Teaching Economics as if People and Planet Really Mattered

Many organisations are now working to promote a different economic model, or a ‘wellbeing economy’, that prioritises people and the environment over economic growth. Rethinking Economics campaigns for students who want to study towards such an economy and ultimately make society a better place. Lovisa Reiche explains.

“Economics is fun and exciting!” So said my economics professor at the University of Aberdeen in our first class. After four years of studying economics, my honest opinion is that he was right, but only because the subject is fun and exciting; the study of economics is not.

Economics is the science of how to govern for the benefit of the whole of society. It is grounded on utilitarian philosophy and Adam Smith’s ideas of self interest.

Studying how to make people’s lives better through policies that improve systems is highly relevant and exiting. However, for many economics students, they quickly become disillusioned once they step inside the classroom. The current curriculum teaches neoclassical economics, which models a representative agent and aggregates their rational decisions to reach a general equilibrium. Mainstream economists use rigorous maths, and attempt to treat the subject as a natural science. However, unlike the natural sciences, economic models are based on assumptions, not observations.

Assumptions about perfect rationality and information are fundamental to the economics curriculum. When a fellow student included a section in their dissertation which justified the use of the rational actor model, their supervisor advised them to skip this section, saying, “Your work will be graded by economists – don’t waste space justifying the rational actor model to us.”

Why is this a problem? Because in their 2007 World Economic Outlook, the World Bank observed, “improved fundamentals” and forecast a “positive outlook” over the coming years. In the same report, they acknowledged some risks but suggested “a soft landing seems likely”. Yet in August 2007, BNP Paribas blocked withdrawals from two of its hedge funds, signalling that banks had lost trust in the market. A year later, Lehman Brothers went bankrupt and the economy crashed. While some financial institutions were bailed out with tax payers’ money, others declared insolvency which led to the loss of jobs and incomes.

In the aftermath of the financial crisis students studying economics anticipated that their lecturers would explain the crisis and improve their models. Instead, their lecturers typically added an additional slide to “Introductory Macroeconomics”.

Disappointed with what they found in their curriculum, students at the University of Manchester founded the “Post-Crash Society” – and Rethinking Economics was born!

Since then student groups across the world have joined the organisation, including groups at the universities of Aberdeen, Edinburgh, Glasgow and St Andrews. In addition to organising conferences and events (such as, the annual Shifting Paradigms Conference in Aberdeen) these student groups have been lobbying their departments for change.

The goals of Rethinking Economics are diverse and range from small steps to big changes. Rethinking Economics wants students to be tested not only on their knowledge of maths but also on their understanding of the subject, and has lobbied for additional tutorials in the Honours Year for this purpose. They have also called for tutorials to be split so that students can practice mathematics but then also discuss the implications of those calculations for the economy.

In the longer term, Rethinking Economics hopes to diversify the modules taught in the curriculum. They do not believe that the models and approaches of neoclassical economics are all wrong, but they do believe that they need to be enriched through a more pluralist approach. For instance, behavioural economics doesn’t replace existing models, but aligns them with observed human behaviour and psychological insights. Other approaches focus on the role of effective demand and highlight how it is shaped by: expectations; society’s power structures; and the invisible economy (mostly serviced by women). Rethinking Economics is also critical that not enough focus has been placed in economics lectures on the environmental boundaries of our planet, and whether growth is sustainable, and if so, how?

All of these insights would be valuable to economics graduates who may go on to become society’s future policy makers.

The ideas that Rethinking Economics have proposed have generally had a warm response from individual lecturers at various Economic departments up and down the country. Many lecturers and professors fully agree with the problems described above. However, universities face constraints; adding more tutorial hours is costly, as is employing experts and researchers to teach the pluralist topics outlined above.

These financial constraints are exacerbated because universities are incentivised to maintain their neoclassical research agenda. Any research published in the top five journals increases an economics department’s rankings, which in turn enhances the university’s research grant and individual career prospects. Therefore it is not in the institution’s interest to undertake research on heterodox economics.

Thus, while many lecturers themselves understand the flaws of how economics is taught at universities and support Rethinking Economics, they are powerless as individuals to challenge these financial and institutional constraints.

There is a danger that universities will continue to sacrifice research that could improve our societies in favour of elegant maths. Economists currently produce economics for economists, not economics for society; this makes it irrelevant for students who want to engage with policy-making.

