The re-education of Economics 101

Written by Eshe Nelson via Quartz on 12/15/2018

On a dreary Wednesday lunchtime in October, more than 300 students are packed into one of University College London’s larger lecture halls. They are all out of their seats, and the chatter has risen to a near-deafening din. They are playing a market-trading game. It is a familiar one to students of Economics 101, an introductory class. Students recreate auctions over and over again, ultimately proving the theory of equilibrium in competitive markets, a lynchpin of the principle of supply and demand.

To a casual observer, this could be any undergraduate economics class at a large university. But looks can be deceiving. The students are being taught the CORE project’s new curriculum, which aims to reinvent how economics is taught.

CORE’s online textbook, The Economy, has rewritten the first year of an undergraduate economics degree. Its goal is to make economics a study of the real world and to embrace topics that are typically thought to be too complicated for the simplified equations and theories taught in most introductory classes. The creators of CORE, which stands for Curriculum Open access Resources in Economics, wanted to address the complaints of students who said they’d studied economics to understand issues like poverty, inequality, sustainability, and technological innovation but instead faced years of abstract economic theory and mathematical equations. These students didn’t want to become econometricians. They wanted to solve problems using economics to eradicate poverty, reduce inequality, measure the true impact of automation, and achieve sustainable growth.

This is part of Remaking Economics, a series exploring foundational changes to a field that shapes how we understand the world. Read the other parts about the dismal cost of the profession’s lack of diversity and the reinvention of macroeconomics after the crash

Those complaints became too loud to ignore following the financial crisis a decade ago. When the global economy went into free fall, economists suffered a severe loss of credibility. They were vilified for not anticipating the financial crisis and further berated for their inability to offer credible ways to speed up the weak recovery, which dragged on almost to the present day. While most countries’ economies have now recovered, the reputation of the economics profession has not. Its failures not only enraged people who had lost their jobs and their livelihoods, it infuriated students all over the world as well. They felt they weren’t properly equipped to understand what had happened. 

It has prompted a near industry-wide period of soul-searching among economists to try and correct their errors. That effort has been helped along by the new era of big data, which has led economists to revisit the wisdom of some long held assumptions. Take the labor market. Recent studies prove that minimum wage increases don’t lead to higher unemployment but have a lasting effect on increases in incomes. But you wouldn’t know that if you were strictly applying the lessons learned in undergraduate classes on supply and demand theory, which say the opposite. “Since the 1990s, a steady drumbeat of empirical results has led to questions about that simple model’s usefulness,” Noah Smith, an assistant professor of finance at Stony Brook University, wrote in a Bloomberg View column. “Textbook writers and instructors should respond by changing the baseline model of labor markets that gets taught in class.”

The idea that something is wrong with the way economics is taught is no longer controversial: Professional economists, professors, and students agree that change is overdue. Introductory economics tends to go too far in reducing complex problems into simple certainties. Many argue it is taught as truth, like a religion, but instead it should be taught like a science, to be questioned, given that many of those truths don’t withstand scrutiny when applied to what’s happening in the world. Moreover, there is a lack of diversity of thought and thinkers, and not just in contemporary theory. Historical perspectives are relegated to the background, too, and rarely revisited as potential tools for addressing economic questions today.

Amid this tumult, a band of revolutionaries has emerged, focused on trying to transform economics education. Naturally, as with all revolutionaries, there is dissent among the ranks. The debate among them has splintered into different camps that can’t agree on the root cause of the problem or what exactly needs to happen next. But amongst these groups there is a shared sense of what the problems are and that a new style of economics and economics education is emerging.

Back of the book

In 2013, a small group of professors from five different countries, banded together to create the CORE project. By September 2014, first-year students at UCL, one of London’s upper-tier universities, were being taught solely the CORE curriculum. There’s some evidence that students who studied CORE are doing better than those that didn’t. Today, it’s taught (at least partially) in more than 100 universities in 33 countries around the world, including Colombia, India, France, and Australia. More than 77,000 people have registered to access the e-book from 186 countries.

CORE is disruptive at its heart. One of the founders is from Chile, where in 2011 massive protests about the education system broke out. Economics students demanded to be taught about what was actually happening in the Chilean economy at the time, and not just abstract theories. They wanted to know how the education system worked and how it contributed to high levels of inequality. The students succeeded and the curriculum at the University of Chile was overhauled.

CORE wasn’t just a result of students’ frustrations but also the frustrations of many teachers. The founders believed there was a gap between what students were being taught in traditional courses and textbooks, and the way academics and researchers actually thought about economic problems. Economists were winning Nobel prizes for their studies of how and why markets fail, psychology was being integrated back into economics, and yet students weren’t being taught much of that.

“It was frustrating having to teach an introductory course and forget about all the advances that have happened in economics,” said Wendy Carlin, a professor of economics at UCL and co-founder of CORE. These advances “give us powerful insights and yet were sent to the back of the book, the last chapters that were hardly ever taught,” she said, referring to traditional textbooks. Her most recent textbook for more advanced students, published in 2014 with David Soskice, integrates the financial system into a macroeconomic model, attempting to correct the major criticism of macroeconomics from before and during the global financial crisis. In 2016, Carlin was awarded the title of Commander of the Order of the British Empire (CBE) in the New Year’s Honours list for services to economics and public finance.

