The market volatility at the start of 2016 raises a question that has lingered since the global financial crisis: Can economists be trusted? Ever since 2008, economists have come under attack for being out of touch, including by Her Majesty the Queen, who wondered how they could have been so mistaken.
Eight years on, there is still no profession more in need of a few changes. So here is my own five-point plan for how we economists can bring about a revitalized, more relevant, profession.
1) Get interdisciplinary: In the time of Smith, Ricardo, Marx and Malthus, economists saw it as their vocation to consider the interplay between economy, society and politics. Nowadays you would be lucky to find an economist who had opened the cover of one of the great works, never mind one who is friends with a sociologist.
Economics has cut itself off through the imperialist tendency to see itself as the king of social sciences. While economic concepts and ideas have penetrated other disciplines, economists have been much less keen to embrace other disciplines in their own work. As Marion Fourcade, Etienne Ollion and Yann Algan have recently shown, articles in the most respected political journals cite the top economic journals six times as often as the other way around, and the difference is even starker for sociology. Just as worrying, in a survey of American professors, over half of economists either disagreed or strongly disagreed with the statement that “in general, is better than knowledge obtained from a single discipline,” compared with under a third of professors in history, finance, psychology, politics and sociology.
It is vital that economists look beyond economics, at the influence of society, politics and religion. Not only should economists engage with other disciplines; from real world experience in finance or business to working with charities, there is a lot to be learned from life outside of the ivory towers if economics is to become more real.
2) Look beyond the West: Just last week, the new chief economist of the International Monetary Fund, Maury Obstfeld suggested that economists need to stop seeing the world through what is an almost purely advanced-economy lens. The figures speak for themselves. In the 1980s, 36 percent of global GDP and 43 percent of global GDP growth was accounted for by emerging and developing economies. In the last five years, these numbers have increased to 56 percent and 79 percent respectively.
Obstfeld identifies precisely the kind of topics that need to be on any core economic syllabus these days: classic issues related to the balance of payments—capital flows and their management, foreign exchange intervention, vulnerabilities in external balance sheets, and the determinants of current account balances, trade patterns, and trade volumes.
A detailed coverage of these areas should be the bread and butter of economics courses.
3) Promote a sexual revolution: In Britain and the U.S., there are around three times as many boys studying economics at degree level as there are girls. This is not only a problem for girls, locking them out of potentially lucrative job opportunities that could help to close the gender wage gap, it is also a problem for the discipline itself. It is only by incorporating gender that economists can reach a fuller understanding of the causes of poverty, slow growth and inequality.
As we eagerly await the publication of “Progress and Confusion: The state of macroeconomic policy” in May 2016, edited by four leading experts -- and for which only three of the 28 contributors are female, we are left wondering just how much further and faster economics and the world economy could be progressing if only more women studied economics.
4) Focus on data: Of all the skills that students acquire, probably the ones that have the most use for them later on are the quantitative tools they develop. In developing such tools, however, the current emphasis is on mathematical proofs rather than on how to actually apply techniques to real world data.
A rebalancing is required. Along the way, it would also be helpful if students were properly introduced to the wealth of data available these days, and to the basics of both how to “clean it up” and how to think about causality in the context of real world scenarios. As Economist Barry Eichengreen recently pointed out, thanks to “Big Data” and the fresh appeal of economic history, economic research is already undergoing a quiet evidence-based revolution, one which should significantly improve policy advice in the future. If teaching is to keep up with the skills required, the classroom will need to dedicate more time to the practical as opposed to theoretical side of data analysis.
5) Get in touch with our human side: Our economy is not ruled and operated by robots but by real people with quirks and imperfections – or, as a behavioural economist such as Richard Thaler would put it, we suffer from “cognitive biases.”
Whilst some economists see the departures from the rational behaviour assumed by their models as nothing more than trifling, others of us believe that it is only by accepting that humans are human that we can explain the real fundamentals of economics: the causes of boom and bust, the drivers of entrepreneurship and growth, and how people can become locked into poverty. Psychology is even more important when seen in the context of risk and uncertainty. It is one thing to assume that we can all behave rationally when the future is known, but quite another when we face up to the fact that economic agents operate in the context of a completely unknowable future.
While we can't predict everything that 2016 has in store, we can at least hope that economists will do a better job in the future than they have in the recent past. That will only happen if universities change the way they prepare students, both for jobs in the private sector and for academic research. Only then will economics truly redeem itself.