, journalists and educators.

Detractors might counter that “Econ 101” students are exposed to a range of important concepts: markets, inflation, growth, employment, trade, and so on. But although these terms are present, we are introduced to them in the context of tools that are frequently outdated and rarely taken seriously by leading economists. No other field really has that problem. English faculties don’t reserve Shakespeare and Chaucer for PhD students. Lamarck is not taught in introductory biology only to be swapped out for Darwin later on. A geography teacher will not tell you “those are simplifying assumptions, we’ll relax them later” as they assert that the world is flat. So why is economics still gripped by this approach?

Marching generations of students through a series of graphing and optimisation exercises is comforting: it’s what we all did, after all. But besides being tedious and largely irrelevant, this method of study implies a level of simplicity and certainty in the economy that is not recognised by advanced researchers and practitioners. Economics courses do not give future managers, teachers and voters an adequate framework for understanding real economic problems they might confront in their careers. A generation of regulators who vaguely recall assumptions about the benefits of efficient markets are not helpful when faced with economic crisis. Efficiency does not mean “everything is going to be OK”.

Without sounding too Marxian, we need to turn this dialectic on its head. By embracing uncertainty and leading with the hard questions, we can move towards qualified conclusions that are actually useful. Instead of teaching that low interest rates stimulate an economy, let’s examine ten channels that interest rates can take through an economy, and the often-contrasting effects these can have. Instead of asserting that free trade is always best, let’s discuss the conditions under which it is beneficial and the cases where it might not be – and why. Let’s face up to the tenuous relationship between inflation, employment and growth and recognise that crowds of investors enthusiastically lay their money down when risk indicators are flashing red.

Good work is being done, by groups like Rethinking Economics. I did my best by writing a practical introduction to the global economy centred on what is actually useful for my students. It was my attempt at a broad-based, balanced work that would enable students to understand and confront real-world economic problems in their lives and careers. It will undoubtedly be too neoclassical for some and too heterodox for others. Others will disagree with what was included and excluded. But we must all recognise the need to dive into reform, and ask the vital question: after questioning the canon, what can we agree on and how does a new paradigm emerge?

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