Forget the real world

Those who see themselves as practical students of the real world are condemned to never understand it.

To grasp how society works demands an entirely different approach. Simply responding to what happens to be in the news is doomed to yield superficial and one-sided results.

The recent calls by economics students for their tutors to take a more reality-based approach provide a case in point. For example, the University of Manchester Post-Crash Economics Society has received a lot of publicity for its campaign for a better economics education. One of its premises was that the way economics was being taught “seemed separate from the economic reality that the world was facing”.

Much of the blame for this alleged unworldliness is pinned on the supposed dominance of free market economics: “Our economics education has raised one paradigm, often referred to as neoclassical economics, to the sole object of study. Alternative perspectives have been marginalised.”

In relation to the latter point the PCES apparently failed to appreciate the implications of its own report’s foreword, entitled “the revolution in economics”. It is deliciously ironic that the author was Andrew Haldane, the executive director for financial stability at the Bank of England, an unlikely revolutionary.

Haldane took the opportunity to assert “the power of economics is that it affects real lives in real ways”. Indeed the inspiration for PCES was a 2011 conference on “Are economics graduates fit for purpose?” supported by the British Government, the Bank of England and the Royal Economic Society. Despite its anti-establishment pretensions it is hard to imagine a more mainstream initiative.

One of the main backers for such projects internationally is the Institute for New Economic Thinking. As I have written before on Fundweb this organisation presents itself as the voice of embattled radicalism, but is itself a bastion of the economics elite.

Its advisory board includes among others five Nobel laureates (James Heckman, Sir James Alexander Mirrlees, Amartya Sen, Michael Spencer and Joseph Stiglitz), two former chief economists at the IMF (Simon Johnson and Kenneth Rogoff), a former economic adviser to the Bank for International Settlements (William White), a special adviser to the secretary-general of the United Nations (Jeffrey Sachs) and Haldane. Its chairman and co-founder is George Soros, a billionaire hedge fund manager.

Indeed the main reason student groups such as PCES have received so much attention is that they reflect the disarray in the economics profession and the policy elite. The professionals’ tools have failed to revive the developed economies from years mired in stagnation so they are desperately seeking alternatives. Only they lack the confidence or ability to produce anything genuinely innovative.

The critics’ goal is not to bury conventional economics but to save it.

This lack of imagination is apparent in the new coreecon project for teaching economics, produced with support from INET. Despite claims to the contrary its approach is not that different to what was being taught previously.

When the mainstream critics of economics call for a reality-based approach they seem to mean several different things:

• Economic studies should focus on providing a rapid response to recent events. But those seeking to develop a systematic approach should be asking more fundamental questions rather than demanding quick insights into recent developments.
• An outlook that is orientated towards policy. But looking at the world through the narrow lens of the policymaker tends to detract from understanding the underlying dynamics of the economy.
• An approach that is “realistic” in the sense of respecting the limits on economic growth posed by such challenges as extreme inequality and climate change. But many authorities from an earlier era, including Adam Smith, were concerned with transcending limits rather than being constrained by them.

Those seeking a genuine alternative should instead read some classic texts rather than paying so much attention to the “real world”.

A useful first step might be to ponder the words of John Maynard Keynes in his General Theory where he took aim at an earlier generation of those claiming to be immersed in the real world. He expressed disdain for “practical men” who “believe themselves to be quite exempt from any intellectual influences, [but] are usually the slaves of some defunct economist”.

Or, even better, follow the advice of Karl Marx in the 1872 preface to the French edition of Capital where he emphasised the hard work needed to develop a balanced view of the world: “There is no royal road to science, and only those who do not dread the fatiguing climb of its steep paths have a chance of gaining its luminous summits.”

Students would benefit enormously from reading the classic works of such Dead White Males rather than adopting the blinkered outlook of policymakers. Systematic study of the past would open the way for a radical step forward in their understanding.

This blog post was first published today on Fundweb.