Teaching Economics After the Crisis

Teaching Economics After the Crisis: Report from the Steering Group

In the April 2012 Newsletter, Diane Coyle reported on a conference sponsored by the Bank of England and the UK’s Government Economic Service to discuss the teaching of economics since the recent financial and economic crises. One outcome of the Conference wasthe formation of a steering group, including both academics and employers of graduate economists, to discuss recommendations for reforms to the teaching of economics students in the UK, In this article, Diane summarises the issues discussed and sets out the group's recommendations. It will be for others to consider how to respond.

Other items related to this theme, published in the Newsletter, include:
Teaching evidence-based economics (October 2013)
The rediscovery of Classical economics (July 2013)
What’s the use of economics (October 2012)
ESRC international benchmarking review (April 2008)
Evidence on the future of economics (July 2007)
Economics should look eastward (October 2006)
Jochen Runde replies ( October 2006)

The origins of this initiative lie in the financial crisis, and the subsequent debate about the contribution of economists. The February 2012 conference was a forum for employers of graduate economists to discuss with academics their views about some shortcomings in the knowledge and skills of young people taught economics in UK universities. The employer concerns chimed with the belief of many academic economists that the subject had become unduly narrow and reductive, weaknesses underlined by the crisis.

The conference reached some shared conclusions about the way young economists are trained. There was broad agreement that students need:

  • Greater awareness of economic history and current real-world context;
  • Better practical data-handling skills;
  • Greater ability to communicate economics to non-specialists;
  • More understanding of the limitations of modelling and current economic methodology;
  • A more pluralistic approach to economics;
  • A combination of deductive and inductive reasoning.

There were different views about the extent to which university courses should change, especially in view of an already crowded curriculum and an intense focus by students on employability, and so attendees favoured the creation of the steering group to discuss the issues further.1

Many of the themes arising were also discussed at the ESRC sponsored Macroeconomic Symposium held at Oxford University October 2012. The discussion here has benefited too from input from Wendy Carlin, UCL, on the Institute for New Economic Thinking’s Curriculum Committee; and from participants at a workshop held at HM Treasury on 26 February 2013.

Employer surveys
Recent employer surveys tend to agree with the shortcomings in student training and skills identified in the conference discussion, but although there is concern about the quality of many applicants holding economics degrees there is no sign of strong dissatisfaction with the calibre of graduates actually hired.

In the article ‘What Economists Do — And How Universities Might Help’ (in Coyle, ed. 2012) Paul Anand and Jonathan Leape report the preliminary results from a survey of 500 members of the British Government Economic Service. The central theme was the need for teaching to place a greater focus on the application of economic theories and models, problem solving and communication of economic analysis to different audiences. These emerge as the defining features of professional economics. The two dominant areas of work for government economists are the production of briefing material and preparation of policy advice, involving 75 and 70 per cent of respondents, respectively. Underlying this, in terms of methods and approaches, is an overwhelming emphasis on synthesising evidence, cited by 84 per cent of respondents, followed by use of published econometric evidence (72 per cent) and cost-benefit analysis (68 per cent), results that hold equally for economists with postgraduate degrees. The need suggested by these findings for an increased emphasis on ‘application’ in the teaching of economics has broad potential implications. Attention to the role of institutions and an approach to models that focuses on their selective use as starting points for empirical work are clearly important, as is an increased emphasis on data analysis and problem-solving (for example, through the incorporation of case studies and research projects).

The Employer Survey conducted in January 2013 by the Economics Network found that: “analysis of economic, business and social issues’ and ‘communication of economic ideas’ are perceived as ‘very important’ by 80 per cent of respondents, while ‘ability to organise, interpret and present quantitative data’ and ‘abstraction (the ability to simplify complexity while still retaining relevance)’ are perceived as ‘very important' by three quarters of respondents.”2

The Society of Business Economists surveyed its members, who are typically employers of Economics graduates, in January 2013. Respondents were asked to rate knowledge and skills as ‘absolutely essential’, ‘desirable’ or ‘not necessary’. Standard macro and microeconomics topped the essential knowledge list together with basic data-handling skills and knowledge of data sources (e.g. ONS; World Bank). Lower down the essentials list came Money, Banking and Financial Economics, followed by Economic History and International Trade. Further down came Cost/Benefit Analysis; Competition Economics; Behavioural Economics; History of Economic Thought; Financial History; Industrial Development and Economic Development. Econometrics came into this latter category but less than 10 per cent of the poll regarded ‘Advanced Mathematics’ as essential — on a par with Regional Policy, knowledge of Accounting, Corporate Finance or Foreign Languages.

