I read the Manchester Post-Crash Economics Society’s (PCES) critique of economics education in the UK with a bewildering mixture of emotions. (Claire Jones has a short FT summary here.) It is eloquently and intelligently written, but I believe in some respects fundamentally misguided. It is indicative of a failure of mainstream economics education, but not (as it thinks) a failure of mainstream economics. Yet even after all these years, it is a position I can empathise with.
At its heart the critique is an appeal for plurality in economics. Rather than pretend that there is one right way to do economics (what the critique calls neoclassical), the critique says we should recognise that there are many alternative perspectives which have significant worth (and which therefore undergraduates should have significant exposure to). These alternative perspectives have become marginalised within economics over the last few decades, and the critique suggests that the financial crisis is evidence that this process should be reversed. This is not an unusual complaint, and I hear it frequently from those working in other social sciences.
Let me first say what I agree with here. Students should certainly be shown something of heterodox (non-mainstream) thought. I’d like to think that if we taught economics to undergraduates as a more problem solving discipline, with less emphasis on its axiomatic/deductive structure, that would become easier. We should certainly get more economic history in there, and again that would be easier with a problem solving approach.
What I disagree with strongly is that the current dominance of mainstream economics should be reversed, and that we should go back to ‘schools of thought’ economics. There are three reasons for this.
● Of course mainstream theory can be conservative. It has been used by some to support a particular ideology. I complain a lot about both. But the most important reason mainstream economics has become dominant is not because of these things, but because it has proved far more useful than all of its heterodox alternatives put together. I agree with Roger Farmer here: economics is a science. Its response to data and events may be slow compared to the normal sciences, for obvious reasons, but it is progressive. I cannot see any fundamental barriers to its continuing development.
● This is because mainstream economics can be remarkably flexible. One of the sad things about the way economics is often taught is that students do not see much of the interesting stuff that is going on in both micro and macro, and instead just learn what the discipline looked like 50 years ago.
Let me give one example. Students get taught that under perfect competition the wage is equal to the marginal product of labour. If that was all there was to say, then you might indeed believe that economics was just a means of excusing current levels of executive pay or arguing against the minimum wage. But instead it is just the start of what economics has to say. Read Alan Manning, who argues that because firms generally set wages and changing jobs is costly, monopsony is the more relevant default model. Read the Piketty et al paper I referenced here which talks about rent seeking by executives, and how cutting top rates of tax encouraged this rent seeking. These are powerful and effective critiques of marginal productivity theory.
● At first reading, heterodox writers can seem like a breath of fresh air, because they are more holistic and often less formalist. But while many complain, with some justice, that mainstream economics can be resistant of radical ideas, I have personally found at least as much intolerance on the other side. Some heterodox economists appear to reject almost everything that is mainstream, which is frankly just silly.
I think there may be a particular problem for students who are exercised by what they see as economic injustices around them. Economics in its studied neutrality can appear indifferent to that. It is natural for those who take an anti-establishment, left wing view to react to this perceived indifference by asking for revolution rather than evolution, by looking for a new paradigm. Perhaps those on the right, who may be happier with the status quo, find it easier to work within the mainstream, and use it to their own advantage. Yet any discipline where a utilitarian view is routine, and where diminishing marginal utility is standard, can hardly be described as inherently biased towards the status quo.
I think it is true that economics as a discipline has tried too hard to emphasise that it is an objective, politically neutral discipline, thereby underplaying value judgements when it makes them. Worse still, sometimes heavily value laden ideas like the importance of Pareto optimality are portrayed as being value neutral, which is clearly nonsense (see above). Yet the idea that it should be possible to build a science of human behaviour which is independent of ideology or politics is a noble ideal, and one which has been partly achieved. We may need (and are getting) more political economy, in the sense of recognising that economics works alongside and interacts with social and political forces, but I do not think we need more partisan economics.
Let me get personal. Over the last few years, I have been in charge of a macroeconomics course at Oxford. For better or worse, if past evidence is anything to go by, one or two of those taking this course will end up helping run the economy. There is so much important mainstream theory that needs to be covered in that course, because it is theory that is essential to trying to understand what is currently going on in the world. At its core is Keynesian theory, which has proved its worth since the recession. (Interest rates didn’t rise because of all that government debt, inflation didn’t take off because of all the money that has been created, and austerity did delay the recovery.) It would be a great step backwards if I had to stop teaching part of that, and instead teach Austrian or Marxian views about the macroeconomy, or still worse spend time worrying about what Keynes really meant. I would much rather a future Chancellor, Prime Minister, or advisor to either, remembered from their undergraduate degree that mainstream theory said austerity was contractionary, rather than ‘well it all depends on whether you are a Keynesian or an Austrian’.
None of this implies that there are not large gaps in the discipline, large elements that will not stand the test of time, and that there is much still to be done. But I agree with Diane Coyle (about economics, if not DSGE) that “the Naked Emperor needs to be reclothed rather than dethroned”. New ideas could perhaps come from heterodox thought, although I suspect that they are more likely to come from other social science disciplines. But they will be developed within the mainstream, leading to the evolution of mainstream thought. If students want to change the world, I think they are much more likely to do this by working within mainstream economics than heterodox thought.