Supply and Demand in the Academic Discipline of Economics

by Dirk Ehnts, Econoblog101

The University of Greenwich has reworked its economics curriculum to include pluralist perspectives:

However, we do not isolate the development of a pluralistic perspective to only a few courses, but rather integrate it in all our courses by approaching real world problems from the perspective of different theories, both old and contemporary, comparing, contrasting, or at times synthesising them. This should help the students to develop a critical perspective towards current economic theories and evolving economic events, and develop an understanding about the limitations of theories and models (for example, what happens out of equilibrium), and think more widely about the historical, institutional and political context of economic behaviour and policies. The work of a diverse body of research active lecturers informs our teaching.

This seems like a very good idea. Recent failures to address real world problems seem to be the result of excluding some very good economic theories, mostly anything that is labelled heterodox. That leaves us with economists unable to explain unemployment – instead of a lack of aggregate demand caused by an unfavourable distribution of deposits and a fall in government spending and net loan creation of the private sector wild theories full of mystique have been formulated: that of the confidence fairy, bond vigilantes, the too-big-too-fail doctrine, and expansionary austerity a.k.a. expansionary contractionary policy á la Kafka and TARGET2 whining.

It is time to let competition enter the discipline of economics: let persuasion do its magic and then we see where we’ll end. Most students I know are not persuaded by modern macroeconomic models that feature supply side shocks when it comes to the recent crisis. Showing them the destruction of money by net loan repayments of the private sector and the subsequent problems in the circulation of money (deposits) seemed to be convincing, on the other hand. Different problems require different solutions, and economists should have a big toolbox.