‘Analytical Skills’ scored very high as an essential skill, closely followed by writing skills. Also high were ‘ability to apply economic theory to real world policy or corporate issues’ and ‘ability to explain economic concepts to non-economists’. Comments consistently mentioned poor communication skills and lack of ‘real world’ or ‘historical awareness’. Ranked considerably lower on the ‘essentials’ scale was ‘experience of undertaking a research project’ and ‘collaborative working project experience/ teamwork’.

The need for greater pluralism in economic degrees
The common thread in the surveys and discussions has been agreement that undergraduate economics degrees are currently too narrow and may be getting still narrower in methodology and focus, in an ‘arms race’ of technicality, partly because of the incentives for academics to produce purely technical research. This narrowing has led to the loss from most economics courses of some key skills, such as cost-benefit analysis for example, or any economic history. Furthermore, there is a debate within the profession about the nature of economics itself, its strengths and weaknesses as a subject, and whether it ought to change in response to the crisis and its aftermath. Major events always lead to evolution in the social sciences, and it can take a long time for a new consensus to emerge. While it would be unrealistic to expect the current disciplinary debate to be fully reflected in undergraduate degrees, students ought to be aware of the broad character of the discussion.

A more ‘pluralist’ undergraduate education would include:

  • Some economic history, which could be integrated into existing courses especially macroeconomics;
  • An introduction to other disciplinary approaches, which could be achieved through a ‘problem based’ approach to teaching and therefore integrated into existing modules, or through undergraduate projects;
  • Possibly ‘tasters’ of the frontiers of academic economic research with potential policy application, such as behavioural economics, institutional economics and post-crisis developments in financial economics;
  • Awareness of some of the methodological debates in economics, including alternative approaches such as agent-based models, networks and computational approaches;
  • Confronting all theoretical frameworks with evidence and encouraging a healthy scepticism towards all assertion from

whatever source (the steering group agreed that the ‘heterodox’ approach should not be mistaken for pluralism).

Most students will not become academic economists (or even professional economists at all), so techniques that only prepare students for academic research could be postponed to higher degrees specifically designed for this, to make more room in first degrees for appreciating the context of economics and its relevance to the real world.

Pluralism might also attract a wider range of students, such as women, who are under-represented in UCAS applications. A wider range of students might find economics interesting if it seemed more directly relevant to current events. An intelligent engagement with the discipline is desirable even for those not destined to become economists.

Taking a sceptical view of different approaches, being aware of potential pitfalls and of weaknesses in one's own approach and making balanced judgments in the light of available evidence encourages the development of the critical facilities much prized by employers: unthinking application of technique is dangerous and does not produce the rounded, versatile employees sought by employers.

Over-emphasis on advanced techniques and scientific status can encourage arrogance. Humility comes from making mistakes, hands-on experience with data, experiencing reasonable and intelligent people disagreeing, and from the knowledge that history is replete with examples of strongly held economic beliefs that were later discredited.

Recommendations
These recommendations are made in the context of the group’s endorsement of the general principles set out in the QAA economics subject benchmark (see annex).

This group:

1. Asserts the strength of mainstream economics
It provides an important tool-kit, but the provisional and incomplete nature of economics behoves us to be self-critical and honest about its limitations, and therefore to show humility, including by being open to alternative approaches and challenge. For example, macroeconomics needs to better integrate interactions with the financial sector and human responses to uncertainty — a process already under way in the discipline.

2. Recommends greater pluralism in economics
Hostility towards other approaches is the antithesis of a dynamic self-critical discipline that is genuinely seeking to discover new and better ways of understanding the world. That said, students should not be left unnecessarily confused or with the impression that all schools of thought have an equal standing, or that ‘anything goes’. There should be a balance between a) providing a coherent ‘'workhorse’ framework for intellectual development and building analytical skills, and b) the candid highlighting of uncertainty, the limits of economic knowledge and the existence of serious alternative views and approaches.

While many employers would welcome the introduction of additional elements in the curriculum, especially economic history, the ability of departments to provide additional modules will be limited in the short-term by a shortage of suitably qualified academics. The increasing number of students per member of academic staff is an additional constraint on changing the curriculum. Nevertheless, there are teaching resources available and academics could make greater use of materials and best practice shared online.

3. Welcomes a mixed market of Masters’ degrees
The increased number of policy-oriented Masters’ degrees alongside both advanced taught courses and ab initio Masters’ degrees in economics is welcome. The Steering Group feels that, at this level and above, institutions should play to their respective strengths, whereas all undergraduate degrees should give a firm grounding in the broad fundamentals of economics.

Advanced techniques that mainly prepare students for academic research should be postponed until higher degrees specifically designed for this purpose, to make room for undergraduate degrees to give students a deep understanding of threshold concepts and their relevance to the real world.