Many organisations are now working to promote a different economic model, or a ‘wellbeing economy’, that prioritises people and the environment over economic growth. Rethinking Economics campaigns for students who want to study towards such an economy and ultimately make society a better place. When that happens, then the study of economics can indeed claim to be fun and exciting.

 

 

 

 

 

Comments (8)

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  1. Jim Bennett says:

    This is an interesting article which brought two things to mind for me:
    – the history of teaching socialist economics in Scotland being kicked off by the “Marxist Dominie” John MacLean in the early 20th century. MacLean was famous for touring Scotland, not only delivering speeches, but also conducting classes in economics everywhere from Hawick to Halkirk. He was actually paid to teach Marxist economics in Eastwood of all places!
    – in the 1980s, the Militant Tendency organised hundreds of training programmes in economics – everything from the Tendency for the Rate of Profit to fall to the Role of Surplus Value, for its members in Scottish housing schemes. The organisation may have been narrow in its focus but as a training ground in formal economics, it was second to none.

    I think there’s a role for the author and her colleagues to reach out and establish a wider teaching of economics across Scottish communities, following in some fine Scottish traditions!

  2. Graeme McCormick says:

    The challenge of globotics will make a new approach to economics urgent. If gthere will be far fewer jobs with less time at work the challenge for policy makers is to devise a system of income for every one which allows them to have healthy and fulfilling lives. I reckon a really worthwhile Universal Citizen’s Income of £200 per week is required at today’s prices.

    The effects of globotics are beginning to be felt and will only increase rapidly. We have an opportunity to embrace it as part of our Independence model. It is disappointing that the Sustainable Growth Commission did not include it in its report ,a nd it could have shown how to increase conventional growth while providing a model whereby the majority of people will not be left wanting but actually benefit from these techonological advances.

    MY own firm reduced th workign week from 35 hours to 25 hours with no loss of salary on the basis that the work done in 35 hours was done in 25 hours by using technology and changes in working practices. It has worked and provides a far better work life balance to staff while reducing business costs too

  3. Pracheet joshi says:

    I, to a greater extend agree to the argument that, Economics as a SUBJECT is interesting. But, STUDYING Economics in not fun. My experience is that, studying Economics feels more like studying a complex machine. If Economics is a social science and Economy a social institution which is regulated by humans than it should be as relatable to humans as it is to machines. It is importantly in this criteria that, I think, Economics lags behind in making people fall for itself. And so more people like Psychology, Sociology and not Economics. I think this point matters a lot. Because I have seen more than half of the class not choosing Economics for TYBA course because they find it unrelatable, dismal, dry and difficult. The rest of the class was choosing Economics to earn good salary. These are not good signs for the future of this field.

    1. David Harold Chester says:

      Indeed it is closely connected to a machine but not a complicated one! Please review my working paper SSRN 2600103 “A mechanical model for Teaching Macroeconomics” and learn how our social system works!

  4. Alan says:

    The current curriculum teaches neoclassical economics, which models a representative agent and aggregates their rational decisions to reach a general equilibrium. Mainstream economists use rigorous maths, and attempt to treat the subject as a natural science. However, unlike the natural sciences, economic models are based on assumptions, not observations.

    Agreed. Economics students might want to build bridges to disciplines in the humanities and social sciences that do study economic phenomenon differently. Acquaintance with intellectual history would undermine the fictive economic history taught to students in departments of economics. For a start see Paul Sagar’s short critique of economists’ misuse and misrepresentation of Adam Smith. He was not a utilitarian or a worshiper at the alter of self-interest. For something more academic see The Conspiracy of the Merchants. In addition to history, economists ignore other social sciences such as anthropology. Economic anthropology, unlike economics, is continuous with the political economy tradition. For an anthropological critique of neoclassical economics see Marshall Sahlins’s On the culture of material value and the cosmography of riches. Also worth a read is Chris Gregory, an economist turned anthropologist, on the limits of Piketty’s critique: The Three Faces of Thomas Piketty.

  5. Peter Crowley says:

    It all went pear shaped because the economists at the Treasury thought they could use Keynsian principles to manage bank solvency, and reduce margins, sidelining the Bank of England. They then objected to “Their” money then being used to bail out the banks, and forced them to smash up SMEs to pay them back – it like borrowing from the Kray twins. Macphersons predictions that commercial borrowers would flood back due to low interest rates could not have been more wrong. Hence sub 1% interest rates for 10 years, a flatlining economy, and Brexit.

    Any questions?

