Robert Skidesky: Knocking the scientific halo off mainstream economists’ teaching and research: “The growing discontent of economics students…
…with the university curriculum…. Students at the University of Manchester advocated an approach ‘that begins with economic phenomena and then gives students a toolkit to evaluate how well different perspectives can explain it’…. Andrew Haldane, Executive Director for Financial Stability at the Bank of England, wrote the introduction…. Students have little awareness of neoclassical theory’s limits, much less alternatives to it…. The deeper message is that mainstream economics is in fact an ideology–the ideology of the free market….
The austerity policies that Europe used to fight the recession from 2010 on were based on the belief that there was no recession to fight. These ideas were tailored to the views of the financial oligarchy. But the tools of economics, as currently taught, provide little scope for investigating the links between economists’ ideas and the structures of power…. So what is keeping the mainstream’s intellectual apparatus going?… An institutional structure that… rewards orthodoxy and penalizes heresy. The great classics… from Smith to Ricardo to Veblen, go untaught…. It has become an article of faith that any move toward a more open or ‘pluralist’ approach to economics portends regression to ‘pre-scientific’ modes of thought…. Curriculum reform can… remind students that economics is not a science like physics, and that it has a much richer history than is to be found in the standard textbooks…. Indeed, mainstream economics is a pitifully thin distillation of historical wisdom on the topics that it addresses…. What students are taught today certainly does not deserve its imperial status in social thought…
I have long been of the view that, whatever there is to be said for and against–and there is a lot on both side–economics departments and subdisciplines as the right modality for organizing groups of scholars, and economics Ph.D.s as the right way of training a new professional scholars, two things are very, very clear:
- We have no business throwing applied-math majors into an economics Ph.D. program. Both a liberal arts mora-philosophy B.A. or equivalent and two years out in the real world working at a job of some sort should be required.
- We have no business offering a narrow economics B.A. at all. At the undergraduate social-science level, the right way of organizing a major curriculum is to offer some flavor of history and moral philosophy: enough history that students are not ignorant, enough sociology and anthropology that students are not morons, and enough politics and philosophy that students are not fools. (And, I would say, a double dose of economics to ensure that majors understand what is key about our civilization and do not get the incidence of everything wrong.)
Let me postpone (1) to some future date and talk about (2):
I think that modern neoclassical economics is in fine shape as long as it is understood as the ideological and substantive legitimating doctrine of the political theory of possessive individualism. As long as we have relatively-self-interested liberal individuals who have relatively-strong beliefs that things are theirs, the competitive market in equilibrium is an absolutely wonderful mechanism for achieving truly extraordinary degree of societal coordination and productivity. We need to understand that. We need to value that. And that is what neoclassical economics does, and does well.
Of course, there are all the caveats to Arrow-Debreu-Mackenzie:
- The market must be in equilibrium.
- The market must be competitive.
- The goods traded must be excludable.
- The goods traded must be rival.
- The quality of goods traded and of effort delivered must be known, or at least bonded, for adverse selection and moral hazard are poison.
- Externalities must be corrected by successful Pigovian taxes or successful Coaseian carving of property rights at the joints.
- People must be able to accurately calculate their own interests.
- People must not be sadistic–the market does not work well if participating agents are either the envious or the spiteful.
- The distribution of wealth must correspond to the societal consensus of need and desert.
- The structure of debt and credit must be sound, or if it is not sound we need a central bank or a social-credit agency to make it sound and so make Say’s Law true in practice even though we have no reason to believe Say’s Law is true in theory.
An adequate undergraduate economics major will spend due time not just on the excellences of the competitive market equilibrium but on these 10 modes of market failure, and in so doing become, effectively, a history and moral philosophy major as well.
A first-rate undergraduate economic major will also spend due time on government failure and bureaucratic failure, and thus reach the very economic conclusion that there are substantial trade-offs, and we must pick our poison among inadequate and imperfect alternatives, even in institution design.
I think we, broadly, manage to accomplish this here at Berkeley. But I know that we are an extreme outlier in America, and I have little sense for how well these tasks are accomplished at other Anglo-Saxon universities and colleges.