Changing The Teaching Of Economics

There’s been a lot of criticism about the economics profession in the last 5-6 years. Why didn’t we forsee the Great Recession coming? Why is there continued debate on the best way out of this mess? Why is there such disagreement over specific policies, and for that matter, what has happened and is happening now? Is there in essence, something fundamentally wrong with economics?

There’s a new debate on VoxEU that aims to realise that old adage – physician, heal thyself – especially with reference to the teaching of economics and young economists (excerpt; emphasis added):

What’s the use of economics? Introduction to the Vox debate
Diane Coyle, 19 September 2012

If economics emerges from the Global Crisis unchanged, it will lose all credibility. That is certainly not the view of all economists, but many do think so…

…However, it is not obvious what shape an effective response to even well-founded criticisms could take…

…One starting point…is the teaching of economics, beginning with the undergraduate level…

…Some clear themes have emerged from the conference and the book. One is the extent of employer dissatisfaction with the teaching of economics in universities, for all that economics graduates remain highly employable…For example, the prevalence of poor communication skills is a common theme…

…Perhaps more surprising is the consistent view among all the employers, as well as some of the academics, that undergraduates need to learn more about both economic history and the history of economic thought, and moreover to be made to pay attention to the economic conjuncture, to economic institutions, to the operation of actual markets in the economy and current policy debates…

…A second theme is the way the crisis has given added urgency to some questions or doubts about economic methodology…

…Andrew Lo of MIT argues that mathematical techniques in economics only gain meaning from application to actual empirical questions and should be taught in that context. Paul Seabright of the Toulouse School of Economics says students must be taught not that economics is an ever more successful approach to true knowledge about how the economy works, but rather as an empirical investigation of an ever-evolving phenomenon. There was a strong consensus on the need to demote the role of theory and promote empiricism. As Andrew Lo expressed it: “We economists wish to explain 99% of all observable phenomena using three simple laws, like physicists do, but we have to settle instead for ninety-nine laws that explain only 3%, which is terribly frustrating.”…

…On the third area, the role of macroeconomics, there was little consensus, but rather a wide array of opinions...

However, when Benjamin Friedman of Harvard describes pre-crisis macro as “wrong headed” and Andrew Haldane of the Bank of England describes representative agent models with expectations reflecting fundamentals as “fundamentally ill-suited” to today’s worlds, it would take someone who is either very confident or very complacent not to reflect some of these doubts in what they teach the next generations of economists….

…Economists are in the best position to understand the intellectual power and rigour of our subject, and its ability to contribute to tackling the enormous range of challenges in problems in today’s world, not least the continuing financial and economic crisis. Any intellectually honest economist will acknowledge that the length and severity of the crisis demand at least a certain amount of professional introspection and self-evaluation. Many will agree that economics does need to change. Surely the education of young economists is the best place to start?

There’s quite a bit more, so I’d encourage any student or teacher of economics to read through the whole entry.

Somewhat coincidentally, I gave a presentation on pretty much this same subject last week, and without knowing it hit almost identical points, though probably without the same authority or eloquence – the need for good communication skills; the need to appreciate economic history and philosophy; some knowledge of the inner workings of markets and the financial sector.

What I would add to the list is a working knowledge of statistics (as in data construction, not the data itself); and more generally, better coordination between the academic world and the empirical world as well as a better way to disseminate economic research.

I’ve got more thoughts on this, but I need to let the ideas germinate for a while. Stay tuned.