The lost decade?

A decade on from the Global Financial Crisis (GFC), now is the time for serious reflection on where we are, how we got here and what future lies before us. In the aftermath of the 2008 crisis, finance-driven capitalism appeared to be on a precipice. The collapse of leading global financial institutions in the US and UK led to a free fall in global markets, followed by the European Sovereign Debt crisis. It all seemed to herald the end of unfettered financial expansion. Indeed, many believed 2008 was another 1929 moment – a systemic crisis would bring about a New Deal style recovery and a Bretton Woods agreement for the 21^st century to establish clear parameters for a stable global financial system. A decade later the outcome is far different: finance capitalism has never had it so good.

The initial bailouts, deemed necessary to keep the financial system afloat, were followed by drastic reductions in interest rates that have yet to return to pre-crisis levels. Risk guarantees offered by Central Banks and Treasury Departments across the globe were committed to providing the money (liquidity) necessary to maintain the stability the global financial system. This was followed by asset buy-back schemes and long-term refinance operations which became systematised into successive rounds of Quantitative Easing (QE). Technocratic speak refers to the last decade, euphemistically, as the ‘era of unconventional monetary policy’, or the biggest ever helicopter money drop onto the financial sector in living memory. Those who believed 2008 could have been a reckoning for the failures of finance-driven growth could not be more disappointed. The financial sector is more entrenched than before the crisis, and the political power of finance to control the public policy agenda stronger than ever.

Looking to the future and seeing much of the same

Looking back over the past decade, even achieving an economic ‘recovery’ took longer than the Great Depression. The promises of a rebalancing of growth across Great Britain, well-funded health and education services, and prosperity for 95% that did not benefit from QE, never materialised. The failures of austerity are plain for all to see: the economy is stagnant and most people are worse off now than a decade ago.

Our shared economic future only promises more austerity. Wages and incomes will continue to stagnate. The economy will be still dependent on private debt to fuel asset bubbles and ever more household debt will be needed to sustain meagre economic growth. With the economy in the doldrums and Brexit looming on the horizon, we face entrenched economic malaise or another severe financial crisis. When growth is forecast over the medium term, it is always revised downward. To put it simply, no one is predicting that the UK’s economic future will get any better.

Making another future possible: we need an alternative policy agenda

In the face of peril, we cannot lapse into fatalism. We need to break out of the perpetual loop of anti-austerity, which points to the real failures of the austerity policy agenda without clarity on viable alternatives. The Progressive Economy Forum (PEF) seeks to dispel the myths and lies of austerity economics and replace that pernicious ideology with a progressive macroeconomic vision and narrative that makes another future possible.

The aim is to develop a 21st century Keynesian policy platform, that will end today’s austerity just as Keynes’s ideas in practice helped end the Great Depression and usher in a generation of economic stability and prosperity.  In his pioneering work, The General Theory of Employment Interest and Money (page 383), Keynes famously wrote:

“Practical [people] who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”

Today, the global economy is gripped by these same “madmen in authority” that bring us austerity. The current “voices in the air” come from economists who are very much alive and whose scribbling continues unabashedly. In response, we must begin mapping out a new direction, to forge a different path that leads to a better future.

100 policies to end austerity: a call for interventions

The goal of PEF is to build a policy platform that will end austerity in a way that embraces the progressive values of equality, dynamism and sustainability. In line with openDemocracy’s New Thinking for the British Economy agenda, our aim is to cultivate a rich garden of new ideas, policies and plans to end austerity by forging a new path. Our bold plan is to curate 100 Policies to End Austerity as a starting point for a better future. We will bring together contributions from economists and policy experts that articulate clear proposals for a progressive, sustainable and equitable British economy for the 21^st century. This is the start of an interactive conversation, not a definitive policy platform, about a vision of a better future.

In practice this means debating the key ideas that inform public policy, like monetary, fiscal and taxation policy needed to end austerity. In addition, it requires addressing the problems created by austerity. For example, creating an investment bank, green jobs, affordable housing, a fully-funded NHS and education system, compassionate care for an ageing population, a secure social security system, better local authority services and regional development. The list of ways to end the harm caused by austerity goes on. The challenge for progressives is to create a policy agenda that can foster a better future for everyone.

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This summer I attended a behavioural science school at the University of Warwick. Among the speakers was the economist Paul Frijtas, who said something that sparked my attention:

“Individually economic ideas can be fantastically idiotic, but as a whole they provide the bureaucracy with a framework for thinking about the right things, communicating and looking at the data.”

This is quite a disarming rejoinder for us critics of mainstream economics, in that it already concedes most of the substantive points we might make about unrealistic assumptions, limited methodology and empirical issues (many of which Frijtas himself did not shy away from making for the duration of the School). Instead it throws up a different challenge: are any of our alternatives feasible, practical and comprehensive enough to provide a general framework for thinking about economic problems?

We may call for adopting a variety of perspectives – pluralism – but I am increasingly of the view that none of them can suffice in this regard.

Pluralism as a check

Any call for utilising pluralist economics needs to be clear on exactly how it would be put into action. Like it or not, the mainstream has a wide range of tools ready for use in situations: from business cycle management to competition regulation; from environmental protection to health policy; and for estimating the effects of both early education and criminal rehabilitation programs. Although there are many schools of economics which would ideally be incorporated into the pluralist’s toolkit, none of them are sophisticated enough to replace mainstream economics entirely. Schools such as feminist, behavioural and ecological economics are non-starters because they are designed to highlight specific (and important) features of the world which the mainstream has historically missed, rather than to present a full alternative vision of economics.

There are several approaches which are more general, including the well-established schools of Austrian, Marxist, and post-Keynesian economics. But it would be difficult to persuade institutions which utilise economics to embrace the former two for the simple reason that they usually object to the existence of these institutions altogether. Many Austrians would like to get rid of all governmental functions but the ones that facilitate basic market operations, which is not helpful for an economist working in the Government Economic Service (GES) or Bank of England (BoE). Marxists would go one step further and do away with the market operations as well, making it difficult for a private or public sector economist to whole-heartedly embrace the use of Marxist economics.

Post-Keynesians offer a sometimes appealing, non-burn-it-all-down vision of capitalism, but they are often focused on macroeconomics and are at best ambivalent about many of the microeconomic policy tools of the mainstream such as cost-benefit analysis, econometrics and auction theory, all of which are easily actionable for practitioners. The lack of workable alternatives outside macroeconomics makes it difficult to see what a ‘post-Keynesian GES/BoE’ would look like. At the other end of the spectrum, Agent Based Computational Economics (ACE) – which I wrote about recently – offers a variety of flexible simulations which could in principle be applied to nay problem. But this approach is arguably too flexible at this stage, such that there is not a standard framework from which analysis can be benchmarked and compared across problems.

So what is the role of pluralism? Increasingly I believe that it should function as a much-needed check on the mainstream, since if economic ideas can be “fantastically idiotic” then it goes without saying there are things they can miss. As the Nobel Laureate Robert Lucas put it “the construction of theoretical models…necessarily involves ignoring some evidence or alternative theories… [sometimes]… I simply fail to see some of the data or some alternative theory”. Pluralism can make the mainstream more aware of these blind spots.

If you think that to cast pluralism as a mere check on the mainstream is to diminish its role, you are mistaken. Highlighting problems the mainstream cannot see and proposing an alternative framework where necessary is hugely valuable, both intellectually and from a policy perspective. Feminist economics, for example, would highlight issues such as the gendered impact of recessions, or of infrastructure investment in developing countries. They would also suggest counting household and care work in GDP, which can drastically alter its level, growth of and volatility (up, down and down respectively, in case you’re wondering).

Ecological economics would force economists to look at the impact of economic activity on the environment, questioning whether growth represented true ‘progress’ or whether it was just borrowed by depleting natural resources and destabilising ecosystems . As with feminist economics, a revealing way of doing this is to incorporate ecological concerns into GDP estimates.  And just as governments across the world have recognised that behavioural economics helps to simplify a vast range of government policies based on insights about how humans actually make decisions, the GES have recently recognised such ecological considerations in their Green Book.

However, we have a long way to go before pluralism is part and parcel of the economists’ toolkit, and this can have deleterious social consequences. Around a decade before he was appointed Chair of the Federal Reserve, Ben Bernanke dismissed the post-Keynesian Hyman Minsky’s Financial Instability Hypothesis – which posited that investors can become overconfident, getting sucked into speculative bubbles and ultimately crashing the economy – on the grounds that “the best course of action is pushing the rationality postulate as far as it will go”. Needless to say, this faith in the self-regulating power of financial markets was widespread among economists, policymakers and politicians in the run up to the crash.

Subsequently, the mainstream is trying to incorporate Minsky into its models, but the presence of post-Keynesians on monetary policy committees, in financial regulation authorities and as talking heads on the media would have been more helpful in the run up to the crash – which is why the phrase ‘too little, too late’ springs to mind. Who knows what other insights we have missed, or are currently missing due to the intellectual straightjacket placed on understanding and policymaking by the mainstream? To return to my above examples, Marxists might have voiced concerns about falling rates of profit and declining investment in the 2000s, while Austrians would have taken a step back to ask policymakers whether intervention, particularly in the form of low interest rates, could actually improve the situation at all.

Checks, checks and more checks

Of course, in a discipline as broad and socially impactful as economics, pluralism of economic ideas will not be enough. An obvious extension that is needed is interdisciplinarity: as this New York Times column pointed out, some knowledge of sociology – in particular the fact that work is not just a source of income but of identity and self-worth – might have helped economists to notice the problems emerging in former manufacturing hubs in the United States, seeing and speaking to them as individuals rather than as simple ‘costs’ in models of trade. No doubt similar insights could be gleaned from psychologists, anthropologists, geographers, philosophers and even humanities scholars if they had more of a seat at the policymaking table.

Any collection of experts making political decisions – no matter how diverse their expertise is – also needs to be accountable to the public. As a recent Guardian article about public economics education noted, the alienation and distrust people feel towards the economy and those they perceive to have power within it, believing that “economics is something that’s done to them, by people sitting far away in Westminster or the City”. One participant encapsulated the extent to which expertise shuts people out of democratic debate when she said “information is power…if I can learn in this class, maybe others will listen to me.”

Ensuring that experts were accountable to the people they served through public consultations and education programs would help to alleviate this sense of disconnection from economics and politics, and would likely help the experts too. The locals may not help you program your DSGE model, but they can highlight issues such as the regional economic disparities which have proven so salient since the financial crisis, a fact that dovetails nicely with the approach of sociologists and anthropologists to actually go out and speak to people. The Science Communication movement has learned a lot from this two-way, interactive model of participation, where both experts and non-experts are deemed to have valuable contributions.

A final, much-needed check on mainstream economics it the need for an ethical code akin to that of doctors. Relatively speaking, egregious ethical violations are rare in economics, but egregious violations needn’t be rare to be harmful, as some economists’ connections to the financial sector during the financial crisis showed. An ethical code combined with professional sanctions would prevent and punish such violations to the benefit of both society and of those economists (i.e. the vast majority of them) who have done nothing wrong.

Yet there is also a more general problem with ethics in economics: the embedded tendency to recommend policies based on purely ‘technical’ criteria without recourse to ethical considerations, something which only make sense if you consider the normative propositions of mainstream economics ethically neutral. Yet growth, efficiency and ‘Pareto optimality’ are no less politically contestable than economic freedom, well-being and security, even though the former are the focal points of most economic models. Sheila Dow has outlined a vision for ethics which tries to take a more pluralist view, outlining the professional duty of a discipline which has a large degree of socio-economic power.

