Students shun economics to learn about the economy

John Conroy yesterday wrote of the decline in economics studies at Australian high schools and universities.  For example, 35% of high school student took economics in NSW in 1991, while on 8% currently feel compelled to submit to the torture.

But Conroy’s concern over the quality of economic debate due to the decline in formal economics education in high school is misplaced.  If anything, fewer people with a one or two year indoctrination in the bizarre models of neo-classical economists is a benefit for real debate on economic and social policies.

From my perspective the solution proposed by the NSW Economics and Business Educators president Joe Alvaro does not sit well.

There is a great potential to improve the economic literacy of the Australian population through economics lessons in our schools. We have a syllabus conducive to this and experienced teachers with the knowledge and skills to implement this syllabus

For those loyal readers who noticed my absence that past few months, you might a be little curious about what I’ve been doing.   I have started a PhD in economics at the University of Queensland.  Why? To learn more about what’s wrong with economics, what’s right with it, and how I might help improve the discipline.

As part of the course there are two major indoctrination classes in macro and micro economics, which are representative of the content being taught in most economics PhD courses around the world, particularly in the US.

But there are two things you will notice.

  1. There is a religious aspect to economic theory.  Each model generates a congregation of believers, who stand by their assumptions, despite all the evidence to the contrary.
  2. The teaching of economics usually follows a single neo-classical religion, rather than demonstrating the selection of religions, the reasons for each of their beliefs, and the outcomes of those beliefs.

At a high school level, most students will be introduced to the most simple assumptions of neo-classical economics – that there exists some kind of downward sloping demand curve, and some kind of upwards sloping supply curve. I can guarantee that Alvaro’s syllabus contains, almost exclusively, this model.  Yet the very existence of such curves is a construct of a model assumption, since we can only ever observe the price and quantity (the intersection) in real life.

It is not until you peak into other economic churches, and follow some of the applied research that almost never makes it into introductory textbooks, that these assumptions about the shape of the curves don’t hold.  In fact the common result is to find that if a supply curve exists for the labour market, basically one of the largest markets in the economy, it is downward sloping.

More than this, the theory has been shown to be false, even simply relying on its own assumptions.  These curves, if they exist, can be any shape at all.

More insights would be gained from people experienced in the actual business negotiations that really occur in markets.  At least they have an understanding of the why and how of business investment decisions.

It has also been shown that neo-classical theory cannot explain why exactly markets will tend towards equilibrium should they not be in equilibrium at any point.  In fact, it can be shown that in many instances, the existence of markets in futures contracts an credit markets can exacerbate shifts away from any theoretical equilibrium.

Never will you hear in an introductory economics class that private property markets and resulting prices are just one of many allocation mechanisms that have been tried in civilisations throughout history.  Nor do you hear much about the assumptions of perfect legal institutions required for markets to deliver on their theoretical promises.  Nor will you hear about definitions of property rights, contract laws – regulations that are required for markets to function.

All of this simply means that a lack of economic education in high schools is not a concern, and is unlikely to be to blame for a deterioration in the quality of public debate in economics.  As long as students are learning to think critically, in whatever subjects they choose, they will be equipped to participate in discussions surrounding government economic and social policy.  Indeed, for economics to stay relevant it must educate with more than than the beliefs of a single church, but with the many of the rigorous insights from each of their churches, and a coherent message of how and why each type of analysis might apply to a particular policy question.  Because there are many areas of economics with great insights, that contradict the neo-classical theory.  But that never make it to any introductory course curriculum.  This needs to change.

For those who want to know about the insanely narrow neo-classical assumptions I can recommend the recent book The Assumptions Economists Make, which covers many of these arguments.

Tips, suggestions, comments and requests to [email protected] + follow me on Twitter @rumplestatskin

Comments

  1. Just read Keen’s ‘Debunking Economics’ to see what drivel neo-classical economics is as a ‘science’. The logic and maths doesn’t work. This era should reform economics and in some placs around the world, that may be by popular force.

    • Hoe Jockey and Aony Tbbott

      Read Paul Ormerods ‘Death of Economics’ in the mid 90’s and that really opened my eyes to lunacy that still prevails back then and is still served up as gospel to this day.

  2. Perhaps studying economics is not the problem but each student should start by watching a couple of videos illustrating the key points made in that book ‘assumptions’ and Mr Keen’s book.

    When the students are aware of those issues the study of economics will be more interesting and valuable.

    Perhaps, that might be a good project for a PhD. – “introducing high school students to the study of economics”

    On the assumption that plenty of teachers consider themselves progressive ( whatever that means) i am sure there would be a receptive audience.

    I think not studying it at all will play into the hands of the myth spinners.

    Good luck with the studies!

    Since reading MB my interest in what disinterested me about my econ degree 20 years ago has grown dramatically.

    • Rumplestatskin

      “Perhaps, that might be a good project for a PhD. – “introducing high school students to the study of economics””

      I know of some economists out there trying to improve introductory courses, and have written more balanced textbooks. The problem I noticed when I was involved with a revised 1st year uni econ course was that if student pursue economics study beyond introductory level, they are expected to be fully competent in neo-classical principles. If you ‘waste’ this time learning other models and, god forbid, and economic history (and the political context), students will find the next courses a struggle. So the problem is economics education more broadly.

      • Hoe Jockey and Aony Tbbott

        Rumps, it’s a broader educational issue. Challenging existing doctrine and thought is simply not acceptable and it’s not restricted to economics. Person I know is doing a nursing degree and critical thought on non medical subjects is not welcome – ‘thou must not stray from the text….which I’ve written’ The education system has become nothing more than an academic factory.

    • DrBob127MEMBER

      “… and Mr Keen’s book.”

      Bob the polite pedant says if you going to use a title when referring to someone, be sure to use the correct one.

      Options are:
      Professor Keen – relating to his position of tenure at UWS or,
      Dr. Keen – having rigorously demonstrated a novel and original contribution to his field of study in his PhD thesis.

      I prefer Prof. Keen as it shows respect for all that he has achieved during his time at UWS as the leading student of economic in Australia. I would argue that the very existence of this MB site was in no small part enabled by the good Professor.

      Just my thoughts, FFtI

      • Good point DrBob! Ironically i used Mr Keen because i dont like the informality of Steve Keen and i tend to think of Dr in the medical context. Academic titles like prof are prob too much unless you happen to know what it is – outside academia titles change all the time.

