Are graduate economists fit for purpose?
by Diane Coyle, Enlightenment Economics and IPEG, University of Manchester.
One of the consequences of the financial and economic crisis since 2008 has been a re-evaluation of economics itself by at least some of its practitioners. This includes looking again at the teaching of economics in universities, the subject of a recent conference supported by the Government Economic Service, the Bank of England and the Royal Economic Society.1 As a speaker in the opening session of the conference noted: ‘The crisis was a large intellectual failure. We all got it largely wrong and have been using the wrong intellectual apparatus.’
The question of whether the teaching of economics in universities needs reform is linked to the underlying question about the intellectual status of economics itself, post-crisis. A number of speakers noted that there had been huge progress in recent decades in some areas of economics, such as auction theory, or development economics, for instance. However, there was a degree of consensus among participants that economists need to acknowledge the limitations of what has been the standard paradigm in the subject for 50 years. Ideally, we now need to combine a greater modesty about the state of knowledge, an insistence on dogged empirical work to the highest scientific standards, and a new eclecticism about what explanation is needed to understand economic phenomena.
One speaker said: ‘We have an unreasonably strong prior that only one kind of model is acceptable.’ In reality, he said, there was true Knightian uncertainty about the status of different underlying models of behaviour, and there is no alternative now to the slow process of exposing the empirical status of the assumptions and conclusions of the models we are using.
While modesty and eclecticism found general favour, there was less agreement about the extent to which both the practice and teaching of macroeconomics needs to change. Some speakers felt existing approaches could be sensibly supplemented with some recent economic history, including discussion of the Taylor Rule policy reaction function, and with some enrichments such as heterogeneous agents. At the other extreme, some participants argued that the standard macroeconomic framework of analysis has been proven redundant by the crisis. These participants emphasised instead two chasms in the knowledge of recent graduates: institutional knowledge of finance, money and banking and the ability to analyse the role of these institutions in the economy; and network models similar to those used widely in some other disciplines such as epidemiology and evolutionary biology.2
Employers taking part agreed, however, that economics graduates have a narrower range of skills than they need in their work. Even those working as professional economists in the financial markets, consultancy or the public sector lacked important skills, although in general their technical ability was good, according to employers. The ability to communicate well topped the list of missing skills, followed by an appreciation of the wider context in which graduates are applying their economic knowledge.
A surprising number of the employers present suggested the need for teaching more economic history; and also a focus on the international context rather than just national economic data; and a better practical grasp of quantitative methods including collecting and understanding data (as opposed to more sophisticated econometric techniques). A preliminary assessment of a survey conducted among employees in the Government Economic Service has confirmed these are important areas in undergraduate preparation. For example the preparation of briefing material for non-experts was described as the most important task, by some distance, of these public sector economists. The survey may now be extended to private sector economists through the Society of Business Economists.
However, there was also sympathy among the academics present for providing a broader context in economics courses, as indeed there was in a selection of essays by academics (mainly in the US) written for advance circulation to participants ahead of the conference.3 Academics were cautious, however, about suggesting adding more to the curriculum without clarity about what could be removed. There was a discussion about the barriers to change within the university sector. Among the barriers cited were:
This debate about the content of the university curriculum comes at a time of growing interest in the study of economics among secondary school students in the United Kingdom. The number of A-Level students has grown by more than 50 per cent since 2006.4 Teachers of sixth-form economics attending the conference pleaded for the inclusion in universities course of important areas of economics they are now teaching in schools, including behavioural economics; money and banking; fast-growing economies; simulations and experimental techniques; economic history; and new technologies and network models. They also argued that university teachers need to make greater use of the internet as a medium for teaching, and other pedagogical innovations, saying that schools have become significantly better than universities in terms of active learning.5
A working group involving academics, employers including the GES, the Royal Economic Society, and the Economics Network will be considering practical measures to respond to this plea, and ensure that the economics profession does not waste this crisis. It would be a sad irony if the teaching of economics at universities cannot evolve at exactly the point at which the intellectual and empirical advances in economics in the past 20-30 years are proving so fruitful.6
1. At the Bank of England on 7 February 2012.
2. See for example ‘Systemic Risk in Banking Eco-systems’, by Andrew Haldane and Robert May, Nature, 469, 351-355 (20 January 2011)http://www.nature.com/nature/journal/v469/n7330/
3. Available as a read-only Word file: http://www.enlightenmenteconomics.com/assets/EconomicsConferenceRO.docx
6. See Diane Coyle, Do economic crises reflect crises in economics? Keynote address, ‘Rethinking Economics’ conference, Stiftverband für die Deutsche Wissenschaft/Handelsblatt, Frankfurt am Main, 23 January. 2012. http://www.stifterverband.de/oekonomie/coyle.pdf
What post-crisis changes does the economics discipline need?
by Inna Pomorina and Ashley Lait, of The Economics Network.
