No. 211

Stone the crows! There’s a deal of despair in the decline of the dismal science.

La Trobe University is cutting back on economics education – allegedly planning to cut staff from 28 to ten.[i] The University of Western Sydney did the same in 2012, sacking four senior professors and their staff. [ii] And, across the country, economics commands less student interest in universities – there were 8,000 economics enrolments in 1991 and 11,000 20 years later – nowhere near matching the massification of the system overall.[iii]

There are, as Alex Millmow and Jacqueline Tuck point out, more university economists than students studying a straight undergraduate economics degree.[iv] Serves servants of the market right, you might think, to find them hoisted on their own implicit price deflators; after all they are obviously not giving students what they want or need.

Except we need an economically literate electorate to stop populist politicians palming snake oil off on us. Which is what we will not have with the way things are going.

Not that we will run out of economists altogether. Economics is ok-ish in the Group of Eight elite universities, which train technocrats for Treasury and the banks – the most recent study the Crows know of assumed that research output and teaching are complementary and ranked all of the eight in the top ten.[v]

But even in the upper echelons of education all is not well – Treasury contracts ANU to teach a semester long entry-level economics course for its new recruits.[vi] And a common complaint in lower status universities is that the G8 drop entry marks for economics, which cascades down so that lower status schools accept kids who struggle.[vii]

In the dozens of universities that train teachers and have huge enrolments in business degrees, economics is as a support subject. According to Stokes and Wright:

In some universities the traditional first year semesters of Microeconomics 1 and Macroeconomics 1 have been replaced by a single unit, often labelled ‘Business Economics’, which is typically a hybrid of these traditional courses. Its purpose tends to be the provision of a minimal amount of economics training before students move on to studies in vocational business programs.[viii]

There are all sorts of explanations why this so. The broad-left line is that neo-classical economics is discredited by the GFC and kids eschew it in favour of major pudding studies. This is nonsense on stilts. It wasn’t economists but mountebanks in, well, banks and inept regulators who caused the crisis. In any case, economics enrolments are up in countries where the crash did real damage.[ix]

When this does not work, enemies of economics argue that the classical discipline is irrelevant – that it assumes ordinary people rationally calculate their own interests, when in fact we are dupes. Critics who say economics is being transformed by behavioural sciences have a much better point and there is a decade long push around the world to broaden the curriculum.[x]

But the main reasons for the decline in university economics are straightforward – starting with students who lack core mathematical skills plus what is taught and the way it is is taught.

There is no way around it; you need calculus to make more sense of economics than it takes to read, well, The Economist – and advanced maths is not something many kids do at school. And fewer HSC economics students translates to fewer economics graduates which translates to fewer economics classes in high school for want of teachers and so the spiral is set.[xi]

There is an argument that you do not need the math anymore and that Professor APP will crunch the numbers – however you still have to understand the concepts and that takes math.

But even those students who stick with economics in school and on to university find it is not much fun. Academic economists are not adventurous and because publication means promotion they teach what they research, which is ever-more what appears in the big journals. And that is esoteric, calculus rich research on technical subjects by academic economists for academic economists. Ever notice how many of the talking heads on TV are economists who work for banks or how commentators in the media who know their stuff are not academics?

Argyrous and Thornton argue that what university economists teach has narrowed over the last 30 years, that mainstream and neoclassical economics, econometrics and mathematical methods were more dominant in 2011 than in 1981. [xii]

And they are taught in a universe of theory, divorced from the world of work. As Monash economist Stephen King puts it;

Economics is a public policy discipline. It is useful in many areas but its main role is to provide a set of tools to think about markets. Students need to understand what tools to use where and when. So they need the assumptions. But they also need context. Students need examples of where models work (and where they don’t and why). They need economics linked to current policy debates and to economic history. The discipline has largely abandoned its own history in teaching – which is completely mad. If we teach economics in a vacuum, then that is all we will leave with students – an economics vacuum.[xiii]

The result is that business studies are now arts degrees for people who want to make money and economics is a subordinate discipline in them. In 1991, there were 86,000 students enrolled in business, 20 years later there were 222,000. [xiv]

Indeed, many economics academics now survive by teaching in business courses. This is not necessarily a bad thing. A decade back University of Melbourne economist Nilss Olekalns argued, “that some one-quarter of all students who undertake tertiary study in Australia receive instruction in the core areas of macroeconomics and microeconomics is a major achievement. One wonders whether any other discipline could claim something similar. “ [xv]

Good, but not good enough. As Professor Clarke explains. A business curriculum which doesn’t teach how consumers and firms make their decisions, how public goods should be supplied, how levels of employment, economic activity and interest rates are determined, what determines international trade and how externality issues should be addressed is inevitably of low usefulness.