        I should take the opportunity to apologise for the many typos in my comments as i am sure you will have. My only excuse is one finger on ipad while on public transport plus an inability to edit.

        • On reflection I agree Prof. Keen is best.

          What is the situation with people who have a PhD? Do people normally use the title Dr. Does it make a difference whether they are in academia or not?

          If Dr. relates to the PhD and Prof. to the academic position why do we not use Prof. Dr. Keen.

          Anyway i agree that in the case of Prof. Keen a capital E is warranted.

          Can we draw the line at people with the corporate title President. I have an issue with that – what is wrong with CEO – plus i seem to be increasingly surrounded by them.

      • Prof Keen is one of only a handful of Economists I refer to with a capital “E”. Although his market timing is not perfect (although he called the discretionary retail structural change right at the top, unlike myself, who cocked it up royally), he hasn’t caused untold damage to the millions who have listened and heeded the advice of the little “e” economists out there.

        I’m in Taleb’s camp on this – economists should be treated like engineers – if the bridge they build falls over, they wear the pain, and that should include jail time for many of the offenders of the GFC and the continuining chaos in Europe (particularly WRT to youth unemployment)

        • “if the bridge they build falls over, they wear the pain, and that should include jail time for many of the offenders of the GFC and the continuining chaos in Europe (particularly WRT to youth unemployment)”

          Absoloodle!

          However some outcomes are much more subtle. Aus ends up with a nation they no longer own and a currency market that does not respond to real trade market. forces It takes 50 years to achieve. My proposals, over the years, that every Prime Minister and Treasurer of the last 50 years should be taken out and shot (or worse) for treason, has not managed to gain widespread support…so far.

          We will see what extremes the future we face will throw up.

    • As I have mentioned ‘here’a while ago, I have taught Economics at the most basic HSC level in Victoria and NSW.

      I have never taught religion but I would need to apply a common sense test to any evidence and indeed any theory asserted as fact. Belief systems are counter educational, surely this is self evident.

      The issue to which you refer is won of teaching independant thought. We know what happens to poeple who tend toward independant thought ….. Steve Keen is an example Joan of Arc another.

      Students fear subjects that have numbers as many are challenge averse. And more enlightened students do not distinguish between economics and politics.

      A sad state of affair

  3. Why study economics when you can do a business or commerce degree with half the effort and get the same if not better job than an economics degree?

    Students only care about the pay cheque on the other side, Kahneman’s “thinking fast and slow” tells us that the majority of people will usually take the path that has the least resistance. For this reason economics as a cohort will continue to fall in terms numbers due to its difficulty compared to other courses that can end up getting you into the same job.

    What school’s truly need is a course on “financial literacy” where they teach students simple investing, how to structure their super, the problems with debt and potential scam’s. Economics is important but I think getting students in school up to speed with finance should take a priority.

    • Diogenes the CynicMEMBER

      +1 This is what I was going to commment on. Economics as it is taught at school and university actually hampers a student. What was not mentioned by Rumplestatskin is that the Academics teaching those Economics courses have 20-40 years invested in that nonsense so they will defend it and their jobs to the death.

      But teaching financial literacy to 13+ year olds would be useful. The issues around debt, how contracts are structured to catch you out, compound interest, credit cards, mobile phone contracts and rental agreements. Nothing fancy simple commonsense. All society would benefit if more people understood this stuff.

      • Sorry Diogenes I dont agree with

        ‘Economics as it is taught at school and university actually hampers a student’

        There are a range of concepts that will be used in their thought processes for the rest of their lives. This is where they first discover the myriad variables and powerful self interest and furtive spuriking.

        Dont throw the baby out with the proverbial

    • It sounds like you’ve been reading too much neoclassical economics.

      Neoclassicissts each year expose millions of high school and college students to a paradigm that, as Robert M. Solow put it, “underplays the significance of ethical judgments both in its approach to policy and [in] its account of individual and organizational behavior.”

      Such effects are evident in a series of free-ride experiments conducted by Gerald Marwell and Ruth Ames. In eleven out of twelve experimental runs most participants did not free ride and contributed from 40 percent to 60 percent of their resources to public good. However, a group of economics graduate students contributed an average of only 20 percent. And while the other subjects were motivated by a strong sense of fairness, and a near unanimous definition of what it is, economics students refused to define the term, or gave very complex answers, and those who did respond stated that making little or no contribution was fair.

      Perhaps a better role model than the neoclassical evangelists of greed and self-interest would be Albert Einstein, who was not only an intellectual giant but a moral giant as well:

      [quote]Everywhere, in economic as well as in political life, the guiding principle is one of ruthless striving for success at the expense of one’s fellow men. This competitive spirit prevails even in school and, destroying all feelings of human fraternity and cooperation, conceives of achievement not as derived from the love for productive and thoughtful work, but as springing from personal ambition and fear of rejection.

      There are pessimists who hold that such a state of affairs is necessarily inherent in human nature…

      …It is therefore easy to see why the churches have always fought science and persecuted its devotees. On the other hand, I maintain that the cosmic religious feeling is the strongest and noblest motive for scientific research. Only those who realize the immense efforts and, above all, the devotion without which pioneer work in theoretical science cannot be achieved are able to grasp the strength of the emotion out of which alone such work, remote as it is from the immediate realities of life, can issue. What a deep conviction of the rationality of the universe and what a yearning to understand, were it but a feeble reflection of the mind revealed in this world, Kepler and Newton must have had to enable them to spend years of solitary labor in disentangling the principles of celestial mechanics! Those whose acquaintance with scientific research is derived chiefly from its practical results easily develop a completely false notion of the mentality of the men who, surrounded by a skeptical world, have shown the way to kindred spirits scattered wide through the world and through the centuries. Only one who has devoted his life to similar ends can have a vivid realization of what has inspired these men and given them the strength to remain true to their purpose in spite of countless failures. It is cosmic religious feeling that gives a man such strength. A contemporary has said, not unjustly, that in this materialistic age of ours the serious scientific workers are the only profoundly religious people.[end quote]

    • Or just leave in year 10, do a trade, and by the time your peers have finished uni and are begging for entry level jobs you’ve got your own business and can charge like a wounded bull.