CORE’s masterstroke was breaking through a major financial impediment to changing how economics is taught: textbooks. Even though introductory textbooks are revised about every three years, many publishers apply a rule of thumb that you shouldn’t deviate by more than 10% from old textbooks because teachers don’t want to have to keep changing their material. Popular textbooks include one by Alan Blinder and William Baumol that was first published in 1979. Another is by Greg Mankiw from 1997. Mankiw’s Principles of Economics textbook sells for about $150 on Amazon in the US, a $100 discount on the list price. Mankiw has collected many millions of dollars in textbook royalties (though after criticism said he would donate them to charity). International editions of popular textbooks often cost less. For example in the UK, new copies retail for about £60 ($78). Nevertheless, publishers are understandably reluctant to change such a profitable business.

“It was frustrating having to teach an introductory course and forget about all the advances that have happened in economics,” said Wendy Carlin, a professor of economics at UCL and co-founder of CORE. These advances “give us powerful insights and yet were sent to the back of the book, the last chapters that were hardly ever taught,” she said, referring to traditional textbooks. Her most recent textbook for more advanced students, published in 2014 with David Soskice, integrates the financial system into a macroeconomic model, attempting to correct the major criticism of macroeconomics from before and during the global financial crisis. In 2016, Carlin was awarded the title of Commander of the Order of the British Empire (CBE) in the New Year’s Honours list for services to economics and public finance.

CORE’s masterstroke was breaking through a major financial impediment to changing how economics is taught: textbooks. Even though introductory textbooks are revised about every three years, many publishers apply a rule of thumb that you shouldn’t deviate by more than 10% from old textbooks because teachers don’t want to have to keep changing their material. Popular textbooks include one by Alan Blinder and William Baumol that was first published in 1979. Another is by Greg Mankiw from 1997. Mankiw’s Principles of Economics textbook sells for about $150 on Amazon in the US, a $100 discount on the list price. Mankiw has collected many millions of dollars in textbook royalties (though after criticism said he would donate them to charity). International editions of popular textbooks often cost less. For example in the UK, new copies retail for about £60 ($78). Nevertheless, publishers are understandably reluctant to change such a profitable business.

By contrast, Mankiw’s Principles of Economics begins, naturally, with his 10 principles of economics, which include “people face trade-offs,” “rational people think at the margin,” “trade can make everyone better off,” and “markets are usually a good way to organize economic activity.” Early chapters tackle trade, supply and demand (for three chapters), and the efficiency of markets. It, along with other favored textbooks that have nearly identical chapters, presents as empirical fact once-hallowed economic principles such as markets mean workers are paid in accordance to their productivity, there needn’t be major losers in free trade, and that government intervention in markets often has negative unintended consequences.

But closer scrutiny of income inequality, evidence that free trade and globalization aren’t a rising tide that lift all boats, America’s decision to launch a trade war with China, and the increasing allure of China’s planned economy to other developing countries have opened the door to competing economic principles. It’s no wonder that students are demanding an education that challenges the lessons of older textbooks.

Nonetheless, CORE only goes so far. It can’t completely depart from more traditional economics courses because it’s only taught to first-year students and they need to be able to enter their second year as well-equipped as students who haven’t taken CORE. Those limitations reveal themselves in the classroom. Before the market trading game, the lecture at UCL began in the way CORE envisions a lively, 21st-century learning experience. There were videos to watch, interactive quizzes, class discussions. But after the game, it turned into a traditional lecture. The interactives were replaced with paper and an overhead projector. Students stopped taking notes and started to drift off as the lecturer explained how to calculate real GDP, using complicated equations, squashed onto a single A4 piece of paper, that was hard to read.

A liberal education

In economics, Joe Earle saw a way to understand the world. He has been an engaged economics student since he was 16, when he studied for his A Level in economics, the final high school exams, in North London. A decade later, over coffee and slices of cake in a cafe in Edinburgh on the sidelines of the inaugural Festival of New Economic Thinking, he recalls his small school classroom where about 15 students read the news and debated current economic affairs.

During a two-year gap between high school and university, Earle spent his free time attending public lectures at the London School of Economics and discussing them with other attendees and students in local pubs afterwards. Next, he went to the University of Manchester to do an undergraduate degree in politics, philosophy, and economics. But the economics part of his major failed to live up to his hopes.

“It felt like you were being taught something as established truth and the only thing you were being asked to do with it was regurgitate it,” Earle said. Tutorials involved 50 to 60 students copying questions and answers from a board. It was nothing like he remembered from school. By his second year, in 2012, the disappointment led him to set up the Post-Crash Economics Society.

