Post-Crash Economics

The secret is getting out. And what secret might that be? That modern economic theory is next to useless, or at least useless if your interest is either to understand what’s going on or to manage the economy in a productive way with high employment and low inflation. This is from the introduction to The Report which has been issued by the Post-Crash Economics Society in the UK, organised round a group of students at Manchester University:

Economics education is monopolised by a single school of thought commonly referred to as neoclassical economics. Crucially, very few economists working within this mainstream predicted the Financial Crisis. Afterwards many concluded that the best predictions came from those economists that had been marginalised by the mainstream. Despite this alternative perspectives are still close to non-existent in undergraduate programmes. We demonstrate this through a detailed analysis of Manchester’s syllabus, which itself is representative of economics syllabuses around the UK. This lack of competing thought stifles innovation, damages creativity and suppresses the constructive criticisms that are so vital for economic understanding and advancement. There is also a distinct lack of real-world application of economic ideas, with the focus being on abstract modelling that often seems devoid from reality. Finally, the study of ethics, politics and history are almost completely absent from the syllabus. We propose that economics cannot be properly understood with all these aspects excluded.

I have just the book for them, in fact I have two since they make a point of stressing how important studying the history of economic thought is to understanding economics.

There is a write up of all this in an article, Bank of Englands’s Haldane Backs Broader Economics, found in the Wall Street Journal and sent to me by Sinclair himself. Economics must change and I am extraordinarily pleased to see the revolution is finally about to begin.

(HT: feelthebern)

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17 Responses to Post-Crash Economics

  1. MacBeth

    I’m inclined to think that economists attract much unfair criticism. After all, their guess is surely as good as that of anyone else.

  2. Milton Von Smith

    “The Report” is complete and utter garbage. What do results from the experimental ultimatum game have to do with the business cycle? Nothing whatsoever. And how would insights from these experimental results have helped us avoid the GFC? They wouldn’t have.

  3. Pyrmonter

    Just another attempt to load lefty claptrap into the economics syllabus. A bit of comparative economics, history of economic thought, or better still, economic history, should be mandatory; but loading an education with Post Keynesian or Marxian analysis would lead to economics education being as useless as the Sydney Political Economy courses, or sociology elsewhere

  4. Milton Von Smith

    Pyrmonter: Agree completely.

  5. Ian George

    Sounds similar to the current AGW meme.
    * Monopolisation by a single thread of thought.
    * Not predicting the pause in warming.
    * Marginalised scientists making better predictions.
    * Uni courses in Climate Science pushing the AGW mantra only.
    * Use of modelling rather than data and historical cycles.

  6. Eric

    My son has a PhD in quantitative finance. He and his fellow passengers could just not give any credence to those who completed PhD’s in Economics. They thought such degrees were pretty much given away in cereal boxes – their work was so easy compared to what he had to cover in his studies.

  7. Steve Kates

    For me there are a few issues of comfort in spite of some sense of pessimism.
    .
    First, I am just happy to see the logjam of modern neoclassical economics finally broken. This is the first step in a much needed process even to have a declaration of disquiet about the way economics is taught. I cannot think it could get any worse than it is. They may not call themselves socialists but economic theory as currently taught is for all practical purposes a form of centralised economic management, with the level of G the most important driver.
    .
    Second, that the coming Chief Economist of the Bank of England and Steve Davis of the Institute of Economic Affairs are willing to buy in on this gives me some sense that this is not some neo-Marxist cabal based around expropriating the expropriators. But whatever the basis of the dissatisfaction, the issue is to force the mainstream to defend their theory and its practical value.
    .
    Third, and very oddly, Post-Keynesian economic theory, so far as the business cycle is concerned, is almost identical to the classical theory of the cycle. Very odd to me to find this but I have even begun to write a paper on this very issue. I’m not sure they even are aware of the difference it makes, but in much that is written, they substitute effective demand for aggregate demand which means they are actually restoring Say’s Law since Say’s Law was the core of the explanation behind what made demand effective. It is no longer just a total but in this way becomes a theory of economic activity.
    .
    Fourth, bringing back the history of economics and economic history can only be positive. The attempts to shut these out are attempts to shut down various forms of debate.
    .
    Fifth, we shall see.

  8. Art Vandelay

    I agree with you, Pyrmonter. The last time I heard talk like this, they were trying to force Behavioural Economics into the microeconomics syllabus and public policy.

  9. Rafe

    These guys are a bit late, there is a vigorous radical economics network that sends out gigantic email lists of activities every month and there is the Soros-funded outfit (name eludes me) that runs international conferences loaded with big guns from all factions of the profession. And there is the Australian School of Economics.

