Despite student protest and pressure from some academics, a number of top business schools have done little to update their curriculums to reflect the crash of 2008. What does this mean for the future of economics, and why is it that some universities are reluctant to adapt?
The University of Manchester's student-led Post-Crash Economics Society is demanding change. Its mission: “To expand the range of economic theories taught to undergraduates” and confront the apathetic approach taken by some of the world’s most prestigious business schools to explain the worst financial crash in three generations. In 2008, mainstream macroeconomic theory failed spectacularly. Yet, seven years on, leading bastions of business education are clinging to an economics syllabus based on models that have essentially been proven flawed.
“Frankly, the conventional theory is wrong,” says Professor Steve Keen, an economist and one of the vociferous academics supporting the Society. Since taking the helm at the School of Economics, Politics and History at Kingston University, Keen has set about shaking up modules and introducing new ways of thinking.
“Unlike a science such as physics, where there’s just one dominant paradigm because it has proven the test of time and been empirically verified,” he says, “there are a range of different views on how economies function, none of which have really been tested completely empirically because we simply don’t have the definitive experiments that exist in physics.”
“The great irony is that these extremely complicated linear models gave absolutely no warning of the crisis”In other words, neoclassicism dominates economics tuition as if it were an absolute and that, says Keen, is dangerous. “We need to be asking: ‘Can you explain panics, bubbles and crashes?’ If mainstream economic theory can’t, then which theories can?”
An experienced City practitioner, who wished to remain anonymous, takes a different view. “Finance as a theoretical discipline hasn’t changed because the same principles of finance, in the absence of an alternative, are still in use and so it’s not the degrees that need changing.”
“Even if universities didn’t teach the neoclassical economic models and instead taught behavioural economics,” he explains, “by the time a graduate gets to the stage where they will have any influence in the City, and set the tone for the culture of a bank, for example, they will have been there for perhaps 20 years. They will have got there through political skill and being in the right place at the right time and saying the right thing. A customer would not benefit in any way if a recent graduate had learnt anything different at university – the problem is the culture of the bank they work at.”
Making the grade• Last year 7,995 students were accepted onto economics courses throughout the UK1.
• 50.28%: The percentage rise of students accepted onto economics courses from pre-crash2.
• When employers were asked which skills required most development, the “application of economic theory” came top3.
1 and 2: UCAS End of Cycle 2014 Data Resources
3: Economics Network Lacking ‘real world’ skills
Nevertheless, students are increasingly becoming aware of a disparity between what they are learning in lecture halls and what today’s economy actually looks like. They fear their degrees won’t be considered ‘fit for purpose’ when they eventually enter the world of work.
Essentially, they feel short-changed, which has triggered protests at several business schools spanning Chile to India. But it’s not just students and certain academics expressing dissatisfaction. Leading employers of economics graduates are increasingly supporting students fighting for change and bemoan that while graduates are highly technical, they lack ‘real world’ empirical skills.
The Economics Network’s Economic Employers’ Survey 2014-2015 highlights this rather neatly. A question about the areas of economics in which graduates were most adept received answers that included “the ability to analyse quantitative data” and the “ability to use IT”.
Being able to "analyse economic, business and social issues” and “communicate economic ideas” came highest on the employers’ list of important attributes. But when asked about the level of skill graduates demonstrate in “applying what has been learned in a wider context” and “general creative and imaginative powers”, the answer was, tellingly, “not very high”.
Perhaps even more pertinently, when employers were asked which skills required most development, “application of economic theory” came top by some distance.”
Calls for an analytical approach
Many university courses loiter around mainstream theory but whizz past, or miss out entirely, those of Marx, Keynes, Minsky and Friedman. This may be cause for concern, especially if you’d prefer your future Chancellor of the Exchequer to take an analytical approach when creating policy. That misses the point, says Moorad Choudhry FCSI, Professor at the Department of Mathematical Sciences at Brunel University: “If you’re the Chancellor or the Home Secretary, your politics drive the economic model you apply and believe in, not the other way around. I don’t think that because they studied neoclassical economics at university they decided they were going to join the Conservative party.”
However, Kingston University’s Keen and others like him – for example, George Cooper, author of Blood, Money and Revolution – argue that the focus on a single mainstream theory and its highly mathematically complex models have damaged, and could again damage, the economy.
Keen explains: “The great irony is that these extremely complicated linear models gave absolutely no warning of the crisis. In fact, they predicted that the economy was going to be absolutely wonderful in 2007 and 2008. They completely got it wrong, but that still hasn’t led [economists] to question: ‘is there something wrong with the models?’”
Cooper suggests that the problem is compounded by the fact that “most economic theory doesn’t have money in it at all".
Economics is in a state of crisis
The obvious question, then, is why? Why are our leading educational institutions languishing in a pre-crash world when it comes to what they are teaching future economists?
University of Cambridge professors Ha-Joon Chang and Jonathan Aldred last year wrote in a revealing article for the Guardian that it may be because course directors feel “the core of the subject is an established, settled science. At the frontiers of research, there may be controversy and even turmoil, but the undergraduate curriculum need not be disturbed, because it reflects the core of agreed theories – or at least an agreed mathematical toolkit – emerging from years of steady progress”.
But “economics is in a state of crisis”, Cooper declares, and university degrees don’t seem to reflect this.
Chang and Aldred explained: “[Mainstream economists] have constructed a Kafkaesque world in which proposed reforms are rejected as redundant... At the same time, if reforms involve issues that the existing theories cannot explain well, they are rejected because they would take the curriculum outside the domain of economics.”
This explanation ties in with Keen’s complaint that anything proposed by economists with an alternative view, one that does not fit within the parameters of dynamic stochastic general equilibrium models (the commonly accepted models associated with neoclassical economics), is deemed incorrect. Those who question these principles, according to Keen, are considered ignorant and the conventional theories prevail.
Knowledge gapSkills and knowledge that employers believed were most in need of further development in economics degree courses:
1. Application of economic theory
2. Communication skills
3. Quantitative skills
Source: Economics Network Does one size really fit all?Academics and students argue that if universities do not revise their economics degrees in this uncertain period – a time of dormant ‘short, sharp shocks’ as recently warned by the Bank of England – then it won’t just be the 7,995 students who last year secured a place on an undergraduate economics course in the UK that feel short-changed. Macroeconomics affects budgets and budgets determine healthcare, housing and education. Perpetuating a one-size-fits-all approach is at best risky, say critics.
But is it universities that should be re-evaluating what’s important for the future of the economy, or the institutions that take on fresh graduates based on a limited set of criteria?
The City practitioner we spoke to believes it’s the latter. “The people who get onto the graduate schemes, who have passed the interviews and the selection days, almost all seem to have the same characters irrespective of where they've come from or what they’ve learnt at university,” he says. “They all seem to think the same way, the selection process ensures that. So, when in 20 years they are chief executives or CFOs and they encounter a crash, how are they going to work their way out of it? The regulators should be concerned about genuine diversity at the selection process stage. It is diversity of thought that banks need at the top level. That’s the real big deal.”