The society was one of 65 associations of economic students from 22 different countries, who in 2014, signed an open letter declaring that the teaching of economics had suffered a crisis. They called for more pluralism in economics education and to be better prepared to tackle a raft of modern issues, including climate change and food security. Only one school of thought—neoclassical—presides over economics, they argued. “This lack of intellectual diversity does not only restrain education and research,” they wrote. “It limits our ability to contend with the multidimensional challenges of the 21st century.”

Earle and his other Post-Crash founders, Cahal Moran and Zach Ward-Perkins, went on to publish a book that is part manifesto for change, part critical evaluation of current economics curricula. The Econocracy: The perils of leaving economics to the experts attempts to prove concretely that economics education has become homogeneous. The authors reviewed the curriculum of seven higher-tier British universities, using course guides and examinations, to analyze a total of 174 economics modules. Sure enough, they reached the same conclusion about the pervasiveness of neoclassical theory.

This is one of the reasons that some of today’s foremost problems—inequality, climate change, and financial crises—are either missing or oversimplified in economics teaching, they argue. Economists lost their way, they say. The desire for mathematical perfection and scientific precision was partly to blame. But so was a desire to influence public policy and cement the credibility of economics as a relatively new science. “The result of this education is that we, as the next generation of economic experts, are grossly underprepared to use effectively or responsibly the power we are given,” write the authors.

Andy Haldane, the chief economist at the Bank of England, wrote the foreword to The Econocracy. “Mainstream economic models have sacrificed too much realism at the altar of mathematical purity,” he contends. The creation of a “methodological monoculture” means that universities have also neglected some of the disciplines that makes economics stronger, such as economic history, moral philosophy, money and banking, radical uncertainty, and non-rational expectations.

The Econocracy calls for a return to a multi-disciplinary “liberal education” that prioritizes the development of critical thinking skills over strict employability, a tradition rooted in Socratic teaching methods. It’s a style of learning that helped produced great thinkers like John Maynard Keynes, who studied mathematics and classics at Cambridge, and Friedrich Hayek, who had PhDs in law and political science.

In the eyes of Earle, Moran, and Ward-Perkins, CORE doesn’t go far enough. It’s “politically liberal but intellectually conservative,” Earle said, and still relies heavily on the teaching of neoclassical economics. As happy as he is to see teachers committed to improving education and breaking from the mold, Earle argues that the course isn’t taught that differently from traditional modules. Students are still expected to reproduce material from the textbook and there is only a limited increase in the amount of time students spend developing their own independent arguments.

Reteaching Economics, a network of UK-based young academics and lecturers founded in 2015 in response to student calls for greater pluralism in teaching, also says that CORE isn’t radical enough. For example, it points to the way the CORE textbook incorporates historical figures such as Karl Marx and Friedrich Hayek. Their theories are referenced as sidebars; viewed as history, rather than tools that can be useful today. Its members want to end the teaching of neoclassical theory as if it’s the only scientific and neutral approach to economics.

Earle thinks fundamental problems with economics are the root cause of problems in economics education, a view at odds with CORE’s founders. “[CORE] appears to be the kind of reform that ends up preserving much of the status quo and undermining more fundamental calls for change,” he writes in the The Econocracy.

The messy reality

Every year, masses of students take some form of Econ 101. In the US, economics has become the most popular major at most Ivy League colleges. At Northwestern, half of all students, regardless of their major, take the introduction to macroeconomics class. In the UK, the number of applicants to study economics has increased by 30% in the past decade.

Only a slender portion of those in Econ 101 go on to pursue further study of the intricacies of economics and stay in academia and research. Most of the rest go on to professional careers in business, finance, politics, law, and the like, armed with only these foundational lessons. Those who dig deeper into economics will inspect the theories they learned in Econ 101, and to some extent, dismantle them. The students who don’t make it that far end up with something James Kwak, a professor at the University of Connecticut, called “economism,” a term he coined to describe what happens when basic economics is used to reduce complex problems to simple certainties.

Economism, he writes in his recent book of the same title, is used to argue that hikes to the minimum wage definitively hurt the poor, raising taxes on the wealthy won’t improve services, and that government intervention will inexorably lead to deadweight losses. In the end, the fear of trade-offs and the reliance on the equilibrium of supply and demand—key, yet overly simplistic, principles of economics learned in early classes—can get in the way of good public policy.

The students who started fighting for change in 2014 have most likely graduated now and are trying to apply what they learned in their careers. Those studying today have grown up in the long shadow of the financial crisis, amid fierce debates about inequality and sustainability. As the economic recovery ages and we inch closer to next downturn than the last, it becomes more urgent to equip students with all the tools of modern economics, econometrics, and other social sciences. They need to see the world for how it really is and not rely on archaic models and simplified theories.

Like all efforts to make large systemic changes, a revolution in economics education will be messy and slow, but have the potential to transform public life. Technology, and what is becoming known as the fourth industrial revolution, is bringing upheaval to the workplace and the environment. It seems logical that economic lessons grounded in reality, based on empirical evidence, and informed by a diverse set of thinkers would result in a more effective conversation about what a modern economy should look like.