How not to reform economics

Even though I end up disagreeing with what he wrote, Tim Thornton had a quite interesting article in The Age the other day which I have just written a comment on for Quadrant Online. His article was on “The Problem in the Way we Teach Economics” which led to my own response, The Real Problem In Teaching Economics. But Tim’s article is not really about what we teach but about the nature of textbook economic theory, and going on from there, deals with the kinds of economists our way of teaching economics produces. He lists three problems:

Firstly, there is generally no required study of economic history or the history of economic thought. . . .

Secondly, contemporary economics students will rarely encounter any of the schools that compete with the neoclassical school. . . .

Thirdly, the curriculum fails to incorporate crucial insights offered by other disciplines such as politics, philosophy, history, sociology and psychology.

Fair enough. But what Tim wants to do, if he cannot get satisfaction from the mainstream, is start up an alternate school from which a new generation of economists can be grown. And given that he wants to call his new discipline “political economy”, there is little doubt from whence he is coming. As I write at QoL:

Typically, those who would like to root out our modern neo-classical inheritance do so for some quasi-Marxist reason. They are seeking answers to different questions. Their interest is in explaining the distribution of power within a society. This is, of course, politics or sociology, but it is not economics, since even if you knew the answer to any of the questions a political scientist or sociologist might ask, you still wouldn’t understand how goods ended up being produced, what economic structures give you the greatest output, how the community’s command over goods and services could be increased, what to do in recessions, or even what causes recessions in the first place. Instead, what would be taught is some variant on the unfairness of the system and how it needs to change to ensure those who have the least wealth, which typically means those who have contributed the least to our communal flow of goods and services, can get a larger share of the pie.

There is all too much so-called economics around at the moment which presupposes capitalist growth and economic prosperity from which it seeks to extract some kind of rent on behalf of some nominated favourite group. But if they do not understand as a matter of first principles that the only way to run an economy is to have private entrepreneurs running their individual businesses, with as little government interference as possible in what they do or how much they earn, they have no genuine solutions to any actually existing economic problem. So far as understanding how an economy works, it is not only hard to see any value in shifting in the kinds of directions they propose, it is quite easy to see quite a bit of harm.


7 Responses to How not to reform economics

  1. wreckage

    Of the schools that compete with the neoclassical school, will they meet all the abject failures, clearly identified as such?

  2. Steve, this all reminds me of Michael Pusey in the 1990s.

    Pusey argued that Economics students should be required to do philosophy, politics and economics and dangerous ideas like economics should only be taught at the graduate level.

    At this conference, the first person to ask a question was John Stone.

    He asked where did he go wrong?

    Stone said he first earned an honours in physics; and he then studied studied politics, philosophy and economics at the graduate level in Oxford.

    He asked Pusey where did he go wrong?

  3. sdfc

    The neoclassicals should stick to micro.

  4. Tel

    Everyone should stick to micro.

  5. JC

    He asked Pusey where did he go wrong?

    Strongly advising Fraser not to float the Australian Dollar which almost destroyed the economy.

  6. Yohan

    One thing you notice about both Neo-Classical and Keynesians is they both ignore micro-economics, the individual, and focus on wide aggregates.

    This disconnection from understanding individual action, means they see individuals as mindless automatons, and see economic production as a ‘given’, and think its just a big pile of resources to extract rent from, as Steven Kates mentions.

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