Posts Tagged ‘crisis’


Mark Tansey, “EC 101” (2009)

The case for changing the way we teach economics is—or should be—obvious.

It certainly is apparent to the students of Manchester University’s  Post-Crash Economics Society and to the other 44 student groups, members of Rethinking Economics, pressing for pedagogical changes on campuses from Canada to Italy and from Brazil to Uganda.

But as anyone who teaches or studies economics these days knows full well, the mainstream that has long dominated economics (especially at research universities, in the United States and elsewhere) is not even beginning to let go of their almost-total control over the curriculum of undergraduate and graduate programs.

That’s clear from a recent article in the Financial Times, in which David Pilling asks the question, “should we change the way we teach economics?”

Me, I’ve heard the excuses not to change economics for decades now. But it still jars to see them in print, especially after the spectacular failure of mainstream economics before, during, and after the worst economic crisis since the first Great Depression.

Here’s one—the idea that heterodox economics is like creationism, in disputing the “immutable laws” captured by mainstream theory:

Pontus Rendahl teaches macroeconomic theory at Cambridge. He doesn’t disagree that students should be exposed to economic history and to ideas that challenge neoclassical thinking. (He prefers the word “mainstream”, since neoclassical, like neoliberal, has become a term of near-abuse.) He is wary, however, of moving to a pluralist curriculum in which different schools of thought are given similar weight.

“Pluralism is a nicely chosen word,” he says. “But it’s the same argument as the creationists in the US who say that natural selection is just a theory.” Since mainstream economics has “immutable laws”, he argues, it would be wrong to teach heterodox theories as though they had equal validity. “In the same way, I don’t think heterodox engineering or alternative medicine should be taught.”

Rendahl also argues that students are too critical of the models they encounter as undergraduates:

When we start teaching economics, we have to teach the nuts and bolts.” He introduces first-year students to the Robinson Crusoe model, in which there is only one “representative agent”. Later on, Friday is brought on the scene so the two can start trading, although no money changes hands since transactions are solely by barter. (Money and credit are strangely absent from most economic curricula.)

Somehow, the “simplification” involved in presenting a theory of capitalism without money and credit—and therefore without the mechanisms that, from the start, invalidate Say’s Law—is presumed to be innocent.

Then, of course, there’s the ever-present worry about banishing mathematical modeling, which is taken to be the necessary condition for intellectual rigor:

Angus Deaton, who won the Nobel Prize in economics and teaches at Princeton, says economics is a broad church, but one that needs to be kept rigorous.

He gives the example of Daron Acemoğlu, a “young superstar” at the Massachusetts Institute of Technology, whose research includes the study of how institutions foster or inhibit growth. “He’s a very good example of the way things ought to be going, which is you do history but you know enough mathematics to be able to model it too. Banishing mathematics is not the solution,” he says. “The model is the cross-check on whether you actually know what you’re talking about.”

For economists like Deaton, rigor is identified with mathematics, not with knowing the assumptions of a theory or being acquainted with various theories.

And, finally, there’s the idea that part of economics is broken but the rest is just fine:

In Manchester, Diane Coyle also defends the basic methodology of economics. She says there is confusion among critics between microeconomics, the study of the behaviour of individuals and firms, and macroeconomics, the study of whole economies. Macroeconomics, she admits, “is broken”. But microeconomics is both robust and often verifiable with real-world data. What, she asks, can heterodox economists contribute to typical concerns of microeconomics, such as discovering the right mix of policy incentives to discourage obesity?

In Coyle’s case, the assumption is that there’s a set of theory-independent, “real-world data,” against which neoclassical microeconomics has been compared and ultimately verified. That, of course, is news to other economists, who use different theoretical lenses, and see very different data.

The assumptions built into each and every one of these defenses of mainstream economics and attacks on heterodox economic theories as well as any hint of pluralism in the teaching of economics are, at best, outdated—the leftovers from positivism and other forms of post-Enlightenment scientism. They comprise the “spontaneous philosophy” of mainstream economists who have exercised hegemony in the practice and teaching of economics throughout the postwar period.

And, yes, Pilling is right, when that hegemony is challenged, as it has been by economics students and many economists in recent years, “the clash of ideas gets nasty.”


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I cited Andrew O’Heir’s critical review of Boom Bust Boom, Terry Jones and Theo Kocken’s Monty Pythonesque documentary about the crash of 2007-08 back in March but I hadn’t seen the film itself until last night.

