INSIDE, vol. 1, no. 1

November 10, 2014

The challenge of reforming economics cannot be overstated. Modern mainstream economics has remained dominant in our universities and governments despite overwhelming evidence against most of its core principles, and despite decades of attempted revolutions. The concept of a static equilibrium and the ‘representative agent’ method of aggregation are just two notions that have been repeatedly shown to be internally inconsistent; not just by outsiders, but by many of the leaders in the mainstream. Yet they continue to dominate the discipline.

The core remains unchanged.

Outdated and economically irrelevant concepts still fill the pages of introductory textbooks. From there they fill the minds of each new generation of students, who pass on these ideas to the next generation of students, and across society more broadly. Breaking the feed- backs in this system is necessary to transform the discipline.

The call for pluralism is admirable. Pluralism is a goal upon which most reformers agree. But my view is that previous attempts at reforming economics have failed because they avoided, or inadequately understood, two main barriers to change. While they may at first seem insurmountable, without leveraging change at these points, the mainstream will stay locked in as the dominant approach to economic analysis.

The first main barrier is social. Economics as a discipline typically rewards tribalism over reconciliation. If you’ve been following economics blogs in recent years you may have a pretty clear understanding of this. But the same dynamic happens in academia. Journals enforce their preferred methods and concepts and act as the gatekeepers to the tribe, requiring all comers to offer sacrifices to tribal elders. Moreover, the mainstream represents over 80% of the discipline, so any change promoted by minority groups will be frowned on. This is the social reality.

In essence, the social challenge is to bring the tribes together in a way that makes them all feel like insiders in a new larger group. This means not starting fights with powerful tribes, especially not the current mainstream. It means highlighting any common ground where tribes agree and giving credit to how they contribute to an enhanced view of economics. More can be said about social barriers to change in economics, and I hope to address that at length in the future. For present purposes though, this is enough context to discuss the second barrier to change

The second main barrier is technical. The technical problem is: How do you teach a pluralist program when there is no recognised structure for presenting content from divergent and often contradictory schools of thought, and when very few academics are themselves sufficiently trained to do so?

Teaching a pluralist curriculum should not be about presenting the economics discipline as one of feuding tribes. I share Simon Wren-Lewis’s fear that a pluralist curriculum could become a one-stop shop for students, who get to browse the tribes before joining the one that most aligns with their existing political ideology. Instead, the object should be to train a generation of economists to be aware of the legacy of each school of thought, and acknowledge the common ground between them.

There is an old saying that if you ask five economists a question, you will get five different answers – six if one went to Harvard. Can we teach a pluralist curriculum which would bring economists onto the same page, so that when you ask five economists a question, you get one good answer?

The problem needs a systematic solution. For example, we need to think about how to structure teaching around topics and concepts that allow students to study problems and evaluate potential approaches. We need an alternative textbook, or set of them, that can satisfyingly demonstrate each approach and ultimately offer a foundation for a pluralist curriculum.

Presently, even the best mainstream textbooks merely tack on a few comments on alternative approaches. For example, the currently popular experimental or behavioural economics schools – despite being widely regarded as a revolution in economic thinking and economic science – are given very little credence in the most popular textbooks. After pouring through the text of 25 popular undergraduate microeconomic textbooks, Lombardini-Riipinien and Autio find that

“… ten of the 25 textbooks examined make no reference at all to behavioral economics; six dedicate less than 1% of total pages to it, six between 1% and 2.6%, and three between 6% and 11%. When behavioral economics is discussed, the focus tends to be on bounded rationality rather than on bounded self-interest or bounded willpower.

“Experimental economics is not discussed at all in ten textbooks, twelve textbooks dedicate less than 0.6% of total pages to it, while three dedicate between 2% and 10% of total pages.”

Joan Robinson tried to comprehensively rewrite the core introductory economics textbook with John Eatwell in 1973. While the book does a superb job of putting economic analysis in a philosophical and historical context, it offers no coherent backbone upon which to build an understanding of economics. It contains very little to aid the student in answering practical day-to-day questions about the economy. Where does money come from? How do we measure unemployment? How could we assess alternative options for addressing negative externalities? Is the very concept of externality useful, since it implies the existence of a no-externality world?

What is needed is a way to structure the exploration of economic analysis by arranging economic problems around some core domains. Approaches from various schools of thought can be brought into the analysis where appropriate, with the common ground and links between them highlighted.

In my view achieving this requires mapping models and ideas onto conceptual domains that transcend specific schools of thought. Any economic topic can then be presented as a general problem, such as, “Why do firms exist?” or “Why do we care about the allocation of resources?” But the discussions will be structured into broadly applicable domains.

To illustrate, consider this diagram. The lower two levels (marked in yellow) are the two domains of current mainstream economics.

When consumer behaviour is discussed it will be noted that this is an analysis of welfare. A good teacher will explain that any consumer choices will be conditional on the situation in higher domains. When production and firm choices are discussed they will be delineated as one of understanding real resources, the physical goods we consume, and the physical capital we invest in. Again, these will be informed by higher level domains, such as who owns what propriety rights. (After all, you can’t build a building without a legal right over the location you plan to build it.)

The links between the domains and the limitations of each in explaining the whole need to be explored, and I hope to develop this concept in future pieces.

Unless the community of economic reformers can make the effort to reconstruct the way economic is taught, and make the tough decisions about how to structure new core texts, including what to leave in and what to leave out, then change will remain elusive. We can’t call for change in the tribal social environment of economics without offering an attractive alternative – one that embraces the best from each of the schools of thought and finds common ground without creating a new set of outsiders.

copyright Cameron Murray 2014