Economics curriculum reformulation

from Lars Syll

One of the main ideas underlining the book is that “being an economist” in the XXI century requires a radical change in the training of economists and such change requires a global effort. A new economics curriculum is needed in order to improve the understanding of the deep interactions between economics and the political forces and the historical processes of social change. The need for trans-disciplinary and interdisciplinary work is highlighted.

Discussions include the following. Main critiques of current practices on theory, methods and structures. Current gaps in the economics curriculum. What should economics graduates know? The contributors are: Nicola Acocella, Sheila Dow, David Hemenway, Arturo Hermann, Grazia Ietto-Gillies, Maria Alejandra Madi, Lars Pålsson Syll, Constantine Passaris, Paul Ormerod, Jack Reardon, Alessando Roncaglia, Asad Zaman.

Yours truly’s contribution to the collection is on “Economics textbooks – anomalies and transmogrification of truth.”

One of the textbooks I analyze is the 8th edition of Greg Mankiw’s intermediate textbook Macroeconomics. After thoroughly neglecting anything resembling a real-world finance system, Mankiw appends a chapter to the other nineteen chapters where finance more or less is equated to the neoclassical thought-construction of a “market for loanable funds.”

On the subject of financial crises he admits that

perhaps we should view speculative excess and its ramifications as an inherent feature of market economies … but preventing them entirely may be too much to ask given our current knowledge.

This is of course self-evident for all of us who understand that both ontologically and epistemologically founded uncertainty makes any such hopes totally unfounded. But it’s rather odd to read this in a book that bases its models on assumptions of rational expectations, representative actors and dynamically stochastic general equilibrium – assumptions that convey the view that markets – give or take a few rigidities and menu costs – are efficient! For being one of many neoclassical economists so proud of their (unreal, yes, but) consistent models, Mankiw here certainly is flagrantly inconsistent!

And as if being afraid that all the talk of financial crises might weaken the student’s faith in the financial system, Mankiw, in his concluding remarks, has to add a more Panglossian warning that we

should not lose sight of the great benefits that the system brings … By bringing together those who want to save and those who want to invest, the financial system promotes economic growth and overall prosperity

Really?

Finance has its own dimension, and if taken seriously, its effect on an analysis must modify the whole theoretical system and not just be added as an unsystematic appendage. Finance is fundamental to our understanding of modern economies, and acting like the baker’s apprentice who, having forgotten to add yeast to the dough, throws it into the oven afterwards, simply isn’t enough. We should demand more of our economics textbooks.