Why Oh Why Can’t We Have Better Post-Crash Commentary?

Allison Schrager has written an article in Quartz about the global student movement to reform economics education, entitled “The single most important thing an economics course can teach you”. The article does not answer the question in the title, which might be forgiven as a publishing error except that it doesn’t seem to have a point at all. Instead, Shrager’s approach is to throw everything possible at the student movement and see what sticks. Unfortunately, the result is a prime example of almost everything wrong with the way some economists have responded to this movement: it’s full of inaccuracies about what we believe, repeats popular caricatures of any challenge to economics, and is unnecessarily harsh. We would expect a professional economist to produce something better than this.

Schrager’s working hypothesis is that the student movement is “ignorant” about economics and has a “sloppy, inaccurate portrayal of mainstream economic theory”. She suggests that we have “barely studied the subject they think needs radical change”, and that we are “are already getting [diversity in economics], they just don’t know enough to realize it”. It’s interesting that she seems to know more about our education than us, and we wonder what she thinks we’ve been doing on economics degrees, if not being exposed to economics. In any case, if we are apparently coming out of economics degrees with little knowledge of economics, then whose fault is that?

What’s worse is that the sole piece of evidence Schrager can muster to back up her assertions is that in our report, we allegedly “call out the mainstream, top-tiered “Chicago Journal” which isn’t an economics journal)”. Firstly, even if we grant this error, it’s not a huge point. Secondly, the quotation marks are not actually a quote but a paraphrase, and one which happens to be completely wrong. The full quote reads “…a narrow range of mainstream economists who had been published, or were more likely to be published, in the mainstream American Journals (Big 5: AER, Chicago etc)”. We clearly do not reference the ‘Chicago Journal’ directly, but are pointing to a journal at Chicago – The Journal of Political Economy – which is in the top 5 journals  according to the UK Research Excellent Framework (REF). The worst the writers of the report can be accused of is a drafting error. We hope Shrager will retract her misquoting of our report.

Schrager’s misrepresentations are not confined to us. She also states that “Diane Coyle notes they seem to think all theories that aren’t Marxist are neoclassical (one traditional school of thought).” Except in the quoted article, Ms. Coyle does not reference ‘Marx’ or ‘Marxism’ at all; she merely argues that competing perspectives exist within the mainstream. We were well aware that our movement would be falsely characterised as radical Marxism from the start, and in the report we wrote:

Our critics have attempted to caricature our society as demanding “more Keynes and Marx”. However, our argument is far broader: we are calling for an evidence based, pluralistic economics education.

We also wrote:

Economics education at Manchester has elevated one economic paradigm, often called neoclassical economics, to the sole object of study. Other schools of thought such as institutional, evolutionary, Austrian, post-Keynesian, Marxist, feminist and ecological economics are almost completely absent.

Does Shrager know anything about these other perspectives and what they have to offer? Is she going to address them directly? Has she read our report properly or just scanned it for things that might look like errors?

The argument that mainstream economics is pluralistic is a common one, argued by Diane Coyle and other mainstream economists such as Dani Rodrik; echoed by Shrager when she says that we are “totally ignorant of all the competing schools of economic thought [which she doesn’t specify] typically taught in most economics departments”. We have previously discussed this argument in a lot of depth on this blog (here, here, here) and also in the January 2015 RES newsletter, in which we wrote:

CORE and others claim that there are already alternative and competing ideas within the mainstream. Recent examples might include behavioural economics, which criticises rationality assumptions, or Hyman Minsky’s insights into the causes of financial instability. However, when these ideas are incorporated into the mainstream they are made to conform to certain assumptions (optimising behaviour, microfoundations, regression analysis and equilibrium) which alternative perspectives reject.

Shrager herself seems to agree, since she points out that “behavioral economics …does not require throwing out old models; economists often merely tweak existing ones to accommodate a range of human behaviors.” So according to her, mainstream economics is pluralistic, but developments in the discipline only requires ‘tweaks’ to existing models? This is not true pluralism, which would recognise that completely different methodologies exist and have something to offer, as we have detailed previously. Apologies to readers for quoting so many previous posts and at such length, but we want to hit home the point that we have discussed all of Shrager’s points in the past, and she is completely ignorant of almost everything we have produced and argued to date:

Here are just a few examples of the kind of theories which could easily be taught on an undergraduate economics curriculum:

  • Kaleckian models of the labour market*, where the level of employment is determined by aggregate demand rather than the interaction of demand and supply in particular markets (pedagogically, this is quite doable as the basic concepts are similar to the standard demand-supply model);
  • Marxist models of the business cycle, where labour-saving technological change reduces the economy-wide rate of profit, resulting in lower investment, bubbles and crises;
  • Minsky’s Financial Instability Hypothesis (FIH), which details how investors may be misled by successful investments during a moderate phase, overextending themselves and creating the conditions for the next bubble/crash.
  • The Relative Income Hypothesis, where a consumer’s level and type of expenditure is set by community-wide norms, rather than their permanent income;
  • Cost-plus theories of firm pricing*, which are almost irrefutably a better working description of how firms set prices than the marginalist alternative: the average unit cost, plus a mark up for profit. There are numerous theories for how the mark up itself is determined, including a target rate of return, firm growth or even a historical norm;
  • Endogenous money* (and while we’re here, how to read a balance sheet/basic accounting practices). Even mainstream economists acknowledge that the conventional ‘money multiplier’ model taught in textbooks is not a sound description of the financial system, so this one should be a no brainer.

Shrager goes on to characterise economics as “a series of parables to help us understand how the economy works.” Firstly, this is an incredibly weak characterisation of economic theory: are we supposed to be enthusiastic that what we’re learning equates to little more than mathematical ‘parables’? Does this not create the type of ‘anything goes’ situation that the scientific method is supposed to prevent? We actually believe and hope that economics as a field is better than this.

Secondly, if models are merely ‘parables’, can Shrager give a good reason for outright rejecting the heterodox models above over mainstream ones when the former are better suited to a situation? Shrager uses the example of an IS/LM model, which she amusingly mischaracterises as “a snap-shot of an economy in a recession.” This is wrong: IS/LM can be used to depict a recession, but can also depict normal times, depending on the location and slope of the curves. More importantly, IS/LM tells us nothing about how a recession happens, whereas Minsky (above) does. We see no reason that Shrager can reject Minsky without engaging his theories directly.

Flirting with another common criticism that we’ve seen – that we are anti-maths – Schrager states that “…understanding the models takes hard work and often some math, which can be abstract and unpleasant.” We each have our own opinions about exactly how pleasant or unpleasant maths is, but as a society we are not against maths per se, but against the unquestioning regurgitation of a certain type of mathematical theory, with no critical evaluation of how appropriate this theory is and no acknowledgement that there are other types of theory out there. We won’t quote our previous work again, but we discuss the kind of more dynamic maths we’d like to see in a bit more detail in the post above, as well as in the RES newsletter.

Finally, Shrager meanders into criticising Noah Smith, whom she affords more respect than us but also manages to misrepresent entirely. While we’re sure Smith can defend himself, we’d like to point out that he does not believe economics education should consist of “statistics without theory”, which is how Shrager characterises his position. He has argued precisely the opposite a number of times, stating that “”data with no theory” is really just an implicit vague theory”. Yet Shrager states that “for the same reasons the British students are wrong, Smith misses the point.” It’s not clear which ‘reasons’ link us to Smith; and ultimately it would be more accurate to state that for the same reason that Shrager is wrong about us, she’s wrong about Smith: she hasn’t bothered to do her research. If she wants to write about our movement in the future then we suggest that she learns a little bit more about it.

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