During the last weekend of June, hundreds of students, university lecturers, professors and interested members of the public descended on the halls of University College London to attend the Rethinking Economics conference. They all shared a similar belief: that economics education in most universities had become narrow, insular and detached from the real world.
For a brief period after the financial crisis of 2008, the shortcomings of the economics profession and the way it is taught were recognized. Many economists offered up mea culpas of various kinds and conceded that since they did not foresee the biggest economic event since the Great Depression, there was probably something seriously wrong with the discipline. But as time passed and many economies began to experience gradual, somewhat muted recoveries, the profession regained its confidence.
When I was completing my master’s degree at Kingston University last year, I experienced this firsthand from the more mainstream faculty there. Lecturers offered potted explanations of the crisis using old analytical tools such as supply and demand graphs that cannot incorporate expectations to explain asset price bubbles. The same economists who, just a few years ago, told us that financial markets were the conduits of perfect information began to introduce doublethink phrases in the media such as “rational bubble” (in which investors allegedly act irrationally by bidding up asset prices in full knowledge that prices are heavily inflated but think they can bail out of the market before prices fall) to explain the events of the past few years. There is nothing rational about investors’ acting this way, because they cannot know when the bubble will burst and so cannot time their exit from the market. They cannot know when the herd movement that they are part of will come to an end, so any action that they take to ride the wave will be just as irrational as those of people unaware of the bubble. The entire exercise appeared to be an ad hoc attempt to reinterpret the facts to fit the pet theory — economic agents aware of relevant information act rationally — rather than to alter the theory in light of the facts.
It was difficult not to sense the Soviet-style revisionism that had occurred within the halls of learning: The party had tossed history down the memory hole and introduced a strange, seemingly self-contradictory language that they were busy foisting upon an unwitting public. One Chicago school economist, Ray Ball, argues that the now notorious efficient market hypothesis (EMH), which states that financial markets price in all relevant information, is actually supported by the recent crisis. He argues that the capital flight that led to the bank meltdowns lends support to the EMH because it shows how rapidly financial markets react to new information. But as many will remember, investigations clearly showed that information was not being processed efficiently by market participants in the run-up to the crisis. The most colorful example of this was the Standard & Poor’s employee who, responding to a colleague who said that they should not be rating a mortgage-backed security deal because the estimations of risk were incorrect, said that cows could be estimating the risk of a product and S&P would still rate it.
Shine a light
Despite such attempts to shore up the orthodoxy, students have sensed that something is wrong: Over the past two years, they have been organizing across more than 60 countries with the aim of forcing the vampire that is the economics profession into the light of day. While the students in the movement have a diversity of opinions on various issues, they have all come to believe that the best way to reform economics is to demand that a plurality of approaches be taught. They have rightly identified the key fault with contemporary economics teaching: the monoculture it engenders. Currently only one approach to economics is taught in the vast majority of departments in the U.S. and Europe: what is usually called neoclassical or marginalist economics, epitomized by Harvard’s Gregory Mankiw — a former chairman of the Council of Economic Advisers under President George W. Bush — and Chicago’s Gary Becker, a Nobel laureate. This is the economics of the rational, atomized individual purged of all social context, whose only goal is to maximize a mysterious, effervescent quantity called utility. In this view, the economy tends toward an equilibrium end point, at which everyone has a job and wages and profits are set in line with what each individual contributes to society.
When I spoke with the students, they were struck by how even those who dissented from contemporary economic policies like austerity shared this overarching vision. Paul Krugman, for example, to whom many turned after the crisis to provide context — including many of the students I met — also accepted the orthodox view (although he has not embraced some of the worst excesses echoed by his peers).
The students at the June conference also said that there were true dissenters in the discipline who found that economics was a highly contested field. Cambridge University’s Ha-Joon Chang pointed out that there are any number of schools of economic thought, each with their own approaches and insights. Their opinions range from the Austrians, who believe that government interference in the economy leads to wasted resources, to post-Keynesians, who believe that capitalist economies are inherently unstable and require government intervention to stave off collapse and stagnation, to Marxians, institutionalists, Schumpeterians, neo-Ricardians and so on. Chang argued that none of these schools of thought were inherently right or wrong; they all had insights into the working of the economy, and every one of them had a right to be taught to students as a competing point of view. It was up to the students, he said, to find what they found interesting, useful and credible.
One of the conference speakers pointed out that this is required in all the other disciplines that study people and society. He told an anecdote about being in the psychology department of his university when an inspector from a psychological association turned up to ensure that there was an adequately pluralist approach being undertaken. The speaker quipped that it would be far more likely that an inspector from an economics association would turn up to ensure that the current doctrine was being firmly adhered to.
But what, exactly, constitutes this dogmatic thinking? For starters, the firm belief that economics is a science on par with physics and chemistry. After all, these economists say, only a crank would demand that a plurality of approaches to physics and chemistry should be taught in universities. But the truth of the matter is that economics is not a science on par with physics and chemistry and it never will be. Donald Gillies, a former president of the British Society for the Philosophy of Science, told a stunned audience that he had examined three well-known Nobel Prize–winning papers in economics and could find nothing in them that he could call scientific. Rather, he said, they utilized sophisticated mathematics to hide the fact that they were not saying anything remotely relevant about the real world that could be proved or disproved.
The dirty little secret about economics is that it cannot, like other sciences, undertake proper laboratory experiments. Even the experiments of the behaviorist economists are open to doubt in that it seems unlikely that the manner in which people act in a lab while under observation is identical to how they act day to day. Economics is therefore ill equipped to make claims with the same confidence as bona fide sciences. What economists offer are instead interpretations of the world around them. Once this is understood, it becomes very difficult to argue against a plurality of opinions in the discipline. This was what the students sensed, and this is why their clarion call became one for pluralism.
These students are well organized, and their numbers are growing; their commitment is unlikely to go away anytime soon. They are focused in a manner that is impressive for a protest movement, willing to transcend their political differences in order to fight for a common goal. Every week a new group springs up. At the conference I attended, organizers went around with pads and pens collecting the contact details of sympathetic faculty members and other students in countries where the movement was only partially developed.
Even institutions are hopping on board. Many employers complain that the mainstream departments are churning out employees with mathematical skills completely out of proportion to the jobs they do but who seem unable to undertake basic economic analysis. Often these employees have to be retrained on the job in order to function at their institutions. The chief economist of the Bank of England, Andy Haldane, wrote in the foreword to the students’ international manifesto that “employers of economists, like the Bank of England, stand to benefit from such an evolution in the economics curriculum.” Given that mainstream economists often claim that the consumer is king and competition is sacrosanct, it is increasingly difficult to see how they make a case for their current monopoly over the educational process.
In September another conference will take place in New York, and rumor has it that an enormous international meeting will soon be organized too. If and when the movement reaches that level of international organization, it could start putting real pressure on companies, governments and economics departments to rethink their models and their ways. If the profession wishes to uphold what is left of its credibility, it would do well to pay attention.