4. Recommends provision for ‘professional practitioner’ economists
The majority of economics students do not become academics and their needs should be better reflected in undergraduate economics degrees, addressing the core knowledge and skills necessary for non-academic economist practitioners. Employers have an obligation to be more explicit about what they want from economics graduates, and should engage more with universities.

Not all economists require advanced technical skills but all economists do need quantitative and data literacy. The inductive empirical method should be taught alongside deductive approaches, and hands-on experience with data is usually salutary. Research projects and problem-solving approaches to teaching can enhance students’ range of skills.

Employers can greatly assist in the development of these skills that would benefit them by (a) engaging more actively with university economics departments, through talks to students for example; and (b) providing suitable work experience placements and internships.

5. Recommends consideration by economics departments of the incentives for better teaching
The incentive structures for academics, especially the national research assessment exercises and, relatedly, the low weight given to teaching in promotion decisions, work to undermine investment and innovation in teaching. This is occurring at a time when traditional models of lecturing are under threat from MOOCs and other forms of online provision. The absence of a single compelling metric for teaching quality cannot be an excuse for inaction; attention should be given to portfolio approaches, using combinations of indicators, and to improving the quality of information from student surveys.
The content of courses is clearly an issue for individual departments, and academics; a range of views can be found among academic economists as to the extent to which the discipline needs to change in response to the economic crisis. However, many students are disappointed that they are not learning about the current crisis because the materials have not been updated, for example. Economics courses centred on the teaching of models, changing little from year to year, are easy to deliver and do not require much updating. For instance, although macroeconomists have moved to integrate credit and finance into macro models, some students are still being taught outdated approaches such as the money multiplier. This is not a good enough education for students of economics, especially in the light of the economic crisis. Departments need to hold to account those who are teaching economics against the appropriate existing quality benchmarks.

6. Recommends consideration of the incentives affecting economic research
The incentive structures have also favoured research that involves incremental advance within existing technical models. The faculty members who do well in publishing papers of this kind, especially in the six top (mainly US) journals, in turn shape the kind of economics widely taught in UK universities. This has been a self-reinforcing process. The introduction of the ‘Impact’ criterion under the new Research Excellence Framework, that replaces the RAE, is therefore welcomed in the hope that its emphasis on the ‘economic and social benefits’ of research will serve as a counterweight to the self-reinforcing pressures for incremental technical advances and strengthen incentives for empirically- and policy-relevant, research. At the same time, the group recognises that there is some uncertainty about measuring and monitoring Impact, and recommends that any unintended consequences of the Impact criterion also need to be monitored as part of a full ex post evaluation.

Appendix 1: Members of the steering group

Diane Coyle (chair) - Enlightenment Economics and ESRC Research Committee Member
Adrian Alsop/Paul Sanderson - ESRC
John Beath - Royal Economic Society and University of St Andrews
Alan Budd - University of Oxford
Nick Crafts - University of Warwick
Viv Davies - Centre for Economic Policy Research
Andy Haldane - Bank of England
Ian Harwood - Society of Business Economists
Jonathan Leape - London School of Economics
Neil Rickman - CHUDE and University of Surrey
Eric Pentecost - CHUDE and Loughborough University
Bridget Rosewell - Volterra Consulting
Andy Ross - Formerly Deputy Director, Government Economic Service, and Leeds and Reading Universities
John Sloman - Economics Network and UWE
Ken Warwick - Formerly BIS and Government Economic Service
Simon Wren-Lewis - University of Oxford
The group warmly thanks Dachi Ramussen, GES assistant economist, for his support.

Appendix 2: Economics subject benchmarks

Below is the QAA benchmark summary of what economics students should have mastered. The steering group endorses this set of aims:

  • This points to certain key intellectual features that characterise the economist’s approach.
  • First there is the ability to abstract and simplify in order to identify and model the essence of a problem.
  • Second is the ability to analyse and reason - both deductively and inductively.
  • Third is the ability to marshal evidence and to assimilate, structure, analyse and evaluate qualitative and quantitative data.
  • Fourth is the ability to communicate results concisely to a wide audience, including those with no training in economics.
  • Fifth is the ability to think critically about the limits of one’s analysis in a broader socio-economic context.
  • Sixth is the ability to draw economic policy inferences, to recognise the potential constraints in their implementation and to evaluate the efficacy of policy outcomes in the light of stated policy objectives.

Notes:

1. Additional material can be found in a book containing pre- and post-conference essays, What’s the Use of Economics? (ed. Diane Coyle, London Publishing Partnership, September 2012).

2. www.economicsnetwork.ac.uk/sites/default/files/Ashley/EN%20Employers%20Survey%202012%20-%20Full%20Report%282%29.pdf

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