In many ways, I wish I hadn’t.

Oh, sure, there are a couple of good moments. Introducing the work of Hyman Minsky to a larger audience. A cameo by John Cusack, who suggests that economics students should pelt their professors with vegetables and rotten fruit if they continue to parrot the party line. “Maybe urinate on them. That’s what I would do.” And some well-deserved attention to the students in the Post-Crash Economics Society at the University of Manchester.

But otherwise, the film is just not very good. For starters, consider the fact that, after the worst crisis of capitalism since the first Great Depression, only once is capitalism itself even mentioned!

Then, as O’Heir wrote, there’s not a single mention of John Maynard Keynes (who published his General Theory in 1936, in the midst of the earlier depression), let alone Karl Marx (who, along with Friedrich Engels, was writing about capitalism’s crisis tendencies in the middle of the nineteenth century). Since Jones and Kocken decided to make forgetting a central part of their story—especially failing to remember and draw lessons from previous financial crises—they might also have mentioned the deliberate forgetting by mainstream economists and economic policymakers of other economic ideas, now as in the past.

And, in this day and age, it smacks viewers in the face that, as Shane Ferro wrote, “Women and minorities are almost entirely left out of this film—not unlike the way they’ve been left out of financial and economics professions.” The only two expert women the movie manages to feature are Lucy Prebble, a playwright who once wrote a play about the collapse of Enron, and Laurie Santos, a Yale psychology professor who studies how monkeys make decisions. Neither, as it turns out, has a background in economics, or much knowledge of capitalism, its history, or the 2007-08 crash.*

But the worst part of this high-budget, cleverly animated documentary is the actual story Terry and Kocken decided to tell. What it boils down to is this: financial crises have always been with us (at least since Tulip Mania in the 1630s), people tend to make irrational decisions (e.g, by forgetting about previous crises and taking on too much risk), and making irrational decisions is part of our human nature, as determined by evolutionary behavioral psychology (hence the monkeys).

Actually, the film is more confused than that. At one point, it features Minsky (in an animated dialogue with his son)—and, if it had continued in that vein, it would have been able to reveal something about the financial fragility inherent in the regular boom-and-bust cycles of capitalism (since the key actors in Minsky’s approach are capitalist enterprises and banks). But then Minksy is dropped and the filmmakers decide to go in a different direction, with a fanciful discussion of human nature (continuing an approach that, from the beginning, features an undifferentiated “we” who is responsible for speculation, risk-taking, euphoria, forgetting, and so on) and then an attempt to ground human nature in primate behavior (this after criticizing the scientistic pretensions of neoclassical economics).

There’s no attempt to identify the dynamics of a particular economic system, which we usually refer to as capitalism. No attempt to identify particular and differentiated actors and institutions within capitalism, such as bankers, workers, consumers, politicians, enterprises, financial markets, and so on. No references to other countries today, in addition to the United States and the United Kingdom. No mention of the grotesques levels of inequality in the lead-up to the crash, and no discussion of unemployment, poverty, homelessness, and so on after the crash.

Instead, what we are presented with is a succession of financial crises, which in the end are grounded in our singular human nature.

That, to say the least, is not a particularly insightful analysis of the causes and consequences of the crash. And the best the filmmakers and the various talking heads can come up with by way of policies is the need, since human nature can’t be changed, to regulate the financial system (perhaps, at its most adventurous, by restoring Glass-Steagal barriers between commercial and investment banking) to keep “us” from making the same mistakes.

To which we can all respond: “Been there, done that. Now let’s try something that might actually work, beginning with the inherent instabilities of capitalism itself.”


*Here’s the list of the contributors: Dan Ariely, Dirk Bezemer, Zvi Bodie, Willem Buiter, John Cassidy, John Cusack, John K. Galbraith, James K. Galbraith, Andy Haldane, Daniel Kahneman, Steve Keen, Stephen Kinsella, Larry Kotlikoff, Paul Krugman, George Magnus, Paul Mason, Perry Mehrling, Hyman P. Minsky, Alan Minsky, Lucy Prebble, Laurie Santos, Robert J. Shiller, Nathan Tankus, Sweder Van Wijnbergen, and Randall Wray.


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181801_600 Moudakis July 8 2016