From here to there

Ideally all or most of these checks would take place in the same person’s head, aided by a fully reformed economics education which encompassed pluralism, ethics, interdisciplinarity and communication. However, this is still a long way off, and in any case it is admittedly a little much to ask every economist and expert to be constantly aware of all of these issues in every decision they take. Thus, the inclusion of individuals, guidelines and consultation processes which involve people with different perspectives and create accountability mechanisms would be a valuable first step to pushing economics back in the right direction whenever it became too fantastically idiotic.

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On 16 May Caroline Lucas MP, co-leader of the Green Party, and Anneliese Dodds, Shadow Minister for the Treasury, spoke at the launch of the Progressive Economy Forum (PEF), an organisation initiated by prominent London human rights lawyer Patrick Allen. The following day the PEF Council, which is made up of leading economists, met to initiate its project of transforming the economic narrative in Britain. As part of our commitment to policy making, Peter Dowd, Shadow Financial Secretary in the Treasury, joined us in the afternoon.

The Progressive Economy Forum will launch a new macroeconomic narrative, founded on the progressive values of equality, dynamism and sustainability. To put it succinctly, PEF seeks to dispel the myths and lies of austerity economics and replace that pernicious ideology with a progressive macroeconomic vision and narrative.

What we seek to dispel is nothing less than the ideological justification for the destruction of public services and the associated disintegration of our national sense of community. Conservative governments have implemented this destruction and disintegration through expenditure cuts whose long run purpose is the weakening of the public sector, sometimes encapsulated in the term “neoliberal agenda”.

Austerity: the Tory default Mode

Severe as it has been for the welfare of the British people, the last eight years of austerity under three Conservative governments are only the most recent manifestation of Tory assaults on public services. Since Margaret Thatcher became prime minister almost forty years ago, shrinking the public sector has been the recurrent theme across Tory governments.

Far worse than a drip, drip, drip of water torture cuts, Conservative governments have assaulted the public sector with the siege machines of constrained departmental budgets, privatisation and catastrophic reductions in local government grants. This is the sorry history of Tory governments that PEF, through its educational and outreach activities, seek to expose and discredit.

That sorry story appears in Chart 1, which shows total public spending as share of GDP over four decades (from 1980-2017). I was initially surprised that in the first three years of the Thatcher government the share of public spending in GDP rose. This unexpected rise is the “exception that proves the rule” of Conservative governments, resulting not from expenditure increases, but from austerity-driven contraction of GDP. Then Chancellor Douglas Howe consciously provoked a severe recession with the putative and punitive purpose of reducing inflation. As the economy haltingly recovered, the public sector declined. The share of public spending fell continuously for the rest of the decade, from 42.8% in 1979 in the last year of the Labour government to less than 35% in 1989 (Thatcher’s last full year in power).

By comparison, the years of the Major government were relatively benign for public spending, though it remained continuously below the 38 year average and fell after 1992.  The return of a Labour government briefly coincided with further decline, to 35% in 2000 from 37% when the Major government staggered to its unlamented end in a near electoral wipe-out. The decline at the end of the 1990s represented the reverse causality of the early 1980s. A four year above-average growth rate of 3.5% resulted in GDP expanding faster than public expenditure. During the last of the Blair years, 2000-2007, the public expenditure share in GDP rose almost continuously, to well above the period average.  In 2007 just before the global financial crash public spending relatively to GDP had returned to the four decade average of 39.7%.

In the early 1980s a policy-induced recession pushed up the spending-GDP ratio by driving down GDP. A far more severe and certainly not intended recession arrived in 2008. The collapse in GDP combined with strong countercyclical fiscal policy took public sending to 44% of GDP in 2010.  Following the reactionary tradition of Thatcher, the Cameron-led governments quickly and aggressively reversed that increase. This neo-Thatcherite assault on public spending, faithfully continued by the May government, again brought the spending share below 40%.

Chart 2 shows the clear link between squeezing public expenditure and economic growth. During the Thatcher-Major years, when the public expenditure share fell drastically and remained consistently for long term trend, the 17 year average GDP growth rate was 2.2% and negative in five of those years.

By contrast, during the 10 Blair-Brown years prior to the global crisis the spending ratio rose and GDP growth increased to an average of 3%. The seven full years of Cameron-May brought us back to the Thatcher-Major rates, even lower at 2.0%. Four decades changed neither Tory economic policy nor its outcomes – a contracting public sector and growth rates well below potential.

To quote a famous song by Frank Sinatra, Tory austerity and stagnation “go together like a horse and carriage”, and multiple conservative governments have confirmed “you can’t have one without the other”.

Exposing Austerity

Those of my generation may remember another song, this one of the 1960s and satirical, “Lilly the Pink”. The song celebrates the virtues of a miracle cure for all conceivable bodily ailments, the “medicinal compound”. However, when taken by hopeful sufferers, the consequences are disastrous – e.g. its “cure” for a stammer is to leave a person unable to speak.

It would be difficult to find a better metaphor for the austerity ideology. Thatcher, Osborne and Hammond all promised that it would repair and revive the British economy. As in the song, when urged to “drink-a-drink-a-drink” the austerity compound, the British public finds itself not cured but suffering from a collapsing health service, economic stagnation, local governments in bankruptcy and social services in tatters.

Building on the gathering public recognition that the austerity ideology is no more than snake oil, the Progressive Economy Forum provides focus for a new, positive economic narrative. It is a narrative of hope not despair, identifying the policies that can take Britain from the current austerity-induced malaise to a vibrant society managed for and by the many not the few.

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“The really fascinating battles in intellectual history tend to occur when some group or movement goes on the offensive and asserts that Something Big really doesn’t actually exist.”

So says Philip Morowski in his book ‘Never Let a Serious Crisis Go To Waste: How Neoliberalism Survived the Financial Meltdown’. As Mirowski argues, neoliberalism is a particularly fascinating case in point. Just as Thatcher asserted there was ‘no such thing as society’, it’s common to find economics commentators asserting that there is ‘no such thing as neoliberalism’ – that it’s simply a meaningless insult bandied about by the left, devoid of analytical content.

But on the list of ‘ten tell-tale signs you’re a neoliberal’, insisting that Neoliberalism Is Not A Thing must surely be number one. The latest commentator to add his voice to the chorus is Sky Economics Editor Ed Conway. On the Sky blog, he gives four reasons why Neoliberalism Is Not A Thing. Let’s look at each of them in turn:

1. It’s only used by its detractors, not by its supporters

This one is pretty easy to deal with, because it’s flat-out not true. As Mirowski documents, “the people associated with the doctrine did call themselves ‘neo-liberals’ for a brief period lasting from the 1930s to the early 1950s, but then they abruptly stopped the practice” – deciding it would serve their political project better if they claimed to be the heirs of Adam Smith than if they consciously distanced themselves from classical liberalism. Here’s just one example, from Milton Friedman in 1951:

“a new ideology… must give high priority to real and efficient limitation of the state’s ability to, in detail, intervene in the activities of the individual. At the same time, it is absolutely clear that there are positive functions allotted to the state. The doctrine that, one and off, has been called neoliberalism and that has developed, more or less simultaneously in many parts of the world… is precisely such a doctrine… But instead of the 19^th century understanding that laissez-faire is the means to achieve this goal, neoliberalism proposes that competition will lead the way”.

You might notice that as well as the word ‘neoliberalism’, this also includes the word ‘ideology’. Remember that one for later.

It’s true that the word ‘neoliberalism’ did go underground for a long time, with its proponents preferring to position their politics simply as sound economics than to admit it was a radical ideological programme. But that didn’t stop them from knowing what they stood for, or from acting collectively – through a well-funded network of think tanks and research institutes – to spread those ideas.

It’s worth noting that one of those think tanks, the Adam Smith Institute, has in the last couple of years consciously reclaimed the mantle. Affiliated intellectuals like Madsen Pirie and Sam Bowman have explicitly sought to define and defend neoliberalism. It’s no accident that this happened around the time that neoliberalism began to be seriously challenged in the UK, with the rise of Corbyn and the shock of the Brexit vote, after a post-crisis period where the status quo seemed untouchable.

2. Nobody can agree on what it means

Well, this one at least is half-true. Like literally every concept that has ever mattered, the concept of ‘neoliberalism’ is messy, it’s deeply contested, it has evolved over time and it differs in theory and practice. From the start, there has been debate within the neoliberal movement itself about how it should define itself and what its programme should be. And, yes, it’s often used lazily on the left as a generic term for anything vaguely establishment. None of this means that it is Not A Thing. This is something sociologists and historians instinctively understand, but which many economists seem to have trouble with.

Having said this, it is possible to define some generally accepted core features of neoliberalism. Essentially, it privileges markets as the best way to organise the economy and society, but unlike classical liberalism, it sees a strong role for the state in creating and maintaining these markets. Outside of this role, the state should do as little as possible, and above all it must not interfere with the ‘natural’ operation of the market. But it has always been part of the neoliberal project to take over the state and transform it for its own ends, rather than to dismantle or disable it.

Of course, there’s clearly a tension between neoliberals’ professed ideals of freedom and their need for a strong state to push through policies that often don’t have democratic consent. We see this in the actions of the Bretton Woods institutions in the era of ‘structural adjustment’, or the Troika’s behaviour towards Greece during the Eurozone crisis. We see it most starkly in Pinochet’s Chile, the original neoliberal experiment. This perhaps helps to explain the fact that neoliberalism is sometimes equated with libertarianism and the ‘small state’, while others reject this characterisation. I’ll say it again: none of this means that neoliberalism doesn’t exist.

3. Neoliberalism is just good economics

Neoliberalism may not exist, says Conway, but what do exist are “conventional economic models – the ones established by Adam Smith all those centuries ago”, and the principles they entail. That they may have been “overzealously implemented and sometimes misapplied” since the end of the Cold War is “unfortunate”, but “hardly equals an ideology”. I’m sure he’ll hate me for saying this, but Ed – this is the oldest neoliberal trick in the book.

The way Conway defines these principles (fiscal conservatism, property rights and leaving businesses to make their own decisions) is hardly a model of analytical rigour, but we’ll let that slide. Instead, let’s note that the entire reason neoliberal ideology developed was that the older classical “economic models” manifestly failed during the Great Depression of the 1930s, leading them to be replaced by Keynesian demand-management models as the dominant framework for understanding the economy.

Neoliberals had to update these models in order to restore their credibility: this is why they poured so much effort into the development of neoclassical economics and the capture of academic economics by the Chicago School. One of the great achievements of neoliberalism has been to induce such a level of collective amnesia that it’s now once again possible to claim that these tenets are simply “fundamental economic rules” handed down directly from Adam Smith on tablets of stone, unchallenged and unchallengeable in the history of economic thought.

In any case, even some people that ascribe to neoclassical economics – like Joseph Stiglitz – are well enough able to distinguish this intellectual framework from the political application of it by neoliberals. It is perfectly possible to agree with the former but not the latter.

