As the old saying goes, ‘He who pays the piper calls the tune’. This week, a coalition of economics students, academics and campaigners gathered to get inside the process for the funding of economics research, to create an economics fit for the real world.

The ‘piper’ principle plays out for academic research through a process called the Research Excellence Framework (REF), and  its impact is  considerable. The REF is a very big deal for universities. Every five years or so, each institution gets assessed through the REF. Academics submit their published research which is then judged against a set of criteria and graded. The higher it is graded, the more money their department will receive for future research.

Within economics departments the REF  encourages a single type of economics, while broader research is sidelined. Work that draws on innovative insights about human behaviour, market failures, gender dynamics, ecological limits and institutions is  not valued whilst more mainstream research, underpinned by a narrow set of assumptions about how the economy works,  receives the highest grade.

Because it determines so much of their funding, universities take the REF very seriously. In economics departments, it influences who they hire and fire, which topics they research, and the kind of economics that gets taught to students. Because it dictates the teaching, this cycle is perpetuated. Narrow economics begets narrow economics and society is burdened with economists who can not deal with the challenges society faces, from climate change, to inequality, to financial instability and beyond.

Because the REF has such an impact on society, the new coalition REFunding Economics is working to defend the discipline and make sure that diverse, real-world economics gets the funding it deserves.

The bias derives from several factors, but possibly most crucial is the choice of individuals that sit on the REF panels. They set the criteria for what is classed as ‘world-leading’ research, and later they grade the thousands of pieces of submitted work, ultimately deciding if it is high quality or not. In the 2014 REF, the economics panel was overwhelmingly made up of experts who subscribe to a narrow view of economics, while more diverse, interdisciplinary economists were left by the wayside.

The REFunding Economics coalition is determined to have a positive impact on the next REF, due to take place in 2021. As a first step, they are working to get top quality diverse economists into the heart of the REF system. The REF organising body, which is connected to the Department for Education, allows organisations to nominate individuals for the sub-panels, although the final choice of panelists is up to them.

“We need to make sure that the REF Economics panel values diverse, real-world economics,”  explains Laura Bannister, Strategy Co-ordinator at Rethinking Economics, who are co-ordinating the REFunding coalition. “We’ve been pulling together a group of brilliant economics researchers to put forward, and we sincerely hope that REF will select a good number of them for the panel. This could have a huge positive impact on how economics research gets judged, and will send a strong message to university economics departments about what is wanted from them.”

The deadline for panel nominations is 20th December 2017, so the successful candidates are likely to be announced in the new year.

This is just the first step in a big campaign. The REFunding Economics coalition will be taking every opportunity available in the next few years to influence the REF process for the better. “If we don’t take action, the REF may be a real barrier to reforming economics,” Bannister explains.

Rethinking Economics has grown out of the international student movement for better economics in the classroom and in society.

“Students all over the UK and the world have been sitting in their economics lectures, wondering when they’re going to learn about the big issues: inequality, financial crises, post-growth economics for the climate change age. Often, the assumptions and models that they are taught seem to be based in a strange alternate reality that bears little relation to the real world in which they’ll later be employed. Students, as well as many academics and professional economists, have become increasingly worried about this. The system isn’t creating the kind of economists that the real world needs, and the REF is a big player in this issue.”

By pushing for change in economics research and teaching, and in the mechanisms that fund it, Rethinking hopes to shift the way economics is understood, taught and communicated by governments, universities and other bodies of influence.

“Economics makes the world go round. We need economists that can grapple with the big issues of the 21st century, and this requires a broader subject that can deal with these multidimensional problems. Economics is crucial to everyone’s quality of life, and good economics begins in the classroom, where the decision makers of tomorrow learn their trade. It’s time we made sure that we’re creating an economics that is fit for the future.”

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Ten years ago this week, customers of the bank Northern Rock queued up in their hundreds at branches across the country, demanding to cash out their deposits. Only two months earlier, the bank had released rosy forecasts, including a plan to increase shareholder dividends by 30%. But by March 2008 the bank had been nationalised, and the Financial Crisis was cutting ever deeper into our economy.

Economists were left firmly on the back foot. The Queen asked why nobody saw the crisis coming, and she was told, “that financial crises were a bit like earthquakes and flu pandemics in being rare and difficult to predict.” But should economists view economic crises in this way, as semi-Biblical disasters emerging from somewhere completely outside the economic realm? Surely, it is possible to skill up our economists to predict and prevent disasters, and to create economic systems that can withstand economic, social and ecological realities without risk of collapse.  If we want a more stable economy, the economists of the future need to be taught an economics that is fit for purpose.

Nearly all economists start life as economics students: in lecture theatres and seminar rooms they learn their trade. Our organisation, Rethinking Economics, examines and critiques what economics students are taught. Our study of 177 undergraduate economics modules in seven prominent universities showed some stark conclusions.

Across the country, students are being taught a narrow version of economics where real-world economic issues barely feature. Primarily, students are required to ‘operate a model’ (show the calculations needed to reach an often predetermined right answer) or to ‘describe’ rather than evaluate a theory or policy. On average, a fifth of core macro and micro modules were assessed by multiple choice exams, with one university using these for 53% of core assessment. Overall, 78% of economics assessments required no critical or independent thinking at all, and a mere 5% of exam marks required any knowledge of the real world.

Shockingly, this trend persisted throughout undergraduate courses, with little or no progression onto a broader curriculum or a more analytical style in later years. More complex economic phenomena that relate to financial crises continued to be classed as ‘external shocks’, beyond the mandate of economists to consider.

Given this background, it is hardly surprising that economists see economic crises as being as unpredictable as earthquakes. Economics students that are not equipped with the tools to understand real economic systems will inevitably struggle to understand and work with real-world economic events when they graduate. In the years following the collapse of Northern Rock, society learned the consequences of the economics curriculum’s limitations.

From this analysis, it might seem that economics has little to offer to prevent another crisis. In fact, there is much that economics students could be taught that would skill them up for real-world economic management.

Broadening the curriculum would bring huge benefits. Courses could cover Minsky’s ‘Financial Instability Hypothesis’, which explores the impact of risky borrowing behaviour on the wider financial system. This could help future economists to spot and resolve vulnerabilities to help avoid crashes. Inclusion of New-Keynesian thinking, which builds in the idea that market failures are possible, could give future economists a fuller understanding of the interventions available to keep an economy functioning. Austrian economics contributes valuable insights relating to business cycles, inflation, and government intervention. Feminist economics draws our growing care economy into analysis. Ecological economics provides insight into the economic pressures that may arise as global resource availability shrinks.

Economics graduates who study these and other perspectives, as well as the modelling that comprise the current curriculum, would be better placed to help manage the real economy in all its glorious complexity. When economics students are taught a broader range of perspectives and techniques, they will be better able to foresee challenges and financial risks, predict collective as well as individual human behaviour, and address the ecological, social and economic challenges of our time.

Universities have a huge opportunity to contribute to a decent, stable and secure economic future for us all. We are relying on them to train up the next generation of economists, who will inform our voters, advise our governments, and sculpt our economic environment. Those economists must be ready to prevent another Northern Rock, and to create a better economic future in the real world.

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