Student Challenges May Change Economics

Econintersect:  Students are questioning what they are being taught in economics courses today and Erik Weiner (senior editor and director of communications at the Institute for New Economic Thinking – INET), in an article in the Miami Herald on 12 April 2012, says the start of students openly questioning economic orthodoxy in any sort of organized way could be pin-pointed to have started on 2 November 2011.  On that day a group of approximately 70 students in an introductory economics course taught by Prof. N. Gregory Mankiw, walked out of a Harvard class simultaneously with the publishing of a letter they had written appearing in the Harvard Political Review.  GEI News reported on the story and reproduced the students’ letter the same day.  See first Source end of article.

Economics is a discipline in considerable turmoil as a result of many of the most well-known practitioners totally missing the development of the housing/credit bubble and the resulting financial crisis.  Critics maintain that even now, 4-5 five years after the crisis unfolded, many economists cannot discuss meaningfully what happened with any significant detail.

There have been a few economists who laid out a description of the imbalances that were building through the years before everything fell apart, and in explaining what had happened after the fact, but they were rare, isolated from major professional societies and virtually ignored.  Some among these are people who have contributed to Global Economic Intersection, include Dirk Bezemer (and here), Michael Hudson (and here) and Steve Keen.

A common thread that these and a handful of others share in their work has two primary features that distinguish them from the mainstream of economics which has failed so badly in anticipating and then in analyzing the financial crisis:

• Build models that deal with the economy while it is in disequilibrium; and

• Include debt and money as variables (time variant) in the models.

The mainstream of economics has worked with the basic assumptions that:

• The economy is almost always in a state of equilibrium with relatively quick reactions to shocks producing a return to equilibrium; and

• Money and debt are not variables impacting the economy – they simply act as lubricants for economic activity – much as if the economy performed as a barter system.

The above comparisons are admittedly overly simplified and do not cover the many intricacies of both positions, but they serve to exemplify the sharp differences that exist.

One difficulty that arises between the mainstream and some of the renegades is that they don’t even talk the same language.  An example is the recent online debate between Paul Krugman and Steve Keen which was summarized in a Great Debate© feature at GEI Analysis.

In Weiner’s Miami Herald article he recounts how an INET annual conference just completed in Berlin April 13-15 (GEI will be reporting on some of the papers presented there in coming weeks) opened up an overflow area for students to watch videos of the presentations because the conference itself had no room.  Hundreds of economic students from around the world traveled to Berlin (with no financial support from the conference) to watch the presentations streamed live electronically into a separate location.

Yes, students may contribute to the change of economics.  There certainly seem to be quite a few eager to get invovled.

John Lounsbury

Sources:

• Harvard Students Join Occupy Wall Street (GEI News, 2 November 2011)

• Students challenge long-held tenets of economics (Erik J. Weiner, The Miami Herald, 12 April 2012)

• The Great Debate©:  Keen and Krugman on Money and Banking (Steve Keen, with extensive quotations from Paul Krugman, GEI Analysis, 9 April 2012)

Hat tip to Roger Erikson.