  6. Kei London says:

    Excellent work

  7. David Harold Chester says:

    Making Macroeconomics a Much More Exact Science

    Today macroeconomics is treated as an inexact topic within the humanities, because at a first look it appears to be a very complex and easily confused matter. But this attitude does not give it fair justice–we should be trying to find a better way to approach and examine the subject, in a good way that avoids these problems of complexity and confusion. Suppose we ask ourselves the question: “how many different KINDS of financial transactions occur within our society?” Then the simple answer shows that that only a limited number of them are possible.

    Although our society comprises of many millions of participants, to answer this question properly we should be ready to consider the aggregates of all the various kinds of activities (no matter who performs them), and then idealize these activities so that they fall into a acceptable number of more general terms, for the expression of a relatively small number of different but specific social functions. Here, each activity is found to apply between a particular pair of agents or entities—with each entity having its own individual properties. Then to cover the whole social system of a country (excluding foreign trade), the author finds that it takes only 19 mutual flows of money for the purchase and payment of goods, services, access rights, taxes, credit, investments, valuable legal documents, etc. Also these flows are between only 6 different representative entities.

    The analysis that led to this unexpected result was performed by the author and it may be found in his working paper (on the internet) as SSRN 2865571 “Einstein’s Criterion Applied to Logical Macroeconomics Modeling”. In this model these 19 double flows of money verses goods, etc., are shown. They are found to pass between only 6 kinds of role-playing entities. Of course, there are a number of different configurations that are possible for this type of simplification, but if one tries to eliminate all the unnecessary complications and sticks to the basic activities, then these particular quantities provide the most concise result, and yet it is presented in a fully comprehensive manner that is suitable for further analysis.

    Surprisingly, past representation of our social system by this kind of an interpretation model has not been previously properly examined nor even presented before. Other partial versions have been previously modeled (using 4 entities, by Professor Hudson), but they are inexact due to either their being over-simplified, or in the case of econometrics, much too complicated and almost impossible to follow. These two reasons of over-simplification and over-complexity are why there is this non-scientific confusion by many economists and their failure to obtain a good understanding about how the whole system works.

    The model being described here in this paper is unique, in being the first to include, along with some additional aspects, all 3 factors of production, of Adam Smith’s “Wealth of Nations” book of 1776. The three factors of production are Land, Labor and Capital and along with their returns of Ground-Rent, Wages and Interest/Dividends, respectively. All of them are all included in this presentation diagram.

    (Economics’ historians will recall, as originally explained by Adam Smith and David Ricardo, the independent functions of landlords and capitalists. The former rent and speculate in land values whilst the latter are owners of the durable capital goods in industry, which may be hired out. Regrettably these different functions were deliberately combined for political reasons by John Bates Clark and company about 1900, resulting in the neglect of their different influences on our social system.)

    The diagram of this model is in my paper (noted above). A mention of the related teaching process is also provided in my short working SSRN 2600103 “A Mechanical Model for Teaching Macroeconomics”. With this model in its different forms, the various parts and activities of the Big Picture of our social system can be properly identified and defined. Subsequently by analysis, the way our social system works can then be properly calculated and illustrated.
    This analysis is introduced by the mathematics and logic that was devised by Nobel Laureate Wassiley W. Leontief, when he invented the important “Input-Output” matrix methodology (that he applied it to the production sector only). This short-hand method of modeling the whole system replaces the above-mentioned block-and-flow diagram. It enables one to really get to grips with what is going-on within our social system. Subsequently it will be found that it is the topology of the matrix which actually provides the key to this. The logic and math is not hard and is suitable for high-school students, who have been shown the basic properties of square matrices.

    By this technique it is comparatively easy to introduce a change to a pre-set social system that is theoretical in equilibrium (even though we know that this ideal is never actually attained–it being a convenient way to begin the study). This change will then create an imbalance and we need to regain equilibrium again. Thus, sudden changes or policy decisions may be simulated and the effects of them determined, which will point the way to what policy is best. In my book about it, (see below) 3 changes associated with taxation are investigated in hand-worked numerical examples. In fact when I first worked it out, the irrefutable logical results were a surprise, even to me!

    Developments of these ideas about making our subject more truly scientific (thereby avoiding the past pseudo-science being taught at universities), may be found in my recent book: “Consequential Macroeconomics—Rationalizing About How Our Social System Works”. Please write to me at chesterdh@hotmail.com for a free e-copy of this 310 page book and for additional information.

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