4. Yes, ‘neoliberal’ policies have been implemented in recent decades, but this has been largely a matter of accident rather than design

Privatisation, bank deregulation, the dismantling of capital and currency controls: according to Conway, these are all developments that came about by happenstance. “Anyone who has studied economic history” will tell you they are “hardly the result of a guiding ideology.” This will no doubt be news to the large number of eminent economic historians who have documented the shift from Keynesianism to neoliberalism, from Mirowski and Daniel Stedman-Jones to Robert Skidelsky and Robert Van Horn (for a good reading list, see this bibliographic review by Will Davies.)

It would also be news to Margaret Thatcher, the woman who reportedly slammed down Hayek’s ‘Constitution of Liberty’ on the table at one of her first cabinet meetings and declared “Gentlemen, this is our programme”; and who famously said “Economics is the method; the object is to change the soul”. And it would be news to those around her who strategized for a Conservative government with carefully laid-out battleplans for dismantling the key institutions of the post-war settlement, such as the Ridley Report on privatising state-run entities.

What Conway appears to be denying here is the whole idea that policymaking takes place within a shared set of assumptions (or paradigm), that dominant paradigms tend to shift over time, and that these shifts are usually accompanied by political crises and resulting transfers of political power – making them at least partly a matter of ideology rather than simply facts.

Whether it’s even meaningful to claim that ideology-free facts exist on matters so inherently political as how to run the economy is a whole debate in the sociology of knowledge which we don’t have time to go into here, and which Ed Conway doesn’t seem to have much awareness of.

But he shows his hand when he says that utilities were privatised because “governments realised they were mostly a bit rubbish at running them”. This is a strong – and highly contentious – political claim disguised as a statement of fact – again, a classic neoliberal gambit. It’s a particularly bizarre one for an economist to make at a time when 70% of UK rail routes are owned by foreign states who won the franchises through competitive tender. Just this week, we learned that the East Coast main line is to be temporarily renationalised because Virgin and Stagecoach turned out to be, erm, a bit rubbish at running it.

***

It may be a terrible cliché, but the old adage “First they ignore you, then they laugh at you, then they fight you, then you win” seems appropriate here. Neoliberalism successfully hid in plain sight for decades, with highly ideological agendas being implemented amidst claims we lived in a post-ideological world. Now that it is coming under ideological challenge, it is all of a sudden stood naked in the middle of the room, having to explain why it’s there (to borrow a phrase from a very brilliant colleague).

There are a number of strategies neoliberals can adopt in response to this. The Adam Smith Institute response is to go on the offensive and defend it. The Theresa May response is to pay lip service to the need for systemic change whilst quietly continuing with the same old policies. Those, like Ed Conway, who persist in claiming neoliberalism doesn’t even exist, may soon find themselves left behind by history.

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“The test of science is its ability to predict”
— Richard Feynman

As if governed by some deterministic law, the current debates between economists and critics follow a predictable path. Critics begin by mentioning the failure of economists to predict or warn of the crisis. Howard Reed for example recently wrote in Prospect that ‘When the great crash hit a decade ago, the public realised that the economics profession was clueless.’

Thus provoked, economists then reply by pointing out that macroeconomic forecasting is only a small part of what economists do, that their models are based on mathematics and logical consistency, and that it is critics who don’t know what they are talking about – as in the riposte by Diane Coyle, which describes Reed’s piece as ‘lamentable’, a ‘caricature’ and an ‘ill-informed diatribe’ that furthermore ignores existing guidelines on what criticism is ‘good’ and ‘bad’ (the former includes ‘The criticism is by an economist’ which doesn’t seem in the multidisciplinary spirit, and would rule out this piece since I am an applied mathematician).

In a similar debate last year in Times Higher Education, Steve Keen wrote that the global financial crisis caught ‘leading economists and policy bodies completely by surprise. A decade later, economics is a divided and lost discipline.’ Christopher Auld responded that ‘Criticism of economics that relegates the field to … failed “weather” forecasting is not just misguided, it is anti-intellectual and dangerous.’

Over in the Guardian, Larry Elliott wrote that ‘Neoclassical economics has become an unquestioned belief system and treats those challenging the creed as dangerous’. A group of economists from the Institute for Fiscal Studies (IFS) appeared to confirm the latter when they called the article ‘dangerous’ and ‘ill-informed expert bashing … Like most economists, we do not try to forecast the date of the next financial crisis, or any other such event. We are not astrologers, nor priests to the market gods. We analyse data.’

The usual excuse offered for failing to predict the crisis, as Robert Lucas put it in 2009, is that ‘simulations were not presented as assurance that no crisis would occur, but as a forecast of what could be expected conditional on a crisis not occurring.’ That is like a weather forecaster saying their forecast was explicitly based on no storms. (The claim here reflects the efficient market-related idea that changes are caused by random external shocks.) Another is that no one else predicted it either – though a number of heterodox economists and others would beg to disagree.

But for both sides, the debate soon veers from discussing the crisis, to the topic of politics, with critics saying that economic models have been exploited by the right, while mainstream economists claim that in fact they are terribly progressive.

I would argue though that the debate isn’t really about politics, and less so about what most economists do with their time (the oft-advertised fact that economists apply their models to many things other than macroeconomic forecasting isn’t necessarily reassuring to a critic). Instead it is one of scientific legitimacy, and it as old as the word ‘forecast’.

Forecast

The argument between orthodox economists and their critics resembles one that occurred in weather forecasting in the mid-nineteenth century, with the establishment of the UK Meteorology Office in 1854 by Admiral Robert FitzRoy.

As captain of the Beagle, FitzRoy had taken Charles Darwin on the trip around the world that sparked Darwin’s theory of evolution. Seeing the potential that weather forecasting had to save lives by warning mariners of storms, he set up a network of 40 weather stations around the UK, with weather reports published in London newspapers.

However FitzRoy’s efforts were not well received, either by the public or the scientific establishment. At the time, weather prediction was something practised by astrologers, and the popular press enjoyed themselves comparing the Met. Office’s inaccurate predictions with those from sources such as ‘Zadkiel’s Almanac’. The mainstream scientists saw this prediction contest as a threat to their reputation, just as economists do today.

FitzRoy tried to blunt the comparison with astrology by avoiding use of loaded words such as ‘prediction’, and instead invented a new word of his own: forecast. ‘Prophecies or predictions they are not; the term forecast is strictly applicable to such an opinion as is the result of a scientific combination and calculation.’ In 1863, he published The Weather Book, which tried to make the weather comprehensible to people of average education. However the attempt to popularise the subject only further annoyed elitist scientific institutions like the Royal Society.

Two years later, FitzRoy took his own life at the age of 59. He may have been affected by his association with Darwin’s theory of evolution, which, as a creationist, he considered blasphemous. However it appears that the primary cause of his depression was being caught between the so-called astro-meteorologists on the one side and the scientific establishment on the other.

After his death, a committee chaired by Darwin’s cousin, Sir Francis Galton, released a report which claimed that his forecasts were ‘wanting in all elements necessary to inspire confidence’ and storm warnings were suspended. However FitzRoy was not without supporters; fishermen, maritime insurers, and the Navy had actually found the warnings useful, and they were reinstated in 1867. And today of course we rarely head out on a trip without checking the forecast.

Deniers

Now, one might think that astrology and creationism would have little to do with a debate over the scientific legitimacy of modern economic forecasting, but it seems that not much has changed. Indeed, in recent years – when most people have found economic forecasts ‘wanting in all elements necessary to inspire confidence’ – economists have been as anxious to draw distinctions between what they see as science and non-science as FitzRoy once was.

Diane Coyle for example writes that Reed’s piece conforms to a list of ‘bad’ criticisms helpfully compiled by Auld, which begins: ‘Every mainstream science which touches on political or religious ideology attracts more than its fair share of deniers: the anti-vaccine crowd v mainstream medicine, GMO fearmongers v geneticists, creationists v biologists, global warming deniers v climatologists. Economics is no different.’ Economist Pieter Gautier similarly explained the existence of heterodox approaches by saying that ‘You also see this happening in the other sciences; in biology you have intelligent design, in climate science you have the climate skeptics.’ Pontus Rendahl told the Financial Times in 2016 that calling for more pluralism in economics is ‘the same argument as the creationists in the US who say that natural selection is just a theory,’ while Michael Ben-Gad said that student groups want to be ‘liberated from neoclassical economics’ dogmatic insistence on internal logic, mathematical rigour and quantification … Still, we do not teach astrology or creationism in our universities, though some students might enjoy them more than physics.’ According to Simon Wren-Lewis, the problem with pluralism is ‘obvious once you make the comparison to medicine. Don’t like the idea of vaccination? Pick an expert from the anti-vaccination medical school.’ Or as the IFS economists put it, ‘We are not astrologers’.

Just as Robert FitzRoy had to defend the Met. Office against astrologers (though not creationists, since he was one), so economists are in a battle for what counts as science – which as Feynman noted has always been associated with the ability to predict. The difference is that, while FitzRoy was distancing himself from actual astrologers, mainstream economists tar a broad range of critics as ‘ill-informed’ and ‘dangerous’ deniers, regardless of their background or experience, in what looks like a kind of Hegelian ‘othering’.

Reality check

However, the issue is not ‘political or religious ideology’, it’s science. Predictions are obviously an important part of the scientific method, and when predictions do go badly wrong, it should serve as a reality check. While providing storm warnings is far from being the only job of economists (and expectations are much lower than in something like meteorology), it is surely one of the most important, which is why central banks for example devote considerable resources to it. And reflexively stamping critics and heterodox economists as anti-scientific deniers doesn’t seem very scientific – especially when some of them actually seem to be better at the prediction stuff.

Of course, as I point out in my forthcoming book Quantum Economics, economics should not be compared directly with weather forecasting. For one thing, the fact that economists’ predictions and models affect the economy (the financial crisis of 2008 for example was in part caused by faulty economic risk models) means that their responsibility is more like that of engineers or doctors. Instead of predicting exactly when the system will crash (no one has ever asked for a precise ‘date’), they should warn of risks, incorporate design features to help avoid failure, know how to address problems when they occur, and be alert for conflicts of interest and ethical violations. The profession’s failings in these areas, rather than any particular forecast, are the real reason so many are calling for a genuinely new paradigm in economics, as opposed to a rehashed version of the old one.

In the meantime, perhaps economists should just follow FitzRoy’s lead and invent a new word for their predictions. Econo-prognostications?

The post Storm warnings appeared first on New thinking for the British economy.

In his excellent book ‘Economics Rules’, Dani Rodrik outlined what he saw as “the rights and wrongs of the dismal science”. One of his key refrains was that the problem was “economists, not economics”: that is, some economists mistook their models for the real world and applied them inappropriately, abusing a potentially useful set of tools. All too often the consequence was ideology masquerading as science, resulting in economic failures such as quantity-targeting monetarism in the 1980s; the 1990s Russian privatisation; and recently the 2008 financial crisis. According to Rodrik, good economics is about making sure you have picked the right model for the right job, basing your decision on sound theory and evidence. Any economist worth their salt should be pragmatic, not dogmatic.

Rodrik is not wrong that there are some economists who are prone to misusing their models, in some cases to an alarming degree. Neither is he wrong about what good economics should entail: intellectual flexibility and a grasp of a wide range of tools for understanding the economy. Despite this, I cannot agree with the general idea that the framework of economics is not the problem with the discipline, and that if this framework were only taught and practiced better many of the discipline’s problems would be overcome. In fact, I believe modern economics is characterised by the exact opposite problem: reliance on a single framework is hamstringing the research of capable, conscientious and (to a degree) critical economists. In other words, the problem is economics, not economists.

