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Crash and learn?

from David Ruccio

The case for changing the way we teach economics is—or should be—obvious.

It certainly is apparent to the students of Manchester University’s  Post-Crash Economics Society and to the other 44 student groups, members of Rethinking Economics, pressing for pedagogical changes on campuses from Canada to Italy and from Brazil to Uganda.

But as anyone who teaches or studies economics these days knows full well, the mainstream that has long dominated economics (especially at research universities, in the United States and elsewhere) is not even beginning to let go of their almost-total control over the curriculum of undergraduate and graduate programs.

That’s clear from a recent article in the Financial Times, in which David Pilling asks the question, “should we change the way we teach economics?”

Me, I’ve heard the excuses not to change economics for decades now. But it still jars to see them in print, especially after the spectacular failure of mainstream economics before, during, and after the worst economic crisis since the first Great Depression.

Here’s one—the idea that heterodox economics is like creationism, in disputing the “immutable laws” captured by mainstream theory: 

Pontus Rendahl teaches macroeconomic theory at Cambridge. He doesn’t disagree that students should be exposed to economic history and to ideas that challenge neoclassical thinking. (He prefers the word “mainstream”, since neoclassical, like neoliberal, has become a term of near-abuse.) He is wary, however, of moving to a pluralist curriculum in which different schools of thought are given similar weight.

“Pluralism is a nicely chosen word,” he says. “But it’s the same argument as the creationists in the US who say that natural selection is just a theory.” Since mainstream economics has “immutable laws”, he argues, it would be wrong to teach heterodox theories as though they had equal validity. “In the same way, I don’t think heterodox engineering or alternative medicine should be taught.”

Rendahl also argues that students are too critical of the models they encounter as undergraduates:

When we start teaching economics, we have to teach the nuts and bolts.” He introduces first-year students to the Robinson Crusoe model, in which there is only one “representative agent”. Later on, Friday is brought on the scene so the two can start trading, although no money changes hands since transactions are solely by barter. (Money and credit are strangely absent from most economic curricula.)

Somehow, the “simplification” involved in presenting a theory of capitalism without money and credit—and therefore without the mechanisms that, from the start, invalidate Say’s Law—is presumed to be innocent.

Then, of course, there’s the ever-present worry about banishing mathematical modeling, which is taken to be the necessary condition for intellectual rigor:

Angus Deaton, who won the Nobel Prize in economics and teaches at Princeton, says economics is a broad church, but one that needs to be kept rigorous.

He gives the example of Daron Acemoğlu, a “young superstar” at the Massachusetts Institute of Technology, whose research includes the study of how institutions foster or inhibit growth. “He’s a very good example of the way things ought to be going, which is you do history but you know enough mathematics to be able to model it too. Banishing mathematics is not the solution,” he says. “The model is the cross-check on whether you actually know what you’re talking about.”

For economists like Deaton, rigor is identified with mathematics, not with knowing the assumptions of a theory or being acquainted with various theories.

And, finally, there’s the idea that part of economics is broken but the rest is just fine:

In Manchester, Diane Coyle also defends the basic methodology of economics. She says there is confusion among critics between microeconomics, the study of the behaviour of individuals and firms, and macroeconomics, the study of whole economies. Macroeconomics, she admits, “is broken”. But microeconomics is both robust and often verifiable with real-world data. What, she asks, can heterodox economists contribute to typical concerns of microeconomics, such as discovering the right mix of policy incentives to discourage obesity?

In Coyle’s case, the assumption is that there’s a set of theory-independent, “real-world data,” against which neoclassical microeconomics has been compared and ultimately verified. That, of course, is news to other economists, who use different theoretical lenses, and see very different data.

The assumptions built into each and every one of these defenses of mainstream economics and attacks on heterodox economic theories as well as any hint of pluralism in the teaching of economics are, at best, outdated—the leftovers from positivism and other forms of post-Enlightenment scientism. They comprise the “spontaneous philosophy” of mainstream economists who have exercised hegemony in the practice and teaching of economics throughout the postwar period.