      • +1

        Or start in the mail room and learn the business from the ground up. Learn a lot more about how the real world works.

      • Or better still, don’t bother with anything after Primary, and become a Real Estate Agent.

    • ATAR score to study BCom is the same as BEng. Its higher than BBus or BEcon (its the maths and mathematical analysis that makes it more demanding).

  4. Bobby Fischer

    Great post.

    Economics rightly deserves to be ridiculed as perhaps the only ‘science’ that refuses to adjust its models and theories in the face of overwhelming evidence.

    The obvious reason this is occurring is because economics has become beholden to the plutocracy, and they simply paint the economic world as they see fit (which suits their financial interests) as opposed to the actuality.

    Neoclassical economics is a disgrace and the fact that it is taught with such religious fervor, with millions of devotees no less, is bizarre. Why the hallowed halls of Harvard etc would teach this tripe is beyond me. But of course the corporates have also captured the university syllabus indirectly through funding arrangements with universities.

    Steve Keen is one of the few guiding lights in the economic world. I’d read his book any day over enrolling in a 20K economics course which would teach me fairytales for 4 consecutive years.

  5. a story i wrote for an “economist”

    Once upon a time there was a land of skinny people. There were tall skinny people and there were short skinny people and in between there were skinny people who were not short but also they were not tall. The men were skinny and the girls were skinny and though there were never so many children at one time all of those were skinny too.

    There were also some dogs and some cats in the land of skinny people. The dogs and cats were really very skinny. They were even skinnier than the skinny people.

    Now the reason that all of the people and the dogs and the cats were all skinny was because the land of skinny people and skinny dogs and cats did not have a lot of food. It was not that the land was bad, no, the land was not so bad at all. It was not because there was no rain, no, there was enough rain. It was not because there was not enough fertiliser, no, there was enough fertiliser. The reason that all of the people and all of the cats and the dogs were skinny was because the land of skinny people had lots and lots of skinny people and lots of skinny dogs and skinny cats.

    Now you might think that being as everyone was so skinny and all the dogs and all the cats were so skinny that they would all be quite unhappy but this was not the case. In fact, surprising as it might sound to your or to me, the people in the land of skinny people were all quite content. I guess it must have been because, as little as there was, there was enough. There was never enough to waste. Sometimes some people might even go to bed without having supper but all in all they got to have enough to eat so they could do the things they had to do which was mostly growing things to eat, talking about things to eat, talking about how to cook things they did have to eat and talking about how they might get together and share what they had so that none of them would go to bed without their supper.

    continue

    http://thepeakoilpoet.blogspot.com.au/2011/11/land-of-skinny-people.html

  6. Rumplestatskin great post, and this is why MB is making a difference. One of the most beneficial discussions I’ve ever had was with Steve Keen after one of his lectures. I viewed my studies differently after that. I don’t know if anyone mentioned it, but Greg McKenna was in the AGE with his “Dollar heading on way” post yesterday.

  7. Cameron, a great piece. From reading it I think NSW students (and all students) should have to learn history. If taught properly not only does it teach you that there are innumerable interpretations of a single event, not to mention complex systems like societies and markets that evolve over time, but it teaches you to deeply distrust models and statistics.

    • And of course they could learn about Jack Lang and how he could be a current day Greek polly. History of econmics

    • “but it teaches you to deeply distrust models and statistics”…

      …or, perhaps more rightly, it teaches us that the significance of data/observations is not self-evident, and that all data is given/imbued with meaning via interpretation; and that all interpretation requires a belief system.

      My 2c again

  8. Robert H. Nelson in “Economics as Religion” probably summed it up about as well as anyone:

    [quote]Since the eighteenth century,however,the authority of God as a source of absolute truth of the world—-the essence of the historic claim to authority of Jewish and Christian religion—-has been superceded in many areas of society by the rise of science…

    …As the authority of traditional Jewish and Christian religion declined, the possibility arose that the market would no longer have adequate ethical support. One might say that the field of modern economics emerged as a secular religious answer to this problem.

    Economists provided the necessary legitimizing set of ideas by appropriating the rising social authority of science to deliver a new form of religious blessing for the workings of self-interest in the market.[end quote]

  9. I haven’t even read half of it yet but couldn’t wait to give you kudos for this observation:

    The teaching of economics usually follows a single neo-classical religion, rather than demonstrating the selection of religions, the reasons for each of their beliefs, and the outcomes of those beliefs.

    That in itself shows that economics is not a proper science or at least has not achieved true academic status yet.

  10. Here’s an essay by Yanis Varoufakis (the go-to Greek economist) outlining the axioms of Neoclassical economics. The first one, methodological individualism, seems to be the greatest sin to me. Extrapolating micro behaviour to a macro level just seems intuitively wrong. Ever heard of the behavior of crowds, group dynamics??

    http://unlearningeconomics.wordpress.com/2012/04/06/dsge-epicycles-and-neoclassical-methodology/

    nb. I think I got this link off MB a while ago. Thank you kind stranger who posted it first

  11. While I agree there are serious deficiencies in economics education I am still happy my daughter is studying economics. In New Zealand the Year 12 curriculum (equivalent to most Australian states Y11) focuses on macroeconomics. At least she has an awareness of what a recession is and has some grasp of factors contributing to unemployment. She has heard of fiscal policy. She knows Keynes and Hayek lived and that they to some extent disagreed. Despite the limitations she has a far better awareness of the issues facing us than most of her peers. It seems to me one of the few school subjects providing young adults some opportunity to focus on real world issues.

    • It’s awesome that she’s learning economic history and the fundamental building blocks.
      But it’s the equilibrium, supply-side nonsense that awaits her at uni that’s concerning. She’s likely to come out the other side saying the GFC could be fixed if only we cut wages, deregulated banking more, and stopped government from interfering.

      • Diogenes the CynicMEMBER

        Most universities have not funded economic history preferring to fund the nonsense you have mentioned above.

    • Rumplestatskin

      “It seems to me one of the few school subjects providing young adults some opportunity to focus on real world issues.”

      I agree, that at least the study of economics makes one consider real world issues. But I believe that teaching it should be much broader, and include, as Alex78 suggest, details of the history of economic thought in the context of the legal and institutional battles of the day.

      And what the discipline needs to be very careful of is that fact that introductory courses are often all the economics many student will ever study. Students typically finish by learning just enough economics to be dangerous (as a colleague of mine once described his economic education).

      So I would be upset about the decline of high schools economics, if the content reflected the range of opinions from the different economic churches, given the beliefs (assumptions) of each, and where that is relevant.

      For those interested, here is the NSW HSC economics syllabus http://www.boardofstudies.nsw.edu.au/syllabus_hsc/pdf_doc/economics-st6-syl-from2011.pdf

      • Even technology is in decline in Victoria in the secondary system where my wife is head of technology at a Melbourne school. Schools are managed top down which is why the teachers are complaining, and management and external consultants are move interested in them doing a blogs rather than focusing on the core skills all the while the policies are driven from an agreed outcome in the Department. Very little clue as to industry, and workplace needs from what I can see. Education in crisis, and economics in general is in crisis IMO.

  12. In NSW the drop in students doing Economics is mostly taken up by students doing Business Studies and Legal Studies which were not offered in 1991.

    • Rumplestatskin

      Business and legal studies are very useful. Law defines markets, private property, and all that good stuff economists assume to exist in some perfect form.

      The diversity of study we see know is probably better than having the majority take economics.

  13. Rumplestatskin, the best way of understanding the economy and global economy and get the best from economics is to start from Adan Smith, but then to pay attention and to read all economic Marx’s manuscripts and his The Capital and then to go to Keynes etc. to our days economics and Steve Keen. Leave the political ideology aside and you will be astonished what you could learn from those who everyone is afraid to even mention, because they are too inconvenient. Economics is all about interests. Good luck with your PhD. If you have really inquisitive mind, you will find much more than you will hear.

    • Rumplestatskin

      Thanks Lori. I actually raided the library recently for most of Smith, Keynes, Ricardo, Jevons and Marx’s original writings. Let’s hope I can make time to read them all.

      • Good on you. The Uni is the place where your brain won’t get dead. And you can learn from economic history much more than you can imagine. Modeling the economy is helpful, but if you can’t get to the truth without mathematical tools and statistics, but just by thinking logically and analyzing the invisible and deeper relations, the models won’t help you to better understand the real world and its transformations.

    • Lori said: “Economics is all about interests.”

      And where has that doctrine gotten us? Or as Hannah Arendt wrote in “The Origins of Totalitarianism”:

      [quote]Imperialism was born when the ruling class in capitalist production came up against national limitations to its economic necessity; for if it did not want to give up the capitalist system whose inherent law is constant economic growth, it had to impose this law upon its home governments and to proclaim expansion to be an ultimate political goal of foreign policy.[end of quote]

      Jonathan Schell elaborates in “The Unconquerable World.” The early champions of the free market, he explains, most of them British, had in fact looked to industry mainly to create the wealth of nations, as the title of Adam Smith’s classic book had it, not the power of nations, which had been the preoccupation of their mercantilist predecessors. The advocates of laissez-faire declared the independence of economics from state power. (The eventual coining of the word “economics,” identifying a distinct realm of human activity subject to its own laws, was one sign of their faith in that independence.) The market worked best, the worldly philosphers of the late eighteenth century believed, when the government kept its hands off it. Classical economics, in fact, “had no place for the nation, or any collectivity larger than the firm.”

      Smith’s successors proceded even further in this Utopian line of thinking. In the early nineteenth century, the most prominent champions of the market, including the British champions of laissez-faire Richard Cobden and John Bright, contended that free trade, by breaking down or ignoring national boundaries, naturally tended to foster world peace. The market, they ardently believed, was a solvent of national units and a pacifier of national conflicts. An unbroken thread of faith in free trade as an abettor of peace runs through the entire tradition of liberal internationalism, surviving many disappointments and continuing to this day.

      However, events did not proceed as the liberal imperialists expected—-either in Asia nor in Africa nor in the Ottoman Empire. The economic arrangements forced upon those lands did not strengthen and liberalize their governments but undermined them and drove them, one after another, toward collapse. The Egyptian government, for example, accepted loans from Europe, spent the funds on large but unproductive public projects, and, when these failed, sought to keep up payments on the loans by raising taxes on the poor, who grew discontented and rebellious. The imperial powers then were faced with what seemed a drastic choice: between withdrawing entirely or imposing direct rule. They chose direct rule.

      The myth of economics is an extremely dangerous myth, the myth that somehow economics exists in a separate universe set apart from politics, society, and morality.

  14. As an avid reader of MB including your work I wish you all the best for your studies. I think that you are embarking on an enormous task that will bring a lot of despair and frustration for you so I hope the journey will add career value or at least some sense of personal satisfaction or sense of achievement. My observation is that PHds are not always value adding and take you away from your natural gifts. Are you doing part time or full time? Hint – will you be doing less MB work?

    The choice of supervisor is critical. It seems to me that you are on some sort of very worthwhile crusade so your supervisor should have sympathy for your cause. Most economic departments are wedded to neoclassic economics and if you are a challenger then you will meet all forms of resistance. Your supervisor hopefully has written several papers challenging the orthodoxy. This is a key combat indicator for the tenor of the relationship that you will have with your supervisor. I hope that you will develop or already have a link to Steve Keen. He could be a source of invaluable contacts and appropriate obscure reference works.

    • Rumplestatskin

      Thanks for the encouragement. The PhD is a personal challenge, and yes, full time, meaning blog posts will be rather infrequent, but hopefully rich in analysis.

      “Most economic departments are wedded to neoclassic economics and if you are a challenger then you will meet all forms of resistance.”

      True. And expected. And one of the reasons for my initial hesitation with embarking on the PhD in the first place. Followers of my old blog would have realised I was about to have a career change and was accepted into medicine – I figured being a doctor was at least something worthwhile, with tangible benefits.

      “Your supervisor hopefully has written several papers challenging the orthodoxy” And a book on the way.

      • If you believe economics should be a descriptive endeavor and not a prescriptive one, then it’s most likely that the cross you bear will be a heavy one.

        You might find the following article, “Hip Heterodoxy,” interesting:

        http://www.chrishayes.org/articles/hip-heterodoxy/

        The author, Christopher Hayes, speaks of orthodox economics as being a “mafia” with its own “code of omerta.”

        Orthodox economics provides the intellectual and moral legitimacy for the lords of property, and underpins the entire social, political and economic order. They will do anything to preserve the existing order.

        We’d probably have to go back to before the Renaissance to find anything like modern orthodox economics, to the Medieval Catholic Church. Saint Vincent of Lerins wrote in his “Commonitoria” (“Memoranda, c. 430) that the Church had become “a faithful and ever watchful guardian of the dogmas which have been committed to her charge. In this secret deposit she changes nothing, she takes nothing from it, she adds nothing to it.”

  15. I was interviewed by one of Australia’s most prestigious finance experts for a job and was told that all the applicants had finance degrees and I have an Economics degree.

    He then added, why should I hire you?

    I said to the effect that it taught me to critically analyse and evaluate models of thought and process.

    He was impressed and added “Your absolutely right. Anyone can be an accountant or a “financial analyst”. They just learn which number to plug where. I pushed my son to learn Economics because to understand the past and assess the future is something that really takes intelligence.

    My whole roundabout story ends with this:

    The Economics that needs to be taught – from my experience – 95% of students will not pass. It takes a lot of mathematical understanding, qualitative critical thinking skills AND strong legal knowledge.

    Taken from a discussion with a well-respected respected Australian Economist – most students either dont have the skills or the determination.

    The solution? Make it easy and whats easier then teaching what most of the world believes?

  16. well, I have one unit to go. I am 39 and have been studying economic since 2006, part time, while running my own very successfull SME, which I started with a freind in 2003. Neither of us have any formal qualifications.

    why study economics? because it needs fixing mate, more than anything else in the world. in one word: poverty.

    needless to say, its almost a farce to study, and when 2008 hit I thought I would see a change, but being an undergraduate is a bit like being in kindergarten. You are just learing the rules, to behave the way “they” want you to.

    however, with the help of marvelous books, podcasts and the occupy movement, I have had a parallel education which is a bit more grounded in reality, and neverthess, I do have a lot of respect for many of the lecturers at UNE, where I study via correspondance.

    I shiver to think of the poor folk learning business and finance. The models they are learning, I think they will find, are even more transitory than neoliberal economics, which has proven to be a powerful idea, and deserves our respect (as all evil and demonic empires do.)

    economics is hard work. economic history is my major, and its now been removed from the syllabus (what madness! forever doomed to repeat our mistakes?).

    economics requires psychology, history, statistics, philosophy and endless patience and infinite perspective. It was the last thing on my mind when I was 18.

    I look forward to following your posts and discussions!

    • debichan said: “…neoliberal economics, which has proven to be a powerful idea, and deserves our respect (as all evil and demonic empires do.)”

      Perhpas the Christian theologian Reinhold Niebuhr summed it up as well as anyone in “The Children of Light and the Children of Darkness”:

      [quote]Our democratic civilization has been built, not by children of darkness, but by foolish children of light. It has been under attack by the children of darkness, by the moral cynics, who declare that a strong nation need acknowledge no law beyond its strength. It has come close to complete disaster under this attack, not because it accepted the same creed as the cynics, but because it underestimated the power of self-interest, both individual and collective, in modern society. The children of light have not been as wise as the children of darkness.

      The children of darkness are evil because they know no law beyond the self. They are wise, though evil, because they understand the power of self-interest. The children of light are virtuous because they have some conception of a higher law than their own will. They are usually foolish because they do not know the power of self-will. They underestimate the peril of anarchy in both the national and the international community…

      It must be understood that the children of light are foolish not merely because they underestimate the power of self-interest among the children of darkness. They underestimate this power among themselves.[end of quote]

  17. Welcome to the academia, Rumples!

    In my opinion, economists have done a great disservice by calling their profession a science. It has unnecessarily created an expectation that the questions can posed and answers can be found by following scientific method: make observations from reality (data), guess what is happening (theory) and see if your guesses can predict something that agrees reality (confirmation). The scientific method pays no attention to seemingly unquantified / unmeasurable aspects of culture, society and more importantly, politics. However any economic study without considering the implications of politics and society remains academic. And that’s why you get the academic economic profession divided into groups religiously believing in what they believe is the only right way in the face of contrary evidence.

    This is not to say economics is not as important as science—far from it. But it is not science, there are no definite answers that stand the test of time—therefore it should be treated and taught accordingly.

  18. As one of the 35% in 1991, I can tell you that we spent some time on models and a lot of time discussing the teachers mortgage. That was in 2 and 3 unit economics.
    Incidentally, his brief was social studies, so they taught geography as well.
    When I got to BBus first year, the entire course was regurgitated in Macro and MicroEconomics as 65% of people obviously hadn’t done it in high school.
    I guess it wasn’t better in those days….

  19. Every economic ‘church’ has it’s issues. The biggest problem with neo-classical economics, and the reason it’s so popular, is it’s simplicity. It’s easy to explain, it’s correct if you make the right assumptions and assume that most ideas should be taken as extreme generalisations. Putting prices of goods/labour and services up reduces demand, the curve shape is irrelevant in the context of the theory. Other theories are needed for individual goods in a variety of markets, but this generalisation holds true pretty much across the board.

    The problem with teaching economics is that it is, at it’s heart, a study of human behaviour. Humans are unpredictable and can have wildy different reactions to exactly the same stimulus. You just can’t have a single ‘theory of everything’ type formula.

    Pschologists overcome this issue by talking in percentages and generalisations as well. “Humans have a tendancy towards obedience of authority figures, some more than others, but the tendancy is there.” “People in Australia would probably pay more for coke than pepsi.” Etc, etc…

    It would be great if there was some all encompassing theory of economics that worked, but their never will be. People vary too much. Even our biological urges vary from person to person. One persons incentive is another persons disincentive.

    I would hate it if the baby basic tenents of neo-classical economics (enterprise, individual effort and little government intervention etc…) were thrown out with the bathwater errors (over simplicity, incorrect assumptions, lacking of scope, etc…).

    To often it seems that looking at ‘alternative’ theories involves more regulation and more government intervention.

    • MattR said: “I would hate it if the baby basic tenents of neo-classical economics (enterprise, individual effort and little government intervention etc…) were thrown out with the bathwater errors (over simplicity, incorrect assumptions, lacking of scope, etc…).”

      But the partial truths of neoclassical economics are what make it so incredibly dangerous.

      As Michael Allen Gillespie concludes in “Nihilism Before Nietzsche”:

      [quote]The world exercises an enormous force upon us. Natural necessity, chance and contingency, subconscious passions and drives, the structure of economic and political life, and many other factors determine us in ways we do not understand and cannot ultimately control. At our best and most courageous, we confront the questions this world poses and in our own limited ways seek to answer them. This quest, however, is not without its dangers. Questions disrupt and unsettle our lives and we are often all too ready to accept partial truths and gross simplifications to escape from their perplexity. The tragedies of our own century have taught us, however, that it is better to suffer the anxiety that questions engender than to give overhasty answers to them.¨[end of quote]

      No one has ever given a better portrayal of the power of partial truths—-like those that lie at the heart of neoclassical economics—-than Proust. “A la recherche” was written in the wake of the Eulenburg affair, which was a paradigm of the use of the partial truths and distortions of homophobia as a political weapon. In “A la rechere” Charlus suffers the same kinds of politics. Mme Verdurin’s remarks about Charlus contain just enough truth to be verisimilar and just enough suggestive falsehood to trigger the construction of elaborate fantasies about Charlus. Charlus is, in fact, homosexually inclined; he is, in fact, being followed by blackmailers. But he is not, of course, an ex-convict, and neither is Jupien. Like the neoclassicists and their “rational actor,” Mme Verdurin cleverly bases her assertions about Charlus on precisely the sorts of stereotypes that will make them credible to a biased mind.

  20. A great post, thanks. I agree critical thinking is something that should be taught to students, at least at UNI. Teachers probably need training first, on how to teach critical thinking as it is a topic that requires a lot from teachers also. IMO it is not worthwhile being critical for just the sake of being critical, but it is worhtwhile to obtain the ability to spot weaknessess in existing dogmas or in new, emerging ideas and to know how to find the best evidence available.

    Best of luck with the PhD project. I hope you have a great supervisor who is willing to spend time with you, and a well structured project. It can be brutal at times, and only those who have gone through it themselves know the amount of work, time and perseverance required.
    A personal challenge, for sure!
    Again, good luck!

  21. Very good post.

    One of the things that bothers me most with neoclassical economics is its reliance on unmeasurable variables.

    And the thing goes beyond utility, which is what most people think when one talks about these unmeasurable variables.

    Take the example you gave: supply and demand. Let’s assume there are indeed supply and demand schedules and we have time series data.

    As you correctly remarked, each data point is a single supply/demand intersection at one specific time (say, number of widgets bought and sold last Monday, Q[1], when the price was P[1]; last Tuesday, …).

    At each point, the two schedules intersect, so it must be that supply and demand are equal: S[1] = D[1].

    But this tells us nothing about how many widgets would have been supplied and demanded if the price that day had been P[*] ( P[1])

    How on earth can we estimate the separate schedules?

    If we estimate a schedule, its slope could be either increasing or decreasing: if its increasing can we safely say it’s a supply curve? Nope. The same data contains information about supply and demand!

    If instead of time-series data, as above, imagine we used cross-section data: the situation only gets messier, because now we need to assume a variety of things.

    This is troublesome in general for most of economics (including many heterodox economics), but it’s particularly troublesome for neoclassical economics, because neoclassical economics aims to explain short-run relationships between supply and demand!

    Good luck in your studies!

  22. I would recommend school students do as much mathematics as they can instead of economics. It’s probably more useful even if they do end up studying neo-classical economics at university, and it’s certainly more broadly applicable.

    • In “The Theological Origins of Modernity,” Michael Allen Gillespie attempts to trace the origins of the math worship which has become such an integral part of Modernity. It made its way into Modern metaphysics due to the influence of Descartes.

      When Descartes was 22 years old he met the young physician and thinker Isaac Beeckman. Beeckman encouraged Descartes to follow the pathway of Hermeticism, and when Descartes went to Germany he discoveered others leading just such lives. They had formed a secret scientific society called the Rosicrucians. As Gillespie goes on to explain, Hermetic thinkers

      “divided the world into thinking substance and extension and sought to prepare themselves for the revelation of the hidden truth that lies in incorporeal substance by banishing the deceptions of the world from their minds… [N]ature in their view could be understood not in ordinary language but only by the application of mathematics.”

      Descartes, in Hermetic fashion, tried to separate his mind from his body in order to free himself from the illusions of the world and in so doing to open himself up to a visionary revelation.

      On November 10, 1618 Descartes had a series of dreams that, according to his own account, “left him convinced that he had chosen the right path in life and had discovered a method that would lead infallibily to the truth.”

      In his third dream he faces the question of what path to follow in life and sees two alternatives. In his sleep, the pursuit of poetry (on the model of the huanistic volume of Ausonius, “Corpus Poetarum”) seems preferable, but when he wakes up a universal mathematics (on the model of Pythagoras) seems best.

      The crucial steps that underlie Descartes’ escape from a capricious and omnipotent God and the terrors he engenders (we have to remember that plagues and religious wars had ravaged Europe for quite some time during and prior to Descartes’ life) are a society of friends, experimentation, and a mathematical science.

      • Not sure I follow that.

        But one advantage of having a general competence with mathematics is that people can’t intimidate you so easily just by throwing a pile of equations at you.

        • Well I certainly can’t argue with that.

          But there are some things that math can do, and some things it can’t do. It is no elixir that can change lead into gold, and mathematical models are no better than the assumptions upon which they are based.

          Economists as a rule do not deny that their assumptions about human nature are highly unrealistic, but instead claim, following Friedman(“Capitalism and Freedom,” 1962, 1982), that the absense of realism does not diminish the value of their models because they “work,” in the sense that they produce valid predictions.

          I know of no contemporary scientific philosophy, however, that can countenance Friedman’s position. It is very widely agreed that the purpose of a theory is to explain, not to predict.

          And the empiricist critique of Cartesian science and universal mathematics modeled on Pythagorean rationalism are hardly controversial, at least outside the insular world of neoclassical economics.

          Eventually, to be sure, erroneous theories will fail to work and their falseness will be revealed, but it may take a very long time for this to happen. We now know that Friedman’s models could neither explain nor predict, even though the neoclassicists seem to be in denial of this.

          • I have to admit I haven’t read Gillespie’s book, but I share some of the concerns you mention in relation to Pythagorean rationalism.

            That’s why I find your comment a bit puzzling: rationalism is not simply the use of mathematics, as you seem to claim (judging by “And the empiricist critique of Cartesian science and universal mathematics modeled on Pythagorean rationalism”), but the notion that higher truths can be logically deduced without reference to reality.

            In this sense of rationalism, the sin is not so much in the use of mathematics, but in the over reliance on truths that can be gleaned without further reference to reality.

            Neoclassicals fail here because they only pay token tribute to reality, basing themselves on non-measurable variables.

            Others, like Austrians, simply reject wholesale the use of mathematics, while keeping the whole aprioristic rationalism base, only without mathematics.

            Have I misunderstood your position?

            PS: I also don’t quite agree with your passing observations on Friedman, but I believe this is a secondary question, so we could leave this aside.

          • Magpie said: “…rationalism is not simply the use of mathematics, as you seem to claim (judging by “And the empiricist critique of Cartesian science and universal mathematics modeled on Pythagorean rationalism”), but the notion that higher truths can be logically deduced without reference to reality.”

            But what role has mathematics come to play in modern rationalism? Here’s how Hannah Arendt explains it in “The Human Condition”:

            *quote*Modern mathematics freed man from the shackles of earth-bound experience and his power of cognition from the shackles of finitude…

            When Descartes’ analytical geometry treated space and extension, the res extensa of nature and the world, so “that its relations, however complicated, must always be expressible in algebraic formulae,” mathematics succeeded in reducing and translating all that man is not into patterns which are identical with human, mental structures. When, moreover, the same analytical geometry proved “conversely that numerical truths…can be fully represented spatially,” a physical science had been evolved which required no principles for its completion beyond those of pure mathematics…

            The modern reductio scientiae ad mathematicam has overruled the testimony of nature as witnessed at close range by human senses in the same way that Leibniz overruled the knowledge of the haphazard origin and the chaotic nature of the dot-covered piece of paper. And the feeling of suspicion, outrage, and despair, which was the first, and spiritually is still the most lasting consequence of the discovery that the Archimdean point was not vain dream of idle speculation, is not unlike the helpless outrage of a man who, having watched with his own eyes how those dots were thrown arbitrarily and without foresight onto the paper, is shown and forced to admit that all his senses and all his powers of judgment have betrayed him and that what he saw was the evolution of a “geometrical line whose direction is constantly and uniformly defined by one rule.” (Leibniz, “Discours de metaphsique, No. 6).*end of quote*

  23. Agree with Danny
    A problem with teaching history of economics or social issues surrounding economics is that the aspect of such teaching depends on wherre the teacher stands.
    Unfortunately our schools teach a bit much dogma about a whole variety of issues,,,green issues, social issues etc. Students are not taught critical thinking. They are taught that by sgreeing with the dogmathat they are thinking critically.
    This sort of phenomenon was dmeonstrated here a few posts back. I’m not attacking anyone. I don’t have the answers. Matt made a couple of simple observations about things that ought be taught. Simple truths they were. Yet he was called on this in ordert thatcomplex dogma. these simple truths be replaced by some

    • flawse said: “A problem with teaching history of economics or social issues surrounding economics is that the aspect of such teaching depends on wherre the teacher stands.”

      So it’s not possible, for instance, to teach religious studies without indoctrinating students into a particular religion?

      • The verb, teach, can impart several meanings, one being – to condition to a certain action or frame of mind. In that context, flawse is right.

  24. GRRRRRRRR laptops and damaged hands don’t mix

    It was suggested Matt’s simple truths could not be taught because it didn’t fit some other more complex dogma.

    I guess we are back to Rumple’s essential problem. We all get educated in one form of church or another.

    • Flawse said: “It was suggested Matt’s simple truths could not be taught because it didn’t fit some other more complex dogma.”

      “Simple truths” like “enterprise, individual effort and little government intervention etc…”?

      Well, I suppose one man’s “simple truths” are another man’s dogma. As Christopher Hayes put it, the new classical model “came to dovetail quite nicely with a worldview that has dominated the past thiry years of globalization, which Notre Dame heterodox economist David Ruccio succinctly summed up to me as one in which ‘markets, private property and minimal government will achieve maximum welfare.’ ”

      http://www.chrishayes.org/articles/hip-heterodoxy/

      You brandish neoliberal theory as if it were sure truth.

    • Alexandra Chapman

      True Flawse – “We all get educated in one form of church or another” – but you don’t have to accept blindly everything you are taught. Although I accept that it can be hard to challenge things when you first come across them, especially if they seem to “make sense” at least superficially.

      I was first exposed to Efficient Markets Theory and the Capital Asset Pricing Model more than two decades ago when I did my MBA and gradually over the years came to think that they did NOT sense.

      But only recently (reading Steve Keen and others) have I discovered that these models have now through research, been shown to be untrue. But there is a whole generation of people who have been through modern finance courses who have been taught these and other incorrect truisms eg the financing structure does not make any difference to the value of the business and indeed “debt doesn’t matter” and if your gearing is too low you have a “lazy balance sheet”. They have not updated their knowledge and are running (and destroying) businesses as they put them into action.

      And don’t – get me started on “modern portfolio theory” – that crap which has underpinned a whole generation paying large fees to financial planners and funds managers in return for poor investment and capital loss. It’s a disgrace.

      So the only solution is to read widely, listen to excellent commentary and debate, understand the arguments that people are making and come to your own conclusions after doing so. That also underpins why I read Chris Joye (a sordid pleasure) – because I want to understand his mindset. (Yes I eat chocolate and fries too)

      • +1 and a special +1 for the reasons for reading Mr Joye. Having read much of his work over the years he reminds me of a young Anakin Skywalker before the die is cast.

  25. Alex Heyworth

    Some clever person recently noted that universities first became post-modern. Then they became post-numerate. Then post-literate. They are now rapidly becoming post-sentient.

  26. Schools are failing ‘generally’ and I think this is largely due to teaching things that smeone somewhere thinks is a) important and b) factual

    Learning to think may in some cases be an incidental byproduct.

    I love teaching economics because you really teach students how to learn.

    It is empowering

    • Excellent!

      You might enjoy Amitai Etzioni’s “The Moral Dimension: Toward a New Economics” because it was published 24 years ago before market theology had completely triumphed. He gives some of the history of how the ideology that asserts that nothing is sacred, everything is for sale and should have a price on it was formulated and sold to the American public. The Chicago School was certainly the Vatican of this sort of thinking, but other economics schools played an important role as well.

      I was also intrigued by Jianying Zha’s observation of the businessmen in China, who claimed that Americans are “just as corrupt, except its more sophisicated.” I am American, but retired 12 years ago and have lived in Mexico since. I have noticed the same play between American-style corruption and Mexican-style corruption here.

      In “Wealth and Democracy,” Kevin Phillips notes that corruption comes in two varieties, “the hard and the soft.” Hard corruption consists of things like bribery, embezzlement, fraud, and swindling. Soft corruption is the “less obtrusive but at least as important…corollary corruption of thinking and writing—-the distoritons of ideas and value systems to favor wealth and the biases of ‘economic man’.”

      And while Mexicans may take the prize for the hard form of corruption, the United States certainly wins the prize for the soft form of corruption.

    • Let me give some real-world examples in an attempt to illucidate the way in which mathematics can greatly facilitate the process by which man’s reason and his mental processes disconnect from reality.

      In “Lying in Politics,” Hannah Arendt gives the example of Robert McNamara’s “policy making brain trust” which was populated by what she dubbed “the problem-solvers.” As she describes them: “Hence they were not just intellignet, but prided themselves on being ‘rational,’ and they were indeed to a rather frightening degree above ‘sentimentality’ and in love with ‘theory,’ the world of sheer mental effort. They were eager to find formulas, preferably expressed in pseudo-mathematical language, that would unify the most disparate phenomena with which reality presented them: that is, they were eager to discover laws by which to explain and predict political and historical facts as though they were as necessary, and thus as reliable, as the physics once believed natural phenomena to be.”

      She goes on to explain the difficulties of reducing war to the numbers and statistics that mathematics demands, and how the problem-solvers, men who had “an appetite for action” and were “also in love with theories,” lacked the “natural scientist’s patience to wait until theories and hypothetical explanations are verified or denied by facts.” Instead, McNamara’s brain trust was “tempted to fit their reality—-which, after all, was man-made to begin with and thus could have been otherwise—-into their theory, thereby mentally getting rid of its disconcerting contingency.”

      The quantitative measures that the problem-solvers demanded so that they could plug them into their mathematical formulas—-the body counts of the search-and-destroy missions, the after-damage reports of the air force, the progress reports to Washington from the field, etc.—-would have certainly never led one to believe that the U.S. was losing the war, that is to the reality. So the attempt to reduce everything to the measurable numerical parameters as required by mathematical formulas greatly exacerbated the “remoteness from reality,” the “Alice-in-Wonderland atmosphere” and the “defactualized world” that the brain trust lived in.

      • Another great example of how mathematics facilitates a break with reality when it comes to the human condition is Paul Samuelson, a pioneer in the extensive use of mathematics in the social sciences.

        Nelson notes that the extensive mathematical symbolism Samuelson used has amounted to a special way of painting an inspiring picture of economic science at work, in the same way that space travel may have few practical benefits but seeks to uplift people’s spirits with a vision of the power of the human mind and the awesome ability given by scientific knowledge to manipulate natural forces for human purposes. Dierdre McCloskey describes this tendency in modern economics as a new “Samuelson vice”—-the tendency “in economics over the career of Paul Samuelson…[to] drift away from scientific values and towards mathematical ones” for their own sake.

        Nelson adds that Friedman made heavy use of the same mathematical and statistical methods that Samuelson and his Cambridge colleagues did. Chicago in the second generation aided rather than resisted the methodological revolution in economics that is Samuelson’s greatest claim to fame.

    • Another great example is provided by the British film maker Adam Curtis in “The Trap,” which can be viewed on YouTube. Again we see the same phenomenon we saw with McNamara’s brain trust: the way the drive to reduce the human condition to numbers and mathematical formulas can lead to a highly ficticious model.

      The film begins by explaining how all the theory and math came about, and then as Wikipedia explains in its review of “The Trap,”

      The programme describes how the Clinton administration gave in to market theorists in the US and how New Labour in the UK decided to measure everything it could, the better to improve it, introducing such artificial and unmeasurable targets as:

      Reduction of hunger in Sub-Saharan Africa by 48%

      Reduction of global conflict by 6%

      It also introduced a rural community vibrancy index in order to gauge the quality of life in British villages and a birdsong index to check the apparent decline of wildlife.

      In industry and the public services, this way of thinking led to a plethora of targets, quotas, and plans. It was meant to set workers free to achieve these targets in any way they chose. What these game-theory schemes did not predict was that the players, faced with impossible demands, would cheat.

      Curtis describes how, in order to meet artificially inflated targets:

      Lothian and Borders Police reclassified dozens of criminal offences as “suspicious occurrences”, in order to keep them out of crime figures;

      Some NHS hospital trusts created an unofficial post of “The Hello Nurse,”[6] whose sole task it was to greet new arrivals in order to claim for statistical purposes that the patient had been “seen,” even though no treatment or even examination had occurred during the encounter;

      NHS managers took the wheels off trolleys and reclassified them as beds, while simultaneously reclassifying corridors as wards, in order to falsify Accident & Emergency waiting times statistics.

      • I suspect a similar thing will (is?) happen with the NAPLAN scheme for Australian schools. The schools will alter their teaching, and coach students to maximise the NAPLAN score.

  27. While I am here in South America it seems that teaching economic theory is also intertwined with political teachings. They teach them as pretty much as one and the same……

  28. I think what we need to do is stop teaching economics and revive political economy.
    The idea of separating economics from political goals or ideology relies on an assumption that it is possible to build a political neutral model. Which is true for physical sciences like physics or chemistry but not for social sciences where experiments are difficult or impossible such as economics.
    Sooner or later any useful economic model has to rely on assumptions which are difficult to prove and become subject to uncertainty. And so it becomes possible to use different models which rely on different assumptions. The nature of the assumptions becomes a matter of ideology more than science. And so any economics less than perfect is political. The goals of economists are also political goals.
    It is by pretending to be politically neutral that Theoclassical economics became adopted by parties on both the left and right.