The bad economics Rodrik highlights should be resisted for sure, but it largely a vestige of the past and does not represent the current direction of the discipline. This is what causes researchers who better represent contemporary economics to become exasperated in response to the myriad of articles criticising the discipline as if it consists solely of free-market ideologues who cling to models of perfect markets. Two Manchester colleagues of mine, Rachel Griffiths and Diane Coyle, have been involved in this debate recently, and the hashtag #whateconomistsreallydo illustrates the frustration and perplexity many of these researchers share at criticisms of the discipline.

In a recent article for Prospect Magazine, Coyle counters a critique by Howard Reed by rattling off several contemporary examples where she believes economists are doing relevant, empirical work that has nothing to do with incubating financial crashes. Among these are papers looking at the benefits of railroads in 19^th century India; the effect of modern technological change on jobs; and the effect of sugar taxes on obesity rates in the UK. These examples should be enough to convince people that a lot of modern economic research is going in the right direction.

But in my opinion the issue is not so much what economists do as how they do it. Critical thinking exists within the discipline but this criticism remains solely within the bounds of the mainstream. For a long time now ‘economics’ has been synonymous with a specific methodology, the use of which is considered interesting in itself regardless of whether it uncovers anything new.

Relevant, interesting – and unnecessary

At the Royal Economic Society (RES) conference this year, Botond Koszegi gave one of the keynote lectures, ‘A Pro-Market Case for Regulation’. Koszegi is a prominent researcher in prospect theory – which happens to be where my research interests lie – and along with his co-author Matthew Rabin is a likely candidate for a future Nobel Prize. The nub of his presentation was a model in which consumers, due to cognitive limitations, were unable to fully examine every single product they purchased. The result was that regulations guaranteeing a certain standard of safety, quality and the like could improve competition by giving people more time to shop around instead of having to devote so much time to investigate specific products. Thus, regulation would improve markets and competition.

I cannot fault Koszegi’s presentation, which was lucid and engaging. I also cannot fault his technical skills, which certainly surpass mine (a low bar, admittedly). I cannot fault the subject matter of his presentation, which was relevant and interesting. Nor can I fault the certain kind of creativity required to put these insights into an economic model. But then, that’s just it: to get an audience among economists, these insights had to be put into an economic model. Incorporating ideas into these frameworks is a necessary condition for their acceptance, something which stifles the production of knowledge.

Like them or not, the points highlighted by Koszegi were not especially novel. Koszegi himself argued that his framework rationalised existing policy by UK, EU and US regulators, rather than proposing a bold new direction. A quick search uncovered a 2011 UK government document on regulation – produced a good while before Koszegi’s research – which stated that “If consumers do not have sufficient information, or find it difficult to make informed decisions, firms face less competitive pressure”. Institutional economists such as Jamie Galbraith have claimed for a long time that markets function best when “the product is what it claims to be, and that it will function as it is supposed to do. This is what a strong system of regulation provides”. Clearly, we did not need a complicated theoretical model to make this point.

The dynamic of using standard economic methods to say something which is in some sense already known is quite common. One largely glowing article about last year’s RES conference published in the Independent came close to realising this when it said that “there is one [paper] that shows that married women are tidier than married men and do more housework after they get married. I think many people will be unsurprised by that, but it is good to have it established.” I can’t help but feel that this point was “established” long before economists turned their gaze toward it, and despair at the wasted intellectual capital from “establishing” it when there are far more pressing questions in the world.

As the old saying goes, “if you have a hammer, everything looks like a nail”. Economists have two main hammers: choice models and variants thereof form the basis of most theoretical models (I include behavioural economics in this, which still uses the utility maximising framework). Linear regression is economists’ preferred empirical technique (again, commonly used variants such as panel methods or instrumental variables are still fundamentally linear). Research incentives typically mean adhering to at least one of these two techniques, despite the plethora of other techniques available. The aforementioned ‘institutional’ school of economics might prefer a theoretical lens which looks at social and legal structures over individual choice, and an empirical method which focuses on qualitative details over statistical techniques. This is just one of the many alternative methods available to economists.

Mainstream economic papers often deal with what seem like exciting questions, but give ultimately disappointing answers because they follow the same old methods. I cannot count the number of times I’ve been lured into an economics presentation by a promising title only to be frustrated with the actual content. At Manchester last year there was a presentation with the scintillating title “Networks in Conflict: Theory and Evidence from the Great War of Africa”, which I enthusiastically attended. Many others clearly felt the same since the room was completely packed out, including undergraduates (who don’t usually go to these seminars).

But as the presentation began it became apparent that they were going to approach the issue using…dum dum dum… a rational choice model, followed by some linear regression! I felt that the war in the Congo was as good a candidate as any for something that was neither rational nor linear, but these underlying assumptions were not even discussed in the presentation or in the paper, which has since been published in a top journal. This could be forgiven if the paper contained revelations about the war in the Congo, but actually its key conclusion verged on trivial: the more your enemies fight, the more you have to fight; the more your friends fight, the less you have to fight. Besides being underwhelmed by this, I was surprised a paper on networks didn’t utilise Granovetter’s network analysis, arguably one of the most famous tools in sociology.

The question is not whether rational choice and linear regression can be useful; anyone who believes they cannot is talking nonsense, as some of Coyle’s examples illustrate. The question is whether they are always useful, which would also be nonsense, but is something you could be forgiven for thinking economists believe when following economic research. The rational choice model has had quite a few successes, including in matching kidney donors to one another, but it has at least as many failures, most of which are so well-worn at this point that it’s not worth going over them again. Linear regression is likely to be the right statistical model most of the time, but this still cannot be assumed a priori. Coyle rightly highlights two recent papers, one by Alwyn Young and one by John Ioannidis, which have cast serious doubts on widely used econometric practice and they are far from the first to do so.

Economists may respond that modelling and empirical estimation allows them to isolate and quantify formerly nebulous mechanisms to make the exact trade-offs of policies clear. However, I suspect that in many cases this is a spurious kind of precision, since estimated coefficients and modelling parameters are notoriously unstable. Out of sample predictions are not made habitually in economics, and when they are they have a mixed track record, to put it mildly. Furthermore, the choice of model will affect the conclusions, both by determining what to model and by modelling it in a certain way. As both Coyle and Reed agree, this makes value judgments implicit in economic models, but many economists are insufficiently aware of this point and tend to see standard models and regression as the default framework.

The other defence is a practical one: sure, these methods have their flaws, but they are the best way to convince policymakers, politicians and the public that a policy has a quasi-scientific justification. While this may be true given our current state of affairs, there is a circularity to it. Part of the reason that this kind of research is deemed necessary is because of the influence of economists in government and society over the past 80 or so years. By embracing a wider variety of approaches to knowledge, economists could use their considerable influence to alter the perceptions of those in power instead of reinforcing the reliance on a single framework.

It’s monolithic all the way down

The uncritical acceptance of one methodology begins with undergraduate economics education. Rethinking Economics conducted a curriculum review of 174 modules at 7 Russell Group universities – rightly or wrongly considered the ‘top’ universities in the UK – and we found that the uncritical acceptance of one type of economics begins with education. Under 10% of modules even mentioned anything other than mainstream or ‘neoclassical’ economics; in econometrics, over 90% of modules devoted more than two-thirds of their lectures to linear regression. Only 24% of exam questions required critical or independent thinking (i.e. were open-ended); this dropped to 8% if you only counted the compulsory macro and micro modules that form the core of economics education.

We have previously called this ‘indoctrination’, and while this may seem dramatic the dictionary definition of indoctrination is to “teach a person or set of people to accept a set of beliefs uncritically”, which we think adequately characterises the results of the review, as well as our own experience and many widely used economics textbooks. Given this education, it is no wonder that economists remain wedded to the fundamental precepts of choice models and linear regression no matter where they turn their attention. By putting the method first, the implicit assumption becomes that answering a question using this framework is prima facie interesting, and critical evaluation of these tools against others is made unthinkable.

This debate may seem too abstract to warrant such extended public discussion, but economics exerts more influence over government, the private sector and the media than any other social science – perhaps than any other discipline altogether. And the intellectual monopoly outlined above makes itself known through this influence, which limits our perceived political choices. Economic debates, including the one surrounding the recent Brexit vote, are frequently conducted in terms of aggregate GDP, which despite some criticism remains the standard measure of economic success both among economists and the public, even though it ignores (among other things) regional disparities in the UK and therefore does not speak to many peoples’ lived experience. This is perhaps one reason why the ubiquitous forecasts of a loss to GDP from Brexit failed to persuade the country.

One, more concrete example of the influence of economic ideas is the Green Book, a document produced by the UK Government that sets out the framework for the appraisal and evaluation of all policies, programmes and projects. It is remarkable how much this book reads like a first-year economics textbook in places: like a standard textbook, it focuses largely on economic efficiency while also acknowledging equity (distributional) considerations. It then spends much time discussing how to place economic values on the costs and benefits of policies to weigh them up. Other economic objectives such as security, stability, or economic freedom are not given much (if any) attention; other decision-making criteria (especially more democratic ones) are similarly absent.

Rethinking Economics believe that the curriculum needs to embrace a wider diversity of views, as well as focusing more on the real world and less on derivation of abstract models. But even in this debate the poverty of imagination resurfaces: when we call for the curriculum to teach us about issues such as the financial crisis, inequality and immigration, we are frequently met with the rebuttal that the relevant models are too complex for undergraduate education or would take too long to teach. Once again the assumption is that mainstream economic models are the starting point, when it is perfectly possible – desirable, even – to learn about issues such as the financial crisis without using any type of model. Models may help you to understand it at a higher level, but this should be built on top of a strong real-world foundation. Putting the real world first would mean that future business leaders, policymakers and academic economists would not enter the world believing that ‘economics’ is synonymous with one type of approach.

I believe that Rodrik’s bad economists are not a few unfortunate renegades; they are the reductio ad absurdum of the education and research practice outlined above. When economists are only taught one approach as if it is economics, then it’s unsurprising that some take it too far. In one sense what’s remarkable is how far contemporary economists have been willing and able to stretch the core framework to accommodate more relevant insights, working with such a limited set of tools. Despite this, areas of the discipline risk finding themselves in a bit of an intellectual dead end by putting their method first and using it to say things which are new and interesting only to economists.

Rethinking Economics and the wider student movement to reform economics believe that ‘critical pluralism’ is the antidote to this problem. If future economists are taught about relevant issues, using a wide range of models where necessary but not insisting upon them, less effort will be devoted to extending particular methods to trivial or long-answered questions. In policy and in the public arena, economics will give us a better conception of how the world works, and a broader array of political choices for making it a better place. Students will not only have a better understanding of why standard economic tools may fail; they will have a better understanding of when and why they are successful. Critical thinking will be embedded from the start of an economists’ training.

Several positive signs indicate that the discipline could go in this direction: the open-minded initiative Rebuilding Macroeconomics; a new focus on economics communication, including the fantastic session I attended at this years’ RES; the revamped CORE curriculum, which seems to be slowly becoming pluralist even if its adherent are reluctant to admit it; and initiatives from within government institutions such as the Bank of England and Government Economic Service, which are embracing pluralism. In fact, the newest version of the aforementioned Green Book, published this year, now includes an entire section on the limits of standard economic analysis when dealing with the environment and alternative approaches.

Here’s hoping that this kind of approach will be the norm for the economics of the future.