And, yes, Pilling is right, when that hegemony is challenged, as it has been by economics students and many economists in recent years, “the clash of ideas gets nasty.”

  1. October 7, 2016 at 12:40 am

    See my Blog # 12 Letter to Paul Krugman



    Give me a reply

  2. rjw
    October 7, 2016 at 12:47 am

    immutable laws?? cambridge economists seem to have got a lot stupider since my time.

    ironically, there is a great piece in the recent Cambridge faculty rag that they send to alumni, in which mohamed el erian (former pimco guy, occasional colmnist in the FT) explains what he got from his cambridge economics degree 30 years or so back …… the capacity to think critically, to questions the conventional wisdom, awareness of the political and social context in which economics and economists operate… etc etc …..in essence, all the stuff that exposure to a more heterodox curriculum instils.

  3. October 7, 2016 at 12:49 am

    Here’s my entry. It is me arguing using economics as I know it in orders to help heal one part of Earth. Is this economics used to defend Earth?

    I am requesting that FERC deny permission for the merger of the Northfield and Turners Falls power facility licenses (Dockets P-1889 and P-2485).

    This combined operation represents a strange economic system very similar to the communist imbalances created by central planning for state approved corporations in the old Soviet Union. The profit generated by this combined project is an illusion created by centralization of capital into an identifiable bank account at an unmeasured expense to the environment and the country.

    The Northfield pumping and storage facility destroys the Connecticut River to a greater degree than the money centralized in a corporate bank account. The profit is an illusion similar to a communist state-owned corporation meeting its goal with a worthless product.

    Here we have a private corporation destroying a valuable river and putting less money in the bank than the value destroyed. And doing so with state central planning assistance. This is the exact system that brought down the Soviet Union.

    Look at this as a financial balance sheet. On one side is the return to America of a free running Connecticut River that reaches the Atlantic unpolluted and clear. On the other side of the balance sheet is the centralized cash accruing to state licensed corporations given permission by the state to extract wealth from the river. In this case, just as in communist Russia, corporate profit does not surpass national loss. The US will eventually go broke from deals like this just like the old Soviet Union did. No nation can sell the value of a river and come out ahead. Perpetual financial motion machines are Ponzi schemes even if dressed up with elaborate government licenses.

    It appears in the charade of legal corporate accounting that an investment to pump water uphill when rates are low and run it downhill to generate electricity when rates are high creates a profit. Why is the word charade used? Because even a child understands that the fish and larvae killed in pumps and turbines is not shown in the accounting system. A grammar school child will easily see companion losses from erosion and river borne silt with a very small investment in class time.

    If this operation is actually profitable, then the applicant should be required to build a private lower reservoir that matches the upper reservoir. At that point, FERC will be asked for a license to extract sufficient river water to offset evaporation. Expropriation of public wealth for profits smaller than the national wealth expropriated is an impossible deal to defend.

    Please do not give away national wealth to fund a worthless Ponzi scheme.

  4. October 7, 2016 at 9:20 am

    I am a mathematician who has used mathematics to uncover hidden assumptions and identify relevant theories, such as Turing’s notion of critical instabilities. The problem is not the use of mathematics as such, but the ‘pragmatic’ use of mathematics in very restrictive ways.

  5. louisperetzperetz
    October 7, 2016 at 2:15 pm

    My idea is that there is only a big law, and not a theory, of economics. It is the law of systems of money running on markets, creating of course under-systems, and under-under-systems that we call microeconomics. Georgescu-Roetgen knew that, using the LAW of the 2nd principle of thermo-dynamism. I suppose that J.M. Keynes was the second to turn this “theory” when he wrote how tree systems were linked, Money, its interest and Employment (working system). The 4 th role, the State, was not written on the title of its book, but it is in its rhetorical speech to prove that it is possible to regulate the mainstream. Of course, the orthodox teachers of economics, prefer to tell about the main role of firms in the big liberal system. It is easier to teach, because it is the principal role…Anyway, Keynes said that if the systems are mechanics, they cannot bee mathematical ones in a human activity, because there is a psychological argument, which is never a logical one, which disturb it. How to teach it ?