Finance courses which teach people investment analysis without teaching the basic consumption-smoothing rationale for lending and borrowing is likewise of limited worth. Students who study marketing without knowing some consumer demand theory know only a fragment of what determines consumer behaviour. Students who study “human resource management” without having a basic course in labour economics likewise know very little. [xvi]

The ridiculous thing about the decline of economics is that it is a crisis among abundance. Australians are obsessed with economics. It started with the Whitlam Government, when people wanted to know what the hell was happening, grew with Keating’s banana republic warning when they were appalled by the idea of our turning into Argentina and rolled on through the GST debate of the 1990s and the Howard era argument of how to spend the boom.

I suspect few OECD countries have as many citizens who have an idea how its government debt rates as does Australia. Nobel laureate Joseph Stiglitz is speaking at the University of New South Wales on Monday and the three hundred-seat venue is long sold-out. [xvii]

The problem is that as economics becomes like maths, universally acknowledged as essential but not commonly studied, the dismal science less shapes debates than is plundered for anecdotes and examples people use to support arguments about politics. Every galah in the pet shop was banging on about the Budget last month, suggesting our comparative government debt to GDP made cuts unnecessary, without acknowledging the way unsustainable outlays stunt growth.

Italian economist Tullio Jappelli argues:

Inhabitants of countries with more generous social security systems are generally less (economically) literate, lending support to the hypothesis that the incentives to acquire economic literacy are related to the amount of resources available for private accumulation. [xviii]

Given around 20 per cent of Australians receive income support from the state – and this does not include family tax benefit and childcare payments – the incentive to face the immutable laws of economics can only decline along Greek lines. [xix] The Athenian road bypassed economic principals in favour of unaffordable welfare and look where it got the Greeks.

Economics is the foundation discipline for public policy. The dismal science may be optional in education but policy is not. Economic illiteracy politically impoverishes us all.



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[i] Harry R Clarke, “Diminishing economics training at La Trobe University,” June 24 @ recovered on June 28

[ii] Stephen Matchett, Campus Morning Mail August 8 2013 @ recovered on June 28

[iii] John Marangos, Vasiliki Fourmouzi and Minos Koukouritakis, “Factors that determine the decline un university student enrolments in economics in Australia: An empirical investigation,” Economic Record, 89 (285) June 2013 255-270

[iv] Alex Millmow and Jacqueline Tuck, “Did the global financial crisis have any impact on economics degree enrolments” Federation University Business School Working Papers 5/2011 @ recovered on June 28

[v] Joan P Rodgers and A Valadkhani, “A multi-dimensional ranking of Australiana economics department,” University of WollongongResearch Online, 2007 @ recovered on June 28

[vi] Treasury, Annual Report 2010-11 @ recovered on June 28

[vii] ABC Radio, PM “The dismal science faces a dismal future at UWS,” November 5 2102 @ recovered on June 28

[viii] Anthony Stokes and Sarah Wright, “More effectively engaging students in university economics courses,” Australasian Journal of Economics Education, 9 (1) 2012 1-20 @ recovered on June 28

[ix] Millmow and Tuck, ibid

[x] Stephen Matchett, “Dismal science faces dilemma,” The Australian, March 25 2009

[xi] Geoff Prince, “Push for more maths education really adds up,” Australian Financial Review, June 26

[xii] George Argyrous and Tim Thornton, “Introductory political economy subjects in Australian universities: recent trends and possible futures,” Australasian Journal of Economics Education 10, 2 (November 2013) 39-59 @ recovered on June 28

[xiii] Stephen King, “Does undergraduate economics education need to change,” Core Economics, May 16 2012 @ recovered on June 28

[xiv] Marangos et al, ibid

[xv] Nils Olekalns, “The teaching of first year economics in Australian universities,” nd @ recovered on June 28

[xvi] Harry R Clarke, “Reform university teaching,” May 12 @ recovered on June 28

[xvii] University of New South Wales Business School, “Joseph E Stiglitz: “The global financial crisis-where are we now and what can be done about it,” @ recovered on June 28

[xviii] Tullio Jappelli, “Economic literacy: an international comparison,” Centre for Financial Studies Working Paper 2010/16 @ recovered on June 28

[xix] Australian Bureau of Statistics, Yearbook 2012 @ recovered on June 28