The post Why the problem is economics, not economists appeared first on New thinking for the British economy.

This International Women’s Day, Rethinking Economics is campaigning to #PushForProgress and get #MoreWomenInEcon. In this article, six current female students, all part of the Rethinking Economics student network, offer their voice on why economics has a problem with women.

The curricula does not represent women so women do not feel the subject relates to them

“Women are invisible when you study economic theories. Economics, especially neoclassical economics, uses heavily ‘male centred’ concepts and language. For instance, of the central theories, the model of the ‘economic man’ is defined by self-interest, greed and actions that are usually associated with a ‘male’ pattern of behaviour. This kind of thing is demonstrated in the approach of market logic, too, in which work traditionally undertaken by women such as household labour or caring, is ignored and thus neglected in GDP analysis.

“However, with a closer look it becomes clear women are interested in the economy. Many study other social sciences such as politics, anthropology or history, which incorporate economic theory, but through approaches that might appear traditionally more relatable to women. A more pluralist degree invites critical thinking and opens the doors to engage a more diverse body of students.”

— Janina Zakrzewski and Sari Easton, 3rd year, Politics, Philosophy and Economics:

Gender Dynamics are not addressed in the classroom

“Economists are terrified of discussing political issues for seeming non-objective, especially issues concerning gender. But including gender issues in the curriculum is not only a political claim, it is also an economic one. For example, one of the central pillars of economics is understanding the dynamics of economic growth. It has been proven by study on study that female participation in the workforce and female representation in the board room has a large impact on growth. Thus, if economists want to understand growth, why neglect studying one of the factors influencing it? And this is just one of many examples. If we want to understand the economy, gender issues is something economists should be more curious about.”

— Sally Svenlen, 2nd Year Economics.

There are few women role models in economics, and the ones who are in economics are much less likely to achieve a promotion

“Going through four years in an economics department can often seem quite discouraging if you aspire to be an academic. Being a woman, however, brings about yet another nuance to it. Although, the gender diversity in an undergraduate classroom is often balanced, the share of female economists progressing to a higher stage in academia decreases as the prominence of the position increases — as has been shown by the American Economic Association. The lucky (read: hard-working) ladies who manage to secure a tenure position often face a range of stereotypes, as documented by Alice H. Wu .

“And, of course, this is nothing new. When studying the history of economic ideas dating from Ancient Greece to present times students only hear of women when and if feminist economics is discussed. The explanation often is something along the lines of ‘times were different’ or ‘this is how it used to be in the past‘. Other fields such as the STEM subjects have recognised the economic benefits of having a more equal gender representation in academic and research positions. Economics, as always, seems to be the only one stuck in the past.”

— Iva Parvanova, 4th Year, Economics

Essential topics such as health and education are undervalued

“Many women don’t consider a career in economics as an option. This may be due to their preferences; women may favour careers in other fields (health and education being the common ones). Naturally, there is nothing wrong with this; everyone deserves to choose which area to work in. However, in some cases, it is undoubtedly because people don’t deem economics an appropriate career choice, or they don’t think it relates to the topics they find interesting. Economists have failed to make the public aware of the discipline’s wide-reaching real-world applications beyond banking and investment, including in health and education. I believe a priority of the discipline should be on improving peoples’ understanding of the many uses of economics so that a wider range of individuals will find it worth pursuing. There are several ways this could be achieved: approaching young people, simplifying the language used, among others.”

— Laura Freitas, 1st Year Economics

Household labour and care are not counted as valuable activities

“It is not a generalisation to say that one of the first understandings of economics that one develops is that of a mathematical subject concerned with constantly evaluating the cost and benefit of our activities and choices, so that we obtain the highest gain from what we choose. Moreover, much of what students are taught suggests that you are a good, non-entitled citizen, as long as whatever you do can be directly converted into money for someone else, and accounted for in a country’s Gross National Product. Such definitions inevitably downplay the contribution of women in society because a large number of activities that tend to be done by women, including household labour and care, are not immediately translated into profit and neither are they accounted for in labour participation statistics. This causes women to be underestimated as economic agents.

“The economist Lionel Robbins once stated: ‘every act which involves time and scarce means (abilities, wealth resources, dedication) for the achievement of one end and that involves relinquishing their use for the achievement of another end, is an act that has an economic aspect’. Thus, it is only fair to say that women’s dedication of time, physical and emotional activity to core household labour and care, either by personal choice or necessity, while foregoing other intellectual or professional development areas  are indeed economic acts.”

— A  Fernandez, PhD Student, Economic and Social History

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In recent months, there has been a lively public debate between mainstream economists and its critics. Newspapers such as the Guardian have declared that economics needs a ‘reformation’, while there have been a number of response articles from mainstream economists complaining that the economics profession is misunderstood, and that it has been the victim of ‘dangerous’ and ‘ill-informed expert bashing’ for both failing to predict the 2007/8 financial crisis, and failing to take on new approaches.

The main points of contention seem to be:

1. Forecasting is very difficult
2. Most economists are not involved in forecasting or macroeconomics
3. A more pluralistic approach would dilute economists’ influence over policy makers
4. Economists are not right-wing as commonly portrayed
5. Economics has become increasingly empirical
6. Critics misinterpret the use of mathematical models
7. Economics is no longer based on simplified assumptions such as rational behaviour
8. Criticism is dangerous because it erodes the authority of experts

We believe that the critics have a point, one which many economists’ responses have failed to address. Nonetheless, the critics often get some things wrong about the discipline, which only serves to muddy the waters and put economists on the defensive. Below we will discuss each of these eight issues in turn to see what the critics have right and wrong.

1. Forecasting is very difficult

The point that forecasting is hard is obviously true, and it does play a smaller role in economics than it does in something like meteorology. However economists, and not just those who work for central banks, do regularly make forecasts which have enormous influence over policy makers, the private sector, the public – and therefore the economy. When in 2004 Alan Greenspan responded to suggestions that housing was in a bubble by saying ‘a significant decline in consumer incomes or house prices could quickly alter the outlook; nonetheless, both scenarios appear unlikely’ he was making a forecast that would have a profound effect on the subsequent course of events.

Forecasting also has a special role to play in the scientific method, as a way of falsifying theories. This is more difficult in the social sciences than in something like physics, but one reason the 2007/8 event gets so much attention is because it seemed to falsify many of the key assumptions of mainstream economics, such as the influential idea that markets are generally efficient and self-correcting, while heterodox approaches that have traditionally been marginalised did better.

The real problem though is not that mainstream economists failed to predict ‘the timing, extent and severity’ (as the London School of Economics put it) of the crisis – economists have never been held to any such standard of forecasting skill, and no one asked for an exact date. It is that they could not have predicted or warned of the crisis, even in principle, because their models didn’t allow for such events. Furthermore, the models directly contributed to the crisis by enabling the financial sector to develop increasingly risky and dangerous products.

2. Most economists are not involved in forecasting or macroeconomics

It is also true that most economists are not involved in forecasting (nor are most meteorologists). However the fact that #WhatEconomistsReallyDo involves lots of things other than warning of #MajorEconomicCatastrophes is not much comfort to the many millions of people who have been affected by such events; or to those who worry that economists are still not using the appropriate tools to model the economy.

3. A more pluralistic approach would dilute economists’ influence over policy makers

On plurality, it is often pointed out by economists that offering diverse viewpoints makes it harder for economists to shape policy. As Simon Wren-Lewis puts it, ‘The point is obvious once you make the comparison to medicine. Don’t like the idea of vaccination? Pick an expert from the anti-vaccination medical school.’

This is an interesting – but not unusual – choice of analogy, given that mainstream economists were the ones who saw no need to vaccinate the financial system against crisis. But to stay with the medical comparison, surely a bigger issue than plurality (doctors don’t always agree either) is rebuilding credibility with the public; a 2017 UK survey by YouGov asking which experts could be trusted when talking about their own areas of expertise showed that doctors were trusted by 82 percent, and economists by 25 percent. This isn’t just the fault of the media, or a public relations issue: according to Dean Baker (who presciently warned in a 2005 paper with David Rosnick that for economists to miss the US housing bubble would be an ‘act of extraordinary negligence’) the crisis cost each person in the US around $27,000 in lost earnings.

Comparing economics to a well-established science like medicine simply assumes the conclusion: that economics is a science. The all-too-common corollary comparison of heterodox thinkers to anti-vacciners – or climate-change deniers, or creationists, or all three – also points to the fact that mainstream economics, or at least the part of it with influence over policy, remains too much of a monoculture with little real interest in reinventing itself, despite numerous well-publicised initiatives to do just that. It seems that economists’ interest in the benefits of competition and new ideas breaks down rather quickly when it comes to their own field.

4. Economists are not right-wing as commonly portrayed

On politics, it is correct that economists aren’t all the free-marketeers they are so often portrayed as by the media. At the same time, one reason for this perception may be that economic models incorporate various assumptions that tend to lead to unequal and unfair outcomes. For example, mainstream economists have traditionally aimed to optimise economic growth and paid less attention to distribution, in part because their models make what amount to symmetry assumptions which don’t fit easily with things like extreme inequality. Another concern is that many influential economists have been captured by the financial industry through things like lucrative consulting contracts, one cause of ‘regulatory capture’. For instance, one study found that whenever none of a paper’s authors worked in a business school, it was ‘significantly less likely to be positive on the level of executive compensations and significantly more likely to be negative.’

5. Economics has become increasingly empirical

On the use of data, it is again true that economists have been incorporating more empirical data into their research, which is an encouraging development. However, while most economists who speak of a data-revolution lean on a 2013 paper by Daniel Hamermesh that makes this discovery, what they don’t mention is that Hamermesh himself concludes his paper cautiously, suggesting it is too soon to be confident that this development will do much to change the discipline. Besides, the real test is whether the data is being used to falsify key assumptions and modelling approaches. One data point, for example, is that the main macroeconomic models all failed during the crisis. But according to Paul Krugman, writing as part of the Oxford Review of Economic Policy’s Rebuilding Macroeconomic Theory Project, ‘Neither the financial crisis nor the Great Recession that followed required a rethinking of basic ideas.’ What then would it take?

6. Critics misinterpret the use of mathematical models

Economists claim that critics do not understand their mathematical models. However, it seems that non-economists are beginning to understand these models all too well – for example the Nobel-winning techniques used to evaluate complex derivatives, which blew up so spectacularly during the crisis. In fact, some of the most vocal critics include people with a training in mathematics or physics, who simply believe that the mathematics used by economics is inappropriate for the problem at hand.

And while it is regularly said that mathematics acts as ‘a powerful lie detector’ because it forces the economist to clarify their assumptions, the reality is that complex mathematics is often used not to clarify, but to obfuscate; something that even prominent mainstream economists – Paul Romer being a case in point – now recognise (though this will come as less of a surprise to people with a training in media than to those trained in abstract theory). One of the main criticisms of models used in everything from environmental economics to quantitative finance is that, in the wrong hands, they are easily adjusted to give whatever answer the modeller wants.

7. Economics is no longer based on simplified assumptions such as rational behaviour

A related claim from economists is that their popular critics are attacking a simplified impression of their models. Lionel Robbins for example wrote back in 1932 that if it were ‘commonly known, if it were generally realised that Economic Man is only an expository device … it is improbable that he would be such a universal bogey’ (today, economists prefer to use the term ‘straw man’). It is true that areas such as behavioural economics have grown in influence, and economists have never relied exclusively on simplifications such as rational economic man. However, these modifications generally take the form of small adjustments to existing models rather than a wholesale rethinking of the approach, something which has been left to other disciplines such as psychology.