  6. C-R D
    October 7, 2016 at 4:20 pm

    It is rather surprising to read that Diane Coyle believes that that “microeconomics is both robust and often verifiable with real-world data.”
    The utility function exists only in the imagination of its pushers. Individual demand function is observable only in one point (equilibrium); the same for the Community excess-demand. It is sad that since Walras mainstream economists still have not realized that the whole exchange process reduces to consumers’ search for an isomorphism that would take them from ordinal space(preference) to a real-valued set. I will soon write a clarifying note on this matter. At this juncture, the whole demand side is mis-specified, where is the robustess?

  7. October 8, 2016 at 11:36 am


    An article cuts down a long conversation into a few sentences, so some nuances always disappear.

    First, I do not think of heterodox economics in the same way as creationism. But pluralism suggests that alternative views should be presented alongside the consensus of the profession just because they are *not* the consensus. That is, without having undergone the scientific scrutiny that theories normally go through. Any ideas that aspire to be taught in an undergraduate program should be presented, scrutinized, peer-reviewed, etc., according to the same standards as all other hypotheses. I do not think that alternative ideas should get a free pass/fast-track from this process just because they are alternative.

    Second, “immutable laws” was a poorly chosen phrase. I emailed the author about that, and parts of that email is below. I think that clarifies what I meant.

    “I never said that “mainstream economics has ‘immutable laws'”, as that could easily be misunderstood by many economists. In particular, I was not referring to, for instance, Say’s Law, or the Law of one price, or even the law of demand, as none of these are laws at all, and can certainly be refuted.

    Instead I was referring to the fact that mainstream economics adheres to some basic principles that simply must hold for the accounting of the economy to make sense: For every buyer there is a seller; if someone spends more than her income, someone else must spend less; everything produced in the economy is either consumed (at home or abroad), invested, or left as inventories, and so on. These are relationships that must hold in order to ensure — from an accounting point of view — that the economy is neither “leaking” nor receiving manna from heaven.

    If this could be clarified (online) I would be very happy.”

    To which the author responded

    “Funnily enough in an earlier version I did spell out what you mean, by including this phrase “- such as spending and saving always balance -” but in the need to lose words (and add some that the editors wanted) this somehow got squeezed out. ”

    Best wishes

    Pontus Rendahl

  8. David Chester
    October 8, 2016 at 5:56 pm

    How can professional economists and their professors etc., begin to teach this subject until there is general agreement about of what this subject consists? Today the subject is too vague and very differently expressed, depending on which school you go to for your knowledge and more significantly whose kinds of examinations you aim to pass.

    The whole thing is badly explained today and I believe that with present trends we will never get it right and, worse there is a dedicated bunch of people in the banks and stock manipulating exchanges who wish to keep it this way. Its long past the time when scientists looked at the subject in a logical way and sorted out how our society really works and gave serious and honest solutions to the task of preparing the next generation of national governors with some significant information.

    P.S. My solution might even be the answer, write to me for a free e-copy of my book “Consequential Macroeconomics” to chesterdh@hotmail.com, and possibly learn how the use of sensible, logical, scientific thought can bring macroeconomics into focus, but be warned that its not like what you have been brain-washed with before!

    • louisperetzperetz
      October 12, 2016 at 9:39 am

      I think that the good way to teach macroeconomics should be using dynamic laws of systems. But not only mechanics, human dynamics systems too. So near Darwin point of view. Of course it will not be easy, but I think it will be almost the truth. I tried to do so in my book.