  10. stackja

    Rafe
    #1283566, posted on April 28, 2014 at 5:51 pm

    Maybe Institute for New Economic Thinking?

    List of projects supported by George Soros
    From Wikipedia, the free encyclopedia
    http://en.wikipedia.org/wiki/List_of_projects_supported_by_George_Soros
    Institute for New Economic Thinking
    From Wikipedia, the free encyclopedia
    http://en.wikipedia.org/wiki/Institute_for_New_Economic_Thinking
    The Institute for New Economic Thinking (INET) is a New York City-based nonprofit think tank. It was founded in October 2009 as a result of the 2007–2012 global financial crisis. Its purpose is to support academic research and teaching in economics “outside the dominant paradigms of efficient markets and rational expectations”

  11. Rafe

    Thanks stackja, did you look up the Australian School of Economics in wik as well?

  12. JohnA

    MacBeth #1283327, posted on April 28, 2014 at 2:26 pm

    I’m inclined to think that economists attract much unfair criticism. After all, their guess is surely as good as that of anyone else.

    Trouble is, the economists think their guesses are better than those of anyone else.

    Standard TPS (tall poppy syndrome).

  13. The Pugilist

    Third, and very oddly, Post-Keynesian economic theory, so far as the business cycle is concerned, is almost identical to the classical theory of the cycle. Very odd to me to find this but I have even begun to write a paper on this very issue. I’m not sure they even are aware of the difference it makes, but in much that is written, they substitute effective demand for aggregate demand which means they are actually restoring Say’s Law since Say’s Law was the core of the explanation behind what made demand effective. It is no longer just a total but in this way becomes a theory of economic activity.

    Interesting Steve. Even though Post-Keynesian economists tend to be quite leftist in their politics, I find their focus on disequilibrium (at least in the case of Steve Keen) to be a point of commonality. One major deficiency of neoclassical economics is the rigid adherence to equilibrium analysis which does not allow any role for the entrepreneur. As Kirzner notes, entrepreneurship is a disequilibrium phenomenon…

  14. Georg Thomas

    Unbelievable – nothing seems to have changed since I studied economics in Oxford and Cambridge in the 1980s.

    Well, one thing has changed: There is now an excellent introduction to economics available; the best I have ever come across:

    Free Market Economics – An Introduction to the General Reader, by Steve Kates.

    At 25 quid, it is a bargain, once you appreciate its quality.

    I have no personal connection with Steve Kates – I am just a grateful reader, always ready to recommend this wonderful book.

    Lucidly written, the book is an easy read, while the substance contained in it is amazingly plentiful, so I keep coming back to the manifold aspects covered in it.

    In fact, I have made such copious use of the book, I am about to buy another copy.

  15. .

    Eric
    #1283482, posted on April 28, 2014 at 4:44 pm
    My son has a PhD in quantitative finance. He and his fellow passengers could just not give any credence to those who completed PhD’s in Economics. They thought such degrees were pretty much given away in cereal boxes – their work was so easy compared to what he had to cover in his studies.

    I have utmost respect for such a qualification, but your son is wrong.

    The background work being easier doesn’t invalidate the utility of the research, nor the intelligence required or wisdom gained in answering the research problem.

    “So easy” is nuts. Synthesising a theory or solving a conceptual problem may not require an amazingly complex mathematical model like credit risk modelling, but that doesn’t make it easy. A lot of economics or even finance problems don’t require complex maths. Quants are simply highly specialised and are lucky to have the data to build their models which they can treat as physical models. Machine trading influences the complexity and smoothness of the models. Us mere economists are left to model with people, patchy time series and discontinuities and conceptual issues before the data even gets selected.

    I’ve written papers about the maths of corporate finance (which a very simple manipulation yielded an elegant result), HRM and foreign investment.

    The most complex modelling we used was for the HRM paper. Most quants could get it but they generally wouldn’t have the background to read it in one hit. They’d have to backtrack through some unfamiliar statistical techniques.

    Whilst equine science might be an ‘easy’ degree, I’m not going to send in a vet or a pharmacist to train my trotters and gallopers, am I?

    We’re not talking about womens studies and the like.

  16. rickw

    If the science of engineering was like the science of economics, there would be buildings and bridges falling down everywhere, and your car would hardly ever start.

  17. .

    Blame the left, rickw. They fail to admit failure. They still have the gall to come up with bullshit theories as to why wage regulation is good for us all, when theory and empirics simply say no.

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