Economists rightly criticise those who repudiate their work without reading it; curiously, though, they do not always abide by that same standard: among all the social sciences, economists are by far those least likely to read outside their discipline. One benefit of having economics discussed in the media is exactly that they can pull together ideas from different experts.

8. Criticism is dangerous because it erodes the authority of experts

Finally, there is the oft-repeated claim that criticism is ‘dangerous’ (or even ‘anti-intellectual and dangerous’ as a piece in Times Higher Education said) because it erodes public trust in experts. But how could public criticism of mainstream economics possibly be more dangerous to society than something like the complete failure of orthodox economic tools during the crisis?

To summarise, the problem we believe is not so much that economists are misunderstood by critics or by the public; it is that they have failed to adapt following the crisis, other than to come up with new ways of defending their tired paradigm. Heterodox economists and people from other disciplines, including those working in the media, have already played a useful role by contributing new ideas and advocating for alternative approaches from areas such as biology and complexity theory. But if further progress is to be made, mainstream economists and policy makers need to engage more seriously with alternative viewpoints, and realise – as many in the public and the media have already done – that the days of monoculture neoclassical economics are over.

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In a recent article in the Financial Times, Samuel Bowles applauded critics of economics education and praised calls for greater pluralism (diversity of viewpoints) within the discipline. He then went on to explain how the newly published CORE textbook, which is being promoted as an alternative economics text for undergraduates, provides the answer to this problem. But don’t be deceived: the battle for pluralism in economics has barely begun.

Rethinking Economics welcomes CORE’s incorporation of a variety of thinkers in their curriculum, as well as their efforts to make economics more real and engaging for economics students. However, it is vital to recognise the distinction between what CORE labels as pluralism, and how Rethinking Economics defines it.

In the article Bowles refers to ‘pluralism by integration’. This is the use of a variety of schools of thought in the development of a modified economic model, and is the only one to be taught to students in the CORE curriculum. The origins of the various ideas and assumptions employed in the CORE textbook are not always acknowledged, and alternative interpretations are rarely mentioned, so students are presented with what appears to be a singular version of economic truth. This doesn’t facilitate critical engagement or challenge, and is therefore vulnerable to creating the kind of ‘groupthink’ that the IMF has recognised contributed to the 2008 financial crisis.

Rethinking Economics, on the other hand, believes that students should have the chance to learn about multiple paradigms and models, and use their own critical faculties to decide which aspects of these are useful in analysing the real world. It is up to students to decide what school of thought they prefer, in a similar fashion to how one decides their own political and social leanings.

This is what Samuel Bowles calls ‘pluralism by juxtaposition’, but it can also be described as methodological pluralism. This is the approach represented by the new reader published by Rethinking Economics: an introduction to nine different schools of economics, in nine separate chapters, ready for students to absorb, critique and use. This encourages students to think critically about what they’re learning — a vital skill for employment after university.

Rethinking Economics does not advocate teaching just one paradigm to students, even if that one paradigm is made up of a variety of complementing views. This approach risks creating a new economic dogma which will ultimately limit students learning and the economics discipline itself

Recent media coverage has given the impression that the answer to university economics university education has arrived in the form of CORE. This was reinforced by a recent Bloomberg interview which gave the impression that Wendy Carlin, lead editor of the CORE textbook, represented the student movement Rethinking Economics. This is highly misleading, and it is important that it is challenged.

Wendy Carlin, lead editor of the CORE textbook, is implied by Bloomberg’s caption to represent the student movement Rethinking Economics

Rethinking Economics recognises that CORE is a step in the right direction. The teaching of insights from diverse pluralist thinkers from Marx to Hayek, and the incorporation of other social sciences, is something that the student movement welcomes.

But real critical pluralism that reflects the true diversity of real-world perspectives is still a long way off. There is plenty more rethinking yet to be done.

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“This is the bit with the economicky words in it”, Chancellor Philip Hammond announced in his Budget speech last November.

It’s hard to imagine Stephen Hawking or Brian Cox saying, “this is the bit with the sciency words in it”. But the economics profession has a similar responsibility to scientists. As experts, they have a responsibility to convey complex information in an accessible and engaging way to the public, in order for the public to engage with democracy. Social and political issues are often framed in relation to their effect on the economy, and this can decide elections, referenda and policymaking.

While scientists have spokespeople who convey their messages in a palatable way, economists do not. Where are the economics pin-ups?

Economists aren’t famed for their social skills. Research has shown that they don’t communicate particularly well. A recent study of Twitter found that they were the least likely out of any profession to engage in general conversation. Economists aren’t storytellers like scientists are; they speak in cold, hard, technical terms most of the time, and unsurprisingly this can be disengaging for the public.

In a recent poll by Rethinking Economics, it was found that 60% of UK adults cannot define GDP, while 70% do not know what quantitative easing is. A recent OECD survey found that only 38% of the UK public understand inflation.

Andy Haldane, Chief Economist at the Bank of England, has argued that the public are less likely to trust a discipline and its spokespeople if they don’t understand the subject. This is reflected in a recent poll, which showed that while 82% of the public trust doctors, and 71% trust scientists, only 25% trust economists. Only 4% of the UK population feel that the information they hear in the news about the economy is “completely reliable and trustworthy”.

The economics campaigns website Economy found that only 12% of the public feel confident in the way that economics is spoken about in the media and by politicians. Meanwhile, economists were the group of ‘experts’ with the single biggest drop in trust in the Brexit referendum, with only 14% of Leave voters stating that they trust economists. Yet at the same time, it is clear that people want to understand economics. Four out of five people acknowledge that economics is relevant to their everyday lives.

This ‘twin deficit’ of a lack of understanding and trust within economics has huge ramifications for policymaking and democracy. If the public don’t trust or understand the economics that is being communicated, they cannot critically engage with the policies that affect their everyday lives.

What is the solution to bridge this gap between the public and experts? The answer must be for the experts to communicate in a better way. For this to happen, the economists of the future – economics students – must be taught this as part of their university curriculum.

The charity Rethinking Economics produces materials for universities to use if they want to change their economics curriculum. With their sister group Economy, who campaign for understandable economics, they are both calling for economics departments to include communications skills as part of their syllabuses, from presenting to public speaking.

This alone isn’t enough to make economics fit for purpose, but it is vital if we are to start rebuilding trust in the profession.

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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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On 12 December 2017, Rethinking Economics and the New Weather Institute published ’33 Theses for an Economics Reformation’ to mark 500 years since the Catholic Reformation. The Theses, which were endorsed by students and economists and nailed to the doors of the London School of Economics, are reproduced below.

The world faces poverty, inequality, ecological crisis and financial instability. We are concerned that economics is doing much less than it could to provide insights that would help solve these problems. This is for three reasons:

• First, within economics, an unhealthy intellectual monopoly has developed. The neoclassical perspective overwhelmingly dominates teaching, research, advice to policy, and public debate. Many other perspectives that could provide valuable insights are marginalised and excluded. This is not about one theory being better than another, but the notion that scientific advance only moves ahead with a debate. Within economics, this debate has died.
• Second, while neoclassical economics made a contribution historically and is still useful, there is ample opportunity for improvement, debate and learning from other disciplines and perspectives.
• Third, mainstream economics appears to have become incapable of self-correction, developing more as a faith than as a science. Too often, when theories and evidence have come into conflict, it is the theories that have been upheld and the evidence that has been discarded.

We propose these Theses as a challenge to the unhealthy intellectual monopoly of mainstream economics. These are examples – of the flaws in mainstream theories, of the insights that alternative perspectives have to offer, and of the ways in which a more pluralist approach can help economics to become both more effective and more democratic. This is an assertion that a better economics is possible, and an invitation to debate.

THE PURPOSE OF THE ECONOMY

1. The purpose of the economy is for society to decide. No economic goal can be separated from politics. Indicators of success represent political choices.

2. The distribution of wealth and income are fundamental to economic reality and should be so in economic theory.

3. Economics is not value-free and economists should be transparent about the value judgments they make. This applies especially to those value judgments that may not be visible to the untrained eye.

4. Policy does not ‘level’ the playing field, but tilts it in a direction. We need a more explicit discussion of what sort of economy we want, and how to get there.

THE NATURAL WORLD

5. The nature of the economy is that it is a subset of nature, and of the societies it emerges within. It does not exist as an independent entity. Social institutions and ecological systems are therefore central, not external, to its functioning.

6. The economy cannot survive or thrive without inputs from the natural world, or without the many lifesupporting systems that the natural world provides. It depends upon a continual through-flow of energy and matter, and operates within a delicately balanced biosphere. An economic theory that treats the natural world as external to its model cannot fully understand how the degradation of the natural world may damage its own prospects.

7. Economics must recognise that the availability of non-renewable energy and resources is not infinite, and the use of these stocks to access the energy they contain alters the planet’s aggregate energy balances, creating consequences such as climatic upheaval.

8. Feedbacks between the economy and the ecology cannot be ignored. Ignoring them to date has led to a global economy that already operates well outside the viable thresholds of the ecology that houses it, yet requires further growth to function. But economics must be grounded in the objective constraints of the ecology of the planet.

INSTITUTIONS AND MARKETS

9. All markets are created and shaped by laws, customs and culture, and are influenced by what governments do and by what they do not do.

10. Markets are outcomes of the interactions between different types of public and private organisations (as well as those in the voluntary sector and civil society). More study should be done on how these organisations are actually organised, and how the inter-relationships between them do work and could work.

11. Markets are also more complex and less predictable than may be implied by simple relationships of supply and demand. Economics needs a deeper understanding of how markets behave, and could learn from the science of complex systems, as used in physics, biology, and computing.

12. Institutions shape markets, and influence the behaviour of all economic actors. Economics must therefore consider institutions as a central part of its model.

13. Since different economies have different institutions, a policy that works well in one economy may work badly in another. For this reason among many others, it is unlikely to be helpful to propose a universally applicable set of economic policies based solely on abstract economic theory.

LABOUR AND CAPITAL

14. Wages, profits, and returns on assets can be shown to depend on a wide range of factors, including the relative power of workers, firms, and owners of assets – not merely on their relative contributions to production. Economics needs a broader understanding of these factors so as to better inform choices that affect the share of income received by different groups in society.

THE NATURE OF DECISION-MAKING

15. Error, bias, pattern-recognition, learning, social interaction, and context are all important influences on behaviour that are not recognised in economic theory. Mainstream economics therefore needs a broader understanding of human behaviour, and can learn from sociology, psychology, philosophy, and other schools of thought.

16. People are not perfect, and ‘perfectly rational’ economic decision-making is not possible. Any economic decisions that have something to do with the future involve a degree of unquantifiable uncertainty, and therefore require judgement. Mainstream economic theory and practice must recognise the role of uncertainty.

INEQUALITY

17. In a market economy, people with the same abilities, preferences and endowments do not tend to end up with the same level of wealth, subject only to some random variation. The effects of small differences in luck or circumstances can drive vastly different outcomes for similar people.

18. Markets often show a tendency towards increasing inequality. In turn, unequal societies fare worse across a range of social welfare indicators. Mainstream economic theory could do much better in understanding how and why this happens, and how it may be avoided.