  9. October 10, 2016 at 10:27 pm

    ““Pluralism is a nicely chosen word,” he [Pontius Rendahl] says. “But it’s the same argument as the creationists in the US who say that natural selection is just a theory.” Since mainstream economics has “immutable laws”, he argues, it would be wrong to teach heterodox theories as though they had equal validity. “In the same way, I don’t think heterodox engineering or alternative medicine should be taught.”

    Since words merely point to reality, “natural selection” is just a theory, lacking a selector and arguably less apt than “natural adaptation”. Likewise, in engineering and medicine there are more than one way of skinning a cat, using different materials and production methods. The mainstream way of constructing ships was by rivetting them, but welding of appropriate materials has proven better. Likewise alternative medicine is what used to be the old orthodoxy, and it is folly for our capitalist economy to offer only money-making chemical medication liable to cause side effects when some herbal alternatives and techniques like massage and acupuncture have in more pragmatic cultures long been known to be effective.

    Does pluralism suggest that “alternative views should be presented alongside the consensus of the profession just because they are *not* the consensus”? In one sense, yes, but not by comparison with each other. Major achievements in science amount to showing diverse views as being of special cases of a species of theory fundamental enough to accommodate them all. The dominant (NOT consensus) basic theory of supply and demand is too simplistic. As a minimum, human consumption, reproduction, distribution and invention must be accounted for in their context of ecology, while in our era the invention and diverse interpretations of money must also be accounted for and our present usurious “shadow economy” shown to be either honest and necessary or – given an honest interpretation of money as credit repayable by our regenerating what has been consumed – logically unnecessary.

  10. October 12, 2016 at 10:30 am

    Economists need to get out of themselves. Economics right now acts as if the whole of life and the world is summed up in the theories and research of economists. Life, the world, humanity, etc. are all interconnected and too complex to be encompassed by any one area of study. And they’ve been that way since the beginning. For example, buying and selling certainly occur. But the significance of these interactions, the forms they take, and the goals they seek have varied radically across human history. And will continue to do so. To assume that any theory of science (even if a well vetted one) can describe much less explain all these variations is crazy. These are historical and evolutionary processes. The rules (laws) that are their basis evolve and change with historical events and uncertain futures. This happens in the physical sciences as well but more slowly and with more difficulty. Take for example the changes in physics going on since the 1980s indicating the speed of light is not constant and that the first law of thermodynamics is not immutable – energy can be created and destroyed. In my view, the problem with economics (and the other social sciences as well to large extent) is unworkable and historically disconnected views of science. Richard Feynman got it mostly right about science. Three steps: 1) guess about some event or action; 2) make observations to test the guesses; and 3) rewrite the guess based on the tests. And, repeat process. The weakness in his view is that he assumed connecting guesses and test results is a generally straight forward process. History of science has taught us this is not the case. It’s complex, uncertain, unclear, nonlinear, and always disputable. And it is, to use the vernacular of science and technology studies “socially constructed,” as is all of science and each particular scientific study. Once economists get past this hurdle they may have some chance of creating useful and understandable studies of “socially constructed” economies. But right now their work is mostly just pointless gobbledygook. Beyond this, however, the real problem is that economists insist on inflicting this gobbledygook on all the rest of us. And they do a lot of damage with it.

  11. October 12, 2016 at 6:59 pm

    “Economics right now acts as if the whole of life and the world is summed up in the theories and research of economists.”

    As I’ve just said elsewhere, that’s a consequence of specialisation – and maybe a mythical assumption by specialists that a master of an overview can be master of nothing.

    • October 12, 2016 at 8:04 pm

      Think of all the time spent in academia, and of course in the media selling the notion that each of us needs to take control of her/his life. It’s difficult for humans today to admit let alone live with the notion that they do not, cannot control their lives. All the major religions of the world have taught for centuries that one’s life is in other hands – God, the universe, Karma, etc. Science teaches the opposite. Economics is by no means the worst offender here. But it is the most devoid of insight into its own limitations. We need to find a compromise that allows self-awareness and humility before humans annihilate themselves. Not that God, the universe, Karma, etc. would notice if we did.

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