Economics teaching is bankrupt: It’s time to abandon the failed old models

Paul Ormerod
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ARE economics graduates fit for purpose? It’s a hot topic in policymaking circles. A year ago, the Bank of England hosted a day conference on the topic, and economist Diane Coyle has edited the proceedings in a neat little book What’s The Use of Economics: Teaching the Dismal Science After the Crisis. There was a follow up at the Treasury last month, and in the meantime a distinguished committee of academics, government and business economists has been beavering away on the content of Britain’s economics curriculum.

The question is of far more than academic interest. As Coyle points out, the narrowness of the mainstream approach means that economics itself must bear responsibility for the financial crisis. Macroeconomic theory failed spectacularly. Jean-Claude Trichet, then governor of the European Central Bank, wrote in November 2010 that “as a policymaker during the crisis, I found the available macro-models of limited help. In fact, I would go further: in the face of the crisis, we felt abandoned by conventional tools.” Yet the pre-crisis theory still forms the core of what graduate economists are taught.

At the same time, there have been exciting developments in areas like behavioural economics, which offer a more realistic description of how people actually behave. The leading figure in the field is Daniel Kahneman, and many will have read his recent best-seller Thinking, Fast and Slow. He was awarded the Nobel Prize in 2002, and his most important article was published as long ago as 1979. Yet I was recently told by the head of a leading economics department that he was “thinking” of introducing a course in behavioural economics – in 2015.

My own experience suggests that the real question is whether many economics graduates are fit for anything at all. Economics students themselves are increasingly critical of the curriculum, and I have spoken on this topic to two student economics societies. The first had to be rearranged from before Christmas, because the students had forgotten to book a room. This time all went well, but I had not finished my talk when a besuited man strode purposefully onto the stage and began setting up his own powerpoint slides. He was, he announced, about to lecture to 200 engineering students. The economists had booked the hall, but not for long enough.

The second talk, in one of the North’s great cities, was even more eventful. The discussion was lively, with many questioners denouncing austerity policies and calling for more spending and bigger deficits. It had been a long day, and I was glad to arrive at the hotel the students had booked at 10.30pm in the pouring rain. But not only was there no trace of the booking, it was full. I went round the corner to a much more expensive hotel and sent the society the bill. They were very apologetic, but they could not pay. These dedicated opponents of austerity had run out of money.

Paul Ormerod is an economist at Volterra Partners, a director of the think-tank Synthesis and author of Positive Linking: How Networks Can Revolutionise the World.