19. The proposition that as a country gets richer, inequality must inevitably rise before it falls, has been shown to be false. Any combination of GDP growth and inequality is possible.

GDP GROWTH, INNOVATION & DEBT

20. Growth is a political, as much as an economic choice. If we choose to pursue ‘growth’, then the questions – ‘growth of what, why, for whom, for how long, and how much is enough?’ – must all be answered either explicitly or implicitly.

21. Innovation is not external to the economy; it is an inherent part of economic activity. Our understanding of GDP growth may be improved if we see innovation as occurring within a constantly-evolving, disequilibrium ecosystem, shaped by the design of markets and by the interactions between all actors within them.

22. Innovation has both a rate and a direction. A discussion of the ‘direction’ of innovation requires an understanding of ‘purpose’ in policy-making.

23. Private debt also profoundly influences the rate at which the economy grows. and yet is excluded from economic theory. The creation of debt adds credit-financed demand, and affects both goods and asset markets. Finance and economics cannot be separated.

MONEY, BANKS AND CRISES

24. The majority of new money circulating in the economy is created by commercial banks, every time they make a new loan.

25. The way in which money is created affects the distribution of wealth within society. Consequently, the method of money creation should be understood to be a political issue, not merely a technical one.

26. Since banks create money and debt, they are important actors in the economy, and should be included within macroeconomic models. Economic models that do not include banks will not be able to predict banking crises.

27. Economics needs a better understanding of how instability and crises can be created internally within markets, rather than treating them as ‘shocks’ that affect markets from the outside.

28. Financialisation has two dimensions: short-termist and speculative finance, and a financialised real economy. The two problems must be studied together.

THE TEACHING OF ECONOMICS

29. A good economics education must offer a plurality of theoretical approaches to its students. This should include not only the history and philosophy of economic thought, but also a wide range of current perspectives – such as institutional, Austrian, Marxian, post-Keynesian, feminist, ecological, and complexity.

30. Economics itself should not be a monopoly. Interdisciplinary courses are key to understanding the economic realities of financial crises, poverty, and climate change. Politics, sociology, psychology, and environmental sciences must thus be integrated into the curriculum, without being treated as inferior additions to existing economic theory.

31. Economics should not be taught as a value-neutral study of models and individuals. Economists need to be well versed in ethics and politics, as well as being able to meaningfully engage with the public.

32. An overwhelming focus on statistics and quantitative models can leave economists blinded to other ways of thinking. Students should be supported in exploring other methodological approaches, including qualitative research, interviewing, fieldwork, and theoretical argumentation.

33. Above all, economics must do more to encourage critical thinking, and not simply reward memorisation of theories and implementation of models. Students must be encouraged to compare, contrast, and combine theories, and critically apply them to in-depth case studies of the real world.

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Ahead of this week’s Autumn Budget 2017, Reema Patel explains how the Citizens’ Economic Council programme has piloted models of engagement that seek to enable citizens, including those ‘left-behind’ citizens, to ‘take back control’ over the economic decisions that affect their lives.

“I feel I have no voice in society. I don’t have a concept of my voice being heard.”

— Participant, RSA Citizens Economic Council workshop, Oldham

In the RSA’s new Citizens’ Economic Council interim report, published ahead of the 2017 Autumn Budget, we caution that decision-makers need to find new ways of engaging citizens earlier and upstream in economics.

Drawing upon roadshow workshops held in Clacton-on-Sea, Port Talbot, Glasgow, Birmingham, as well as nine day-long workshops on economics with randomly selected citizens, we show how the UK public’s decline in trust in politicians, economists and business as revealed by the ‘Brexit’ vote and by the Edelman Barometer 2017 is closely connected to the distance they feel from decisions made about the economy. In Port Talbot, a town deeply affected by the steel crisis, one participant sketched the following when asked to draw an image of how they saw the economy:

Drawing, from RSA Citizens’ Economic Council Inclusion Roadshow workshop in Port Talbot

Our report illustrates how inequalities, such as gender and regional effects, are often overlooked or rendered invisible by national narratives about the economy and economic performance, which often aggregate figures and mask the varying levels of income and wealth distribution for different sections of society. This was a point somewhat more bluntly made by a Newcastle resident when Europe expert Anand Menon invited an audience to contemplate a plunge in the UK’s GDP as a consequence of Brexit: “That’s your bloody GDP. Not ours!” she yelled at him.

To address the problem, the Citizens’ Economic Council found ways of communicating and engaging  with citizens about how they could reclaim terms such as ‘GDP’ so that it was able to respond to their experiences once again. In this interim report, we set out some emerging recommendations which we seek to test with a range of stakeholders. We recommend that:

• HM Treasury pilots Citizens’ Reference Panels, juries and other ways of engaging citizens to give their views – rather than making policy behind closed doors in Whitehall.
• ­The Bank of England pilots Citizens’ Reference Panels and other deliberative approaches with a view to advising their departments and committees on key economic decisions including the setting of interest rates. ­
• Combined authorities, local authorities and LEPs seize the opportunities of devolution, using deliberative approaches to engage citizens through the development of their devolution deals and in their implementation.

But we also recognise that the adoption of advisory councils by institutions alone is not sufficient. It is also important to create the right conditions in which they can thrive. To this end, we propose that the government creates a code of practice for effective public engagement and participation, recognising the sheer range of engagement approaches that can empower citizens: for example, participatory budgeting, citizens’ reference panels, citizen juries and co-production methods. At its core should be engagement and participation practice that extends beyond simple consultation towards approaches that are more deliberative, promote dialogue and allow sufficient time and space for policymakers to respond to citizens’ views.

To make this possible we also propose the creation of an expert resource centre on inclusive and participatory economic policy that would support government departments, non-departmental public bodies and publicly funded organisations, including the Bank of England. It would be modelled on a similar programme funded by the Department for Business, Energy Innovation and Skills, Sciencewise, which offers public bodies support in participatory policymaking relating to science and technology issues. Both the code of practice and expert resource centre would also work in co-operation with the existing international Open Government Network, which engages civil society in creating a more open and transparent approach to government across the world, and build on those ambitions set out in the Civil Service 2012 reform plan.

It is clear that we stand at a crucial crossroads. We can either ignore the populist signal and the democratic deficit at the heart of our economy, trapping us in a vicious cycle of distrust and instability. Or we can build a legitimate, transparent and accountable system that brings the much maligned ‘expert’ and citizen together to shape a fairer economy.

Find out more about how to join us in our efforts to do so online here: www.rsa.org.uk/citizenseconomy. The final report will be published in Spring 2018, with confirmed speakers to include Bank of England chief economist Andy Haldane, Europe expert Anand Menon, Financial Times journalist Gemma Tetlow, and Citizens’ Economic Council participation Patricia Wharton.

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The first ever Festival for New Economic Thinking is taking place in Edinburgh on 19-20 Oct 2017. It brings together people and organisations who are committed to advancing economic thought and inspiring change. Here Gustav Theile and Laurie Macfarlane make the case for transforming the way that economics is taught, studied, and practiced. 

The crises of our times are economic in nature. From climate change and migration to inequality and the rise of right-wing populism, these are challenges that cannot be separated from the economic system which breeds them. If the crises are economic in nature, then so must be the response. But when the crises are so profound they threaten the survival of humanity there is a need to rethink and, if necessary, reconfigure the very foundations of our economic model.

Where are we now? Policy is focused on generating economic growth, regardless of its source or character. The environment is seen as a peripheral issue, or as something to simply be bought and sold. High inequality is viewed as a price worth paying for a dynamic economy. Where do these doctrines come from, and how are they sustained?

The role of the classroom cannot be overlooked. Economics teaching continues to use models that present the economy as something that is detached from politics, ecology and human interaction. Economics curricula are centred around models where human decisions are portrayed as nothing more than a question of rationality and not complex than the behaviour of atoms. On a macro-level, government regulation is seen as intervention into a natural market order – even though governments and markets are institutions that are designed and shaped by humans. Rarely do discussions of gender, identity, narratives or culture feature, and neither do courses on the history of economic thought, philosophy of the social sciences or qualitative research. Never mind approaches that question the merits of economic growth as a goal, or present the economy as a part of a larger natural ecosystem.

Economic research has problems too, but for the most part it has moved beyond these narrows boundaries. There are papers on narrative and identity economics written by Nobel laureates. There are serious and enriching discussions on the use of models in economics, some wonderful game theorists compare them to fables or stories. Most economists have heard of climate change and don’t think it’s a hoax, and are on average more open to stronger government regulation and redistribution than the general public.

But this is not where economics exercises its influence. Where economics really has power is in the minds of the younger generations. Every new cohort is told that egoism is rational, that markets are natural, that government intervention is unnatural, that environmental sustainability is subject to profit maximisation functions. They are given the impression that the models that economists use are objectively true. Rarely are models presented as the ideas of people, developed in a specific historical setting, bound to time and space. They are usually presented as laws that return truth, as long as you know your algebra. The people with this training end up in powerful positions in businesses, banks, governments and newspapers. Most were never exposed to models that departed from the assumptions of ‘econ 101’.

This discrepancy between research and teaching makes the state of economics education all the more frustrating. Professors know that what they teach is simplistic and, as research shows, destroying the ethical compass of their students. Nonetheless, the reality is that the economic curriculum has not changed much over the past decades.

Economics education is ossified. The same textbooks are used all around the world which makes it very convenient to continue teaching the old, outdated models that are so destructive. They come with ready-made slides and mock exams. The incentives for good teaching are low and aspiring researchers try to spend as little time for teaching as possible. PhD students and post docs often end up teaching the repetitive tutorials that accompany many lectures, which typically involves scribbling the solutions on an overhead projector.

This is why students around the world came together to build the International Students Initiative for Pluralism in Economics (ISIPE) in 2014. They organised two general assemblies where 80 representatives from student groups in over 30 countries came together to discuss internal cooperation – and learned a lot about diplomacy. They conducted a study on economics teaching that compares the curricula in 12 countries worldwide. The most important factor of this initiative was that it gave them confidence. They realised that we were not alone.

Since then, the member groups have organised many conferences and summer schools which have included speakers from institutions such as the OECD, the Bank of England, the World Council of Churches, the Club of Rome and even the Austrian chancellor. The British group Rethinking Economics published a best-selling book ‘The Econocracy’, and more recently released a new handbook on Rethinking Economics. The German network has 30 member groups which organise roughly 300 events every year, and has established its own teaching website www.exploring-economics.org. It aims to break the textbook monopoly and make good economic education as accessible than the bad version is right now. The site recently won a prize for its content. Check it out, and you’ll agree that they should also get one for the design. Who said that knowledge has to be dry?

But still things are getting better. Rethinking Economics, Exploring Economics, the Young Scholars Initiative, The Minskys and the History of Economic Thought website have organised the Festival for New Economic Thinking which is taking place in Edinburgh between 18-20 October. They are bringing together hundreds of students, researchers, activists, and citizens together to think economics anew. 65 organisations, among them many of our student groups, but also institutes, newspapers and openDemocracy, are organising workshops and presenting their work in a carnival spirit.

Change doesn’t come easy. While the quality of arguments is important, the quality of organisation is just as critical. In short: thinking must be organised.

