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WHATEVER HAPPENED TO ECONOMICS?
Stone the crows! What an economics exempt election that was. Sure, The Australian and the Australian Financial Review hammered away at the absence of economic policy. But columnists aren’t candidates and an argument about who is spending how much is accounting not economics.
Colm Harmon, the new head of Economics at the University of Sydney, nailed what occurred, “The electorate is a good deal savvier to the reality of what is going on than the politicians give them credit for, but instead are treated to what is a quite superficial presentation of the arguments.” [i]
He’s right – ever since Paul Keating’s banana republic speech made the monthly BOPs top of the press pops the policy media and its consumers have obsessed about economics. But they have the field largely to themselves.
One of the reasons there is not enough economics in our politics is that there are not enough economics majors graduating from our universities. It seems that, for 20 years or so, Professor Harmon’s profession has preferred to talk amongst itself rather than teach more crowded classes or get amongst it in the media.
In truth, economists are not all that interested in talking to each other either. As the Australian Research Council’s Excellence in Research for Australia demonstrates, economics is not in great shape, with 28 out of 45 departments rated as meeting or being above world standard.[ii] But as the Chief Scientist’s office points out, “world standard” includes thousands of institutions, when the only ones we should aspire to meet and defeat are clustered in north America and western Europe.[iii]
Be that as it may, for every academic like Bruce Chapman and Judith Sloan, John Freebairn and the late Helen Hughes, who present serious ideas from all sorts of perspectives in the media there are half a dozen economics writers and market economists leading the debate.
This is no bad thing; economic commentary is a self-selecting trade and those with the intellectual acumen and enthusiasm to explain complex ideas to a mass audience are the best people to do it.
But economic analysts do not self generate and the universities are not pumping out the next generation of economically literate graduates to do the explaining or, more importantly, to variously make policy or hold the policy makers to account. Sure, the elite departments like Professor Harmon’s are still teaching very bright people but this is not enough.
What we require is a mass of graduates with a grounding in the principles of economics; some economic history would be good as well, people who understand the context of every spending and taxing decision governments make.
Which is what we are not getting. The celebrated iconoclast Steve Keen suggests that in the last 40 years the amount of economics included in the average business degree – the course that has kept academic economists in business – has declined from 40 per cent to 4 per cent.[iv] Professor Keen left the University of Western Sydney when it cut the amount of economics it offered due to lack of demand.[v] (Although last month the university advertised it still teaches economics.[vi]).
So what went wrong across the country? There are arguments that the GFC crippled the credibility of conventional economics education, that it stuck to the ideal of efficient markets long after it became an article of misplaced faith.[vii] Certainly some economics departments are said to stick to old ideas, taking little interest in the way behavioural scientists show we are not always as rational as we should be, something the Productivity Commission started to grapple with years back.[viii]
But the reality is that the discipline ignored the way expanding universities offered more subjects and that not all undergraduates are keen on calculus. As David Round and Martin Shanahan from the University of South Australia put it a couple of years back, when student numbers were really bad:
Rather than reacting to the new competition, economists remained inert. Instead of responding by producing a better teaching and learning product and marketing the degree as vocationally useful, they blamed students’ poor choices. As a case study on how not to respond to the market, economists became their own best example”[ix]
There are ways back from this. Stephen King (no, not that one) from Monash argues that economics faculties need to flip the way they teach, providing lectures and study material on-line and using the resources freed-up for small group intensive teaching.[x] And academics suggest that students who are not especially mathematically numerate can still succeed in economics. If they understand the concepts, software can handle the calculus. [xi]
Good-oh, but such steps do not address the core problem – economics should be centre of the policy making and debating stage, but it isn’t.
Henry Ergas offers an explanation, with an argument that Treasury has lost interest in economics in favour of social engineering:
The 70s drama of stagflation, in which spiralling inflation combined with high unemployment in a cocktail the Keynesian remedies only worsened, focused attention on rigidities that pervaded the advanced economies. By the 90s, however, the priority accorded to dismantling those rigidities had receded as other issues, particularly environmental concerns, came to the fore. “Government failure” seemed less central to these new issues than “market failure”; and with economics placing ever more emphasis on the factors that might lead markets to fall short, it was all too easy for yesterday’s nay-sayers to become today’s apologists, finding sophisticated rationales for interventions. [xii]
Even so, it is a universal given among many academic opponents of the free market that in most university departments the reverse occurs, that economics is politicised by advocates of the orthodox. Thus the University of Sydney’s Mike Beggs warns the jobs of junior staff with dissenting views are already at risk. [xiii]
Whoever is right, the problem is that insufficient undergraduates are being taught the basics of economics to make up their own minds – or to put the discipline in the prime place it should occupy in policy debates, and elections.
[vi] The Australian, Higher Education, August 7
[viii] Alex Millmow and Jacqueline Tucx, “Did the global financial crisis have any impact on business degree enrolments?” