On economics education

What can economics students reasonably be expected to learn? Reading this post by Tony raised this question.

To see what I mean, consider the general skills one would need to understand panics and crashes, to take Tony's case. We'd need to know some maths and stats: what's wrong with Gaussian copulas? How do nonlinear differential equations describe bubbles? We'd need some economic history: without this, our only datapoint is 2008. We'd need detailed knowledge of regulation and market structure: what the heck is a CDO? To what extent did poor regulation cause the crisis? And we'd need some knowledge of the psychology of herding and wishful thinking, as well perhaps as some experimental economics: I'd add this paper to Tony's already-daunting reading list.

I'd be mightily impressed if a 40-year-old had all these skills. It would be utterly unrealistic to expect a 20-year-old to have them. And this is only one course.

The point here is that even the best undergraduate education can only scratch the surface of the discipline. It is therefore inevitable that students and their employers will complain about them being imperfectly prepared; as Cameron points out, such complaints are decades old. This isn't (just?) because their teachers are poor or ideologically blinkered. It's because three years is not long enough to learn very much.

So, what should economics students learn? I'd suggest that the priority should be to prepare them for lifelong learning about economics.

This should include a good grounding in conventional economics and - yes - in the mathematics required to understand it. This is necessary on practical grounds - for students going onto formal graduate study - but also intellectual ones. This is because conventional economics contains lots of truth. For example, the efficient market hypothesis gets tons of abuse, but the fact is that most stock market investors would be better off if they acted as if it were true. Also, you've got to understand conventional economics if you are to understand why and when it's wrong. I remember Manchester's Terry Peach telling me that heterodox economists must be better economists than neoclassical ones for precisely this reason.

However, learning only plain neoclassical economics isn't enough. It's like going to the gym and working only on your biceps; you'll end up a freak - albeit one capable of punching someone's lights out when they point this out. Something else is needed. That something isn't just heterodox economics, but a grounding in both statistical methods and critical thinking. By statistical methods, I don't mean deriving and proving lemmas about maximum likelihood estimators; if something's been proved once it doesn't need proving again. Instead, I mean knowing how to run statistical tests, how to interpret their results and the strengths and limitations of various statistical methods. Simon is right to say that the question "do fiscal expansions work?" should not have the answer "it all depends on whether you are a Keynesian or an Austrian." But it should lead to the question: what counts as good evidence here?

(My suspicion is that quite a bit of marginalist theory wouldn't survive a confrontation with the empirical evidence - but that's another story).

And it's here that behavioural economics enters. The point about cognitive biases is that they don't just apply to other people, but to ourselves. In this sense, learning about them should be a big part of a course on how to think properly.

The problem here is that there is a trade-off between depth and breadth; learning some things requires not learning others. But you'd expect the economics profession to be capable of dealing with trade-offs. Wouldn't you? 

Comments

[Paul Claireaux]

What's wrong with the Gaussian?
Try this http://wp.me/p45vXF-fI

[Luis Enrique]

if you are doing a full econ degree (as opposed to one with just an element of econ) then, based on my experience, you will receive some maths, some econometric theory, some applied econometric practise, a grounding in macro, micro, game theory but then in the third year you start doing things like reading about what a CDO is, exactly why Northern Rock collapsed, what behavioural economics says about motivating employees in the public sector and so forth.

like everyone else, I've a list of things I'd change if I were in charge of the syllabus, but amongst all the criticism, often based on the idea that first-year micro and macro is the sum total of economics, the fact that a standard econ degree actually already includes quite a lot sometimes gets missed

[chris]

Yes, Luis. I agree. Another point here is that economics graduates do very well in the labour market, which suggests that whatever the flaws are in their education, they don't much harm their job prospects.
I suspect economics degrees are like Bob Harris's country show on Radio 2: every listener would like it to be a bit different than it is, but nobody agrees on how.

[Paul Claireaux]

Oh well, that's fine then.
Economics graduates devoted to orthodox theory get nice highly paid jobs in investment banks and then blow up the world.

No harm done eh?

[Jasper Wentworth]

After spending four years of my retirement studying Macroeconomics, the main thing I have learnt is how little we know about Macroeconomics. The words "professional" and "economist" should never be used in the same sentence. Macroeconomics must be one of the biggest con tricks on the planet. How the hell they can give a Nobel Prize for it, I will never understand.

But you can see why politicians are so keen to make you think they totally understand it. There is no Ohm's Law or Planck’s constant in macroeconomics, so when a politician screws up the economy, you can't prove him wrong; there is nothing provable, like a religion I suppose.

The last two books I read do actually make some sense; (1) Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems By L. Randall Wray. (2) The 7 Deadly Innocent Frauds of Economic Policy. By Warren Mosler.

[George Hallam]

"We'd need some economic history: without this, our only datapoint is 2008. We'd need detailed knowledge of regulation and market structure: what the heck is a CDO?"

Sounds like Year 1 Term 1 at Greenwich

[Metatone]

Thoughts:

1) As someone who does some lecturing in some other fields, I'm in agreement that you can't cover everything, esp. in survey courses.

2) As I've remarked to Luis Enrique in the past and Simon Wren-Lewis recently, Britain basically does this quite well, the average UK economics prof. is significantly more relaxed and less dogmatic than in the USA or Germany.

3) And yet, as I said to Simon Wren-Lewis, somewhere down the line you have to work backwards. We keep producing plenty of economists with PhD's who have rather broken (by his standards, not mine) views on austerity, etc.

4) So something isn't working and it would be good to try and fix it. I'd go with more of Chris Argyris's work on metacognition. Double-loop learning is often missing from a lot of econ setups. Now part of operationalising that includes things you suggest - notably "what counts as good evidence"

5) But I'd also add that more effort needs to be put into guarding against:

- Bad systems analysis, particularly poor definitional work - this is rife in economics, "systems" are analysed without proper explanation of which system it is and why those boundaries are appropriate. There's a whole academic discipline for this, it shouldn't be such a big deal to work some of it in on the PhD journey.

- The naturalistic fallacy. As you often note Chris, the answer is usually "under these conditions it works this way, but under those, it works another way." However, few Econ PhD's are given the grounding to think like this - they are taught to look for "natural laws" and admit the occasional exception… This really needs to change, possibly even down to that Intro/Survey course...

[Luis Enrique]

Metatone,

I'd guess very few newly minted macro econ PhDs are members of the expansionary austerity club.

I have no idea what you are talking about with natural laws. I've never heard any economist describe their work in those terms. But then I've never met a health economist that looks anything like your picture of them either. I don't know where you get half your ideas about economists from.

[Metatone]

@Luis Enrique -

1) I get them from meeting them and interviewing them and reading interviews with them. So far we've collected about 1500 interviews with PhD level (or above) economists across the USA, UK and Germany. There's some way to go before we have enough to publish…

2) How many health economists in the UK have you met? Have you read the prevailing literature of health economics in the UK?

3) Of course economists don't describe their work in those terms, if they did they'd be a laughing stock. Unfortunately just because someone doesn't accurate describe their attitudes doesn't mean that they don't hold those attitudes.

4) (3) Is about systems of belief, groupthink and systems of power in work and science. Economists have no academic expertise in these areas so it's a bit odd that they are so busy refuting critics on the grounds of expertise.

[Luis Enrique]

Metatone,

that sounds like an interesting project, tell me more

2. I have taken an masters level course in health economics, subsequently worked in same institution as leading UK health economists, and read a fair few papers from places like The Handbook of Health Economics. And I do not recognise your descriptions of what health economists think.

3. If I understand correctly, the distinction is between thinking in terms of natural laws as opposed to patterns of behaviour made up as we go along by humans and as such historically and socially contingent. I do not think economists think they are uncovering laws of the universe and are perfectly well aware we are dealing with man made. We are quite comfortable with "under these conditions it works this way, but under those, it works another way"

4. I don't know what you are on about

[Andrew]

Metatone - the naturalistic fallacy has nothing to do with natural laws, but is about drawing moral/ontological conclusions from natural qualities.

For example the imputation of moral good to all those things that share qualities with moral goods.