And while we are a diverse group of academically or politically motivated people, there is one thing we all agree on: the idea of academic pluralism. There’s not one theory, not one method that explains everything. Scholars need a variety of theoretical and methodological approaches to understand the world we live in. Theories in the social sciences are intellectual lenses through which the world can be understood. When people exchange goods for money, this could be analysed as rational actors seeking to maximise utility. But there are other possibilities too: they might be striving to comply with gender norms, or acting according to the values they have learned or the culture they grew up in. All of these are economic perspectives, because they deal with economic interaction.

This applies at the macro level too. While economic growth can be seen as something that contributes to lower unemployment, it may also cause harm to the environment that may ultimately outweigh any benefit. There are also political dimensions. Economic growth is fundamental to international relations because it determines the membership of alliances such as the G7 or the G20. One could ask what prevents countries from establishing alliances based on other metrics such as wellbeing, but that’s for a different day.

Changing economic thinking is not easy, and it requires a long-term approach. As the famous saying goes: science progresses one funeral at a time. Well, we better start young!

By working towards more balanced teaching of economics in universities, we hope to develop economic thinking that is less single-minded, and which opens up public discourse and moves beyond the simple dichotomy of market and state. This way, we can work towards a new economic paradigm that addresses the key challenges of the 21st century and enables humanity to thrive.

Margaret Thatcher famously said that “economics are the method: the object is to change the soul”. That was in 1981. But times have changed. In 2017, new economic thinking is the method: the object is to change the world.

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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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This election comes during a remarkable period in British economic history. Over the past ten years real wages have suffered a larger decline than in any other advanced country apart from Greece. Mark Carney, Governor of the Bank of England, recently said that Britain is experiencing its “first lost decade since the 1860s”.

Faced with an unprecedented squeeze on living standards, families across the country have resorted to desperate measures. The number of people using food banks in the UK reached 1.2 million in 2015-16 – up from just 26,000 in 2008-09. Unsecured household debt – credit cards, overdrafts and other forms of consumer borrowing such as payday loans – is set to reach record highs.

Years of austerity has pushed public services towards breaking point. A steep decline in funding relative to GDP has left the NHS facing a “humanitarian crisis”, while cuts to school budgets have forced head teachers to axe staff and raise class sizes. Decades of underinvestment has left the UK lagging far behind other advanced economies. British workers are now 22% less productive than workers in the US, 23% less than in France and 27% less than in Germany. Precarious jobs and zero-hours contracts have grown throughout the labour market.

Now, with Brexit on the horizon, things are likely to get worse before they get better. According to the Office for Budget Responsibility, a combination of stagnating wages and cuts to working-age benefits means that real earnings will be lower in 2020 than they were back in 2008. According to the Resolution Foundation, we are on course for the biggest increase in inequality since the days of Margaret Thatcher. Never before has the outlook for living standards been this bleak.

But this period of economic decline is not the result of “natural” forces. It is the result of a faltering political and economic order that has reigned supreme in Britain for four decades. A system which has put blind faith in market forces, and tipped the balance of power towards capital and away from labour. A system which has prioritised London’s status as a global hub for financial services, while leaving other regions to suffer at the hands of industrial decline. A system which has allowed wealth to flow upwards by rewarding value extraction more highly than value creation.

In 2008 this system came crashing down when the poster boy of deregulated market fundamentalism – the financial sector – failed catastrophically, taking the whole economy down with it. But without a clear alternative to take its place, the response was to double down on a broken model.

Nearly ten years on, and the economic recovery has been the slowest on record. In fact, when measured properly, there has been no economic recovery – output per head of population still remains below the pre-crisis trend. Interest rates remain stuck at zero, while the Bank of England has relied on £435 billion of quantitative easing to keep the economy afloat. Despite the upbeat rhetoric from the government and right wing press, the reality is that Britain’s economy remains on life support.

It is within this context that the political upheaval of the past twelve months – both at home and abroad – must be viewed. If an economic model delivers stagnating living standards, rising inequality and growing insecurity, it should not be surprising when citizens revolt.

In different ways, both Theresa May and Jeremy Corbyn are symptoms of this faltering economic model. Despite backing Remain in the EU referendum, Theresa May’s reign as prime minister is a direct product of the Brexit vote. While the reasons for Brexit are complex, evidence shows that geographical distribution of living standards, industrial decline and exposure to austerity played a key role in determining how people voted.

Since becoming prime minister, Theresa May has made a concerted effort to appeal to Brexit voters. Rather than tackle the root cause of genuine fears – a failing economic model – she has played into a toxic narrative which attributes blame to immigrants. In both style and substance, Theresa May’s Conservative party is bearing an increasing resemblance to Nigel Farage’s UKIP: a party hell bent on pursuing a hard Brexit, obsessed with reducing immigration, and nostalgic for archaic remnants of a bygone era – from fox hunting to grammar schools.

But despite the rhetoric of “an economy that works for everyone”, the Conservatives’ manifesto offers nothing new in the way of economic policy. Instead, we are presented with more of the same: more cuts to welfare and public services, lower taxes for corporations and the well-off, slashing “poor and excessive government regulation” and Orwellian rhetoric around a “strong economy”.

Where new polices do appear, their effect is usually to make peoples’ lives worse, not better. The commitment to reduce net immigration to “tens of thousands” is not only steeped in xenophobia, but is an act of gross self-harm. Even the government’s own forecasters say that reducing immigration to the tens of thousands will seriously harm growth and increase government borrowing by up to £30 billion. Combined with scrapping of free school lunches, the means testing of winter fuel allowance and the now famous ‘dementia tax’, the direction of travel is a continuation of the status quo, but slightly worse.

Jeremy Corbyn’s Labour party, meanwhile, embodies the mood of discontent and a hunger for something different. After twenty years of politics dominated by spin, sound bites and triangulation, millions of people viewed Corbyn’s sincerity and honesty as a breath of fresh air. Initially written off by the political and media establishment, his resilience in the face of constant attack has gradually won over sceptics. But it is not personality or persona that is Labour’s secret weapon – it is policy.

Corbyn’s unashamedly social democratic manifesto represents a marked departure from the politics of recent decades, and contains many sensible policies. A new National Investment Bank would provide long-term patient finance to upgrade physical and social infrastructure across the country. Taxes would be increased on the wealthy to pay for struggling public services. Key utilities would be brought back into public ownership, student tuition fees scrapped, corporation tax increased and workers’ rights strengthened.

Unsurprisingly, the right wing press decried that the manifesto would “drag us back to the 1970s”. But none of Labour’s flagship policies are remotely controversial in Germany, which is the most productive and dynamic economy in Europe, or in the Scandinavian countries, which consistently sit at the top of global rankings on socio-economic development. The hysterical response from the media shows just how detached Britain has become from the mainstream of European economic thinking.

Labour’s proposal to double the size of the co-operative sector – supported by the introduction of a “right to own” policy – is a bold and ambitious way to reinvigorate enterprise and democratise ownership of capital. The proposal to break RBS up into a network of local public banks would create the kind of mid-tier banking system that is the lifeblood of Germany’s industrial power. The pledge to utilise the public sector’s £200 billion spending power in procurement to help create good local jobs, protect the environment and reduce inequality could be transformative. The promise to introduce a financial transaction tax would put a break on harmful financial speculation, and help return finance to its rightful place as the servant, not the master, of our economy.

Many commentators have been quick to judge party manifestos on the basis of whether each individual policy measure has been “fully costed”. Journalists get excited about the prospect of tripping up politicians with questions about “where the money will come from”. Unlike the Conservatives, Labour made a noble attempt to the cost their manifesto. But as many economists have already pointed out, obsessing over specific policy “costings” may be good journalism, but it is bad economics. It makes little sense to obsess over whether each item of addition spending is matched to a measure to raise additional revenue, because this is not how government spending actually works.

Moreover, assessing individual policies in isolation overlooks the dynamic interactions which determine the health of the economy. Taken as a whole, Labour’s manifesto would reboot the economy by kick starting the positive feedback loop between investment, productivity, wages and tax revenues. It would also help to rebalance the economy away from London and towards other parts of the UK.

But while Labour’s offering is a welcome step in the right direction, it is no panacea. There are many areas for improvement. Addressing the housing affordability crisis means not only building more homes, but fixing our broken land market. An ageing population and growing intergenerational needs a bolder approach to social care and inheritance. Moving towards a low carbon economy requires a systematic greening of the economy, not just targeted investment. Automation, big data and the changing nature of work demands a more radical rethink of welfare policy, and a more sophisticated debate about ownership in our economy.

The media has failed to engage in this debate, or even acknowledge the scale of the challenges we face. That’s why at openDemocracy we are bringing people together to get to grips with the long running economic crisis unfolding in Britain, and figure out a new economic programme.

Join the conversation, and help us build an economy to meet the challenges of the coming century.

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What is medicine for? Surely an easy question, right? Apparently not. I have always believed that the purpose of medicine is to alleviate the suffering caused by ill-health and death. One must include both, because death itself is very effective in ending the suffering caused by ill-health, and even though there is vibrant debate concerning the appropriate access to assisted suicide, society overwhelmingly adopts the policy that life is sacred and must be extended at virtually all cost.

Or does it? There is a bizarre contradiction in our collective approach to the ill-health of old age. On the one hand we are happy to allocate billions upon billions to the quixotic pursuit of extended but functionally impaired life, under the banner of geriatric medicine, but on the other hand we overwhelmingly express deep ambivalence, if not outright opposition, to the idea of future medicine that would actually work – that would entirely abolish those ailments and maintain youthful mental and physical function to much greater chronological ages. When asked to consider such a world, most people are far more inclined to raise concerns about how society would manage the likely side-effect of increased average longevity, than to pay any attention whatever to the prospective alleviation of so much suffering.

I have discussed in many other places the psychological underpinning of this phenomenon, so I will not repeat myself here. Instead I will focus on the economic imperative to hasten the arrival of truly effective anti-aging medicine, and the consequent duty of governments to allocate greatly increased resources to the effort to develop them.

The ill-health of old age currently accounts not only for over 70% of deaths worldwide but also for a similar proportion of medical expenditure. In the industrialised world, these numbers are in the region of 90%. What if we had medicine that would prevent the conditions on which all that money is spent? The money would be saved! Sure, the medicines that achieved this prevention would themselves cost money, but there is no reason (not even any hypothetical reason) why prevention should not be better (i.e. cheaper) than cure in this case as it usually is. And that’s just the start. Do you, or does anyone you know, have a parent with advanced Alzheimer’s or any other age-related chronic disease? How much productivity is lost from the burden of caregiving as a result? It’s astronomical. And beyond that, consider the wealth that the elderly could contribute to society if only they remained able-bodied. The economic benefit would be unimaginable.

How is this not completely obvious to everyone? My only explanation is that the powers that be are just as irrational about aging as the rest of society. There can be no doubt that policy-makers are acutely aware of the economic realities that I summarise above, but their decisions are based on their perceptions of the impact on their priorities. And it seems that policy-makers remain convinced that it is not in their interests to inject relatively minuscule sums into research that could pay for itself literally millions of times over. Why? Only two explanations seem available. One is that the reward is further in the future than the current electoral cycle, such that whatever the logic of such a course, it would be against the nearer-term vested interests of the political elite. The other is that these decision-makers truly feel, in spite of all the scientific evidence trumpeted by biogerontologists every day, that the probability of actual success (i.e., of a substantial hastening of the defeat of ageing) from such expenditure really is less than one in a million, thus outweighing the benefit that success would bring. Neither such attitude is remotely excusable.

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