Firstly, the lessons that need to be learnt from the crisis were addressed at the conference. The importance of basic principles was emphasised and it was agreed that despite their centrality to the discipline, they have at times been overlooked. This risks students being unaware of the core of their subject upon which more specialised modules build. It was therefore felt that these basic principles must be implicit in the teaching of economics throughout students’ degree programmes.
The development of macroeconomics as a discipline and of macroeconomics curricula was discussed by a number of speakers. There was consensus that the macroeconomics curriculum needs to integrate economics and finance more closely and include the impact of the development of financial instruments and the role of balance sheets. Existing macro models typically assumed well functioning markets and too little attention has been paid to leverage, global imbalances, the lack of macro prudential policies and the instability of the system as a whole. There was debate as to whether DSGE models could be adapted in the undergraduate curricula to take account of the functioning of financial markets and the behaviour of market participants, whether new models should be incorporated or whether students should be presented with a range of models that could be tested against the evidence.
Furthermore, in the light of the financial crisis, there is a sense that economics graduates would benefit if economic history and the development of economic thought were returned to the curriculum. This would help students not only to learn from the mistakes of the past, but also to see the development of theories over time. With an understanding of how the discipline has changed, students are more likely to question current assumptions and learn to accept the limitations of accepted models, which in turn will lead to more innovative thinking.
Whilst much of the discussion focused on areas of improvement for the discipline and the lessons that economics departments must learn, it was agreed that there have been benefits to the subject from the financial crisis. Above all, there is huge interest in economics among young people as they attempt to understand the issues that are in the news daily and have even been the subject of Hollywood films. It is important that educators seize the opportunity to encourage a new generation to study economics. This has great potential for the discipline too as, in the light of the crisis and in an increasingly globalised world, this generation will look at economic problems through a new lens and will be ready to reject assumptions and innovate. As a result, it is vital that courses are up to date, exciting and above all relate to what is going on in the outside world.
Students were not represented at the conference, but more than 1400 Economics students recently took part in the 6th biennial survey run by the Economics Network. The survey aimed to provide valuable information on students’ perceptions of studying economics, including identifying strengths and weaknesses in the learning and teaching of economics. Topics included: how their course differed from their expectations, the best aspects of the course, what skills they developed by studying for their degree, and how the course had changed them. We are currently preparing the full report on the results, but believe that a few representative quotes from the survey will help to illustrate the points raised at the conference.
Although the expectations of nearly three-quarters of students have been met by their economics course, others raised concerns:
The focus was mostly from an academic, research-based standpoint. During the entire economics course, we didn’t really focus on the Financial Crisis, which would seem to be one of the most important economic events in history!? Much emphasis was placed on old, outdated theories that defy common sense.
The course is very theoretical and contains a lot of maths. I think that the three micro-macro levels could have been compressed into two and offered a more hands-on approach, discussing current events too. It is difficult to practically apply the knowledge.
Students were also asked about the best aspects of their course:
Application of economic theory to capital markets and real-life situations. I enjoyed learning models and ideas from people that combined the strengths that economics brings in terms of its approach to simplifying real-life along with some really intelligent ideas and theories using the latest economic knowledge, i.e. people that realise markets are not ‘perfect’ and find really intuitive ways to build these imperfections into models. I really enjoyed the essays, particularly when they related to current world events. For example, applying foreign exchange models to movements in the Yen following the Japanese earthquake and subsequent tsunami.
I find that the best aspect of my degree is that economics enables individuals to look at particular issues and find the best possible outcome. I also feel that a high amount of what I learn during my degree is very useful as it can be applied to everyday life.
I learned about the policies on how to tackle most economic problems by studying about them in the contemporary issues classes, which gave me the link on how to analyze the economic problems in reality. Apart from this, I also learned how the economic theories are used in reality.
Questioned about the skills that their degree helps them to develop, they mention:
I have gained the skills of analysing financial data and gained a better understanding of economic principles which helped me excel in my summer internship and further helped me with managing my own finances.
My economics degree seems very geared towards becoming an actual economist, which is obvious. However if I’m honest, I have no idea yet what exact occupation I am looking for in the job market. I feel my degree has given me a wider picture than just the necessary skills for a certain type of job. I’m more aware of the economy, my surroundings, my peers, my employers, how they all intertwine and work, and how this will affect my chances of getting jobs in certain markets.
The full report on the survey results will be added to our website, — http://www.economicsnetwork.ac.uk/projects/surveys, in the summer.
As for the conference the important question now is how to implement these changes and suggestions into economics courses across the country. This represents a significant challenge for universities; it is easy to list what should be integrated into courses, but much harder to decide what should be left out. There were suggestions for a range of courses, where some could have a greater focus on mathematical economics, while others would concentrate more on political economy.
It was agreed that a network was needed to serve as a forum for discussion on these issues and to disseminate the results and ideas. Above all, this network and the economists who engage in teaching need to be innovative and inspiring in order to carry the discipline forward and to produce high quality and work-ready graduates.
For Economics Network resources, please visit: www.economicsnetwork.ac.uk