Rethinking economics

There was an interesting article on the FT this weekend about the efforts of my former professor Ha-Joon Chang and others to rewrite economics curricula in higher education.

The two degrees I attained prior to my ongoing PhD studies were a BA in Development Studies and Economics and an MPhil in Development Studies. Both were taught in a highly “heterodox” (perhaps for the lack of a better word) environment, the first one at SOAS in London and the latter at Cambridge under Ha-Joon.

Yes, development studies (or development economics for that matter) are a different animal, and the comparison to a straight economics degree may not appear fair to most. But why do we study economics? Don’t we aspire to explain realities concerning production and consumption in the real world? What does this real world consist of? Countries adhering to the laboratory-like conditions of neoclassical economics?

Having been out of academia for almost a decade allows me to say a thing or two about how my degrees have actually prepared me for the real world. I am happy to have taken a fair share of standard economics courses to be able to compare. That said, I usually hesitate to call myself an economist, for both the rejection I would experience from the torchbearers of the field as well as my own uneasiness with the conventions that come with this label.

To sum up, I am more than happy I did not take a straight economics degree for my Master’s (surprise, surprise), although I toyed with the idea. The courses would almost invariably have been microeconomics, macroeconomics and econometrics, complemented perhaps by a floater, e.g. a thesis or another course.

This would have meant one year prodding through “elegant models in which a rational and representative decision-maker [seeks] to optimise his utility (or satisfaction) within certain constraints”.

Instead my degree comprised Ha-Joon’s lively class on development economics, Professor Kuzcinsky’s seminar on development finance and Professor Fennell’s institutions class (plus a dissertation). The courses featured disequilibria, financial crises and economic history, conspicuously absent from “mainstream” economics teachings.

An economics degree would have not prepared me better for my first corporate finance stint, which was heavy on accounting and business analysis. This is obviously not part of either economics or development studies curriculum. However, development studies were highly relevant to the work I did in fund management and all subsequent assignments on emerging markets, also for international financial institutions (which is perhaps a little ironic given their ambivalent role in most heterodox economic thinking).

Contrary to the clean and rule-based world of economics, development studies curricula are permissive enough to let you reach into other fields such as history, area studies and sociology, therefore widening your horizon and contextualising your area of expertise.

In my case this meant writing as much as possible on Central Asia, learning Russian, and reading about the history of transition post-breakup of the Soviet Union. A straight economics degree would not have had the space to accommodate this interest in an academic setting.

So my contention is that if you want to study about the real world and prepare yourself for any career, be it in business, government or NGO, development studies (or development economics, but that depends a lot more on the university) is the better fit.

A straight economics degree sets you up for an academic career or some select jobs in which the rules have not changed (think central banks etc.). If you want to make it big as a quantitative person, you may as well focus on that upfront and cut the increasingly other-worldly theory, i.e. study econometrics, finance (or financial engineering) and the likes.

Coming back to the article: While it is laudable for the FT to report on this topic, I don’t think Pilling has portrayed either side of this conflict fairly. Upon discussing this with a friend of mine, I would say that characterising heterodox economics as outright rejecting mathematics is a little too simplistic.

Second, Pilling could have quoted and interviewed less conservative neoclassical economists, e.g. Wren-Lewis and Piketty, who are, at the very least, less religiously wedded to their field. Instead you get Cambridge’s Pontus Rendahl’s insights:

He [Rendahl] is wary, however, of moving to a pluralist curriculum in which different schools of thought are given similar weight. “Pluralism is a nicely chosen word,” he says. “But it’s the same argument as the creationists in the US who say that natural selection is just a theory.” Since mainstream economics has “immutable laws”, he argues, it would be wrong to teach heterodox theories as though they had equal validity. “In the same way, I don’t think heterodox engineering or alternative medicine should be taught.”

Who sounds like a creationist here (“immutable laws”)? Let’s be honest: neoclassical economics is an easy straw man if defended by statements such as these. I wonder how much they were taken out of context and if Rendahl is happy with the way he comes across in the article. (And since when has “neoclassical economics” become a term of “near abuse”?)

Lastly, as regards the economics profession in Japan, what struck us is that although the country provides the case study par excellence for heterodox economic policy, many of its universities remain deeply wedded to conservative neoclassical thinking. The one notable exception is perhaps Marxism, which looks back at a rich and lively history mainly in the postwar period.

Being a development studies major in my current PhD program has again allowed me to stay clear of economics with an overly neoclassical bent. My classes on political economy, economic history and area studies were all heavy on “economics”, but only to the extent that they described economic phenomena with a much more varied social science toolkit.

Finally, however, the one class that did include a fair share of neoclassical economics readings made me aware that we also need to be very careful not to build straw men all too easily. Much of the dismal science can be intellectually robust and distant from our actual reality at the same time, and the neoclassical tradition is no exception.

What is therefore needed is not just alternative curricula but a more critical eye when going through the standard texts, which remain useful if taken with a grain of salt, and complemented by a healthy dose of new economic thinking, economic history, and common sense.

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