I am involved in a session at the Australian Conference of Economists in a few weeks looking at this issue. And it has been discussed elsewhere – such as at the Royal Economic Society conference (thanks to Alex Millmow for the link). Here are some preliminary thoughts (feedback very welcome).
Is university level undergraduate education fundamentally flawed?
Unsurprisingly, as someone with a strong vested interest in this area and a well-selling textbook, my answer is ‘no’. But we do teach too much and we teach it superficially. For example, by the end of second year undergraduate studies, all students should know what the economic model of choice is all about. I suspect most don’t, partly because I meet a lot of graduate economists who do not know (my summary of what a second-year student should know about this at a minimum is below). Economics training often seems to ignore the basics and wants to scale new heights before students are ready. Importantly, we often seem to forget to train students to understand economic modelling and what modelling is all about. We do not focus enough on the assumptions so our graduates forget (or never learnt) the limitations of individual models.
Where is the context?
Economics is a public policy discipline. It is useful in many areas but its main role is to provide a set of tools to think about markets. Students need to understand what tools to use where and when. So they need the assumptions. But they also need context. Students need examples of where models work (and where they don’t and why). They need economics linked to current policy debates and to economic history. The discipline has largely abandoned its own history in teaching – which is completely mad. If we teach economics in a vacuum, then that is all we will leave with students – an economics vacuum.
Why did I leave off the ‘post-GFC’ bit?
A lot of discussion seems to focus on the GFC and why it wasn’t predicted. But this is a silly question. Life is uncertain and difference economic models have different predictions. Plenty of economists predicted the GFC – and indeed numerous other crashes that we haven’t had! Other macro models are built on assumptions that a crash like the GFC couldn’t occur. The real question is: Do we understand the limitations of our own models or do we exchange academic rigour for hubris in an attempt to bolster our own view of the world? I suspect that deep down, many economists would have to answer ‘yes’ to this question.
Thoughts comments very welcome – particularly if you think I am wrong!
(Minimum knowledge about the economic model of choice by the end of second year:
First students need to know what the model is and is not about. It is not about greed or being selfish. Rather, it simply says that if your choices satisfy certain consistency properties then your decisions can be modelled as if you are maximizing a utility function. It says nothing about why you make the choices and does not limit those choices to be for things that you ‘like’ or that are ‘self centered’. From this modest base we can make a variety of predictions about the behaviour of individuals as their choice set changes. We can also add other assumptions (e.g. a-dollar-is-a-dollar) and make stronger predictions (e.g. welfare analysis).
Second students need to understand the assumptions behind the model so that they can recognize situations where the model (in its second-year form) doesn’t apply (e.g. where choices are intransitive) and the consequences (the person can be turned into a money pump on the market!). They need to understand the assumptions really well. If they don’t, they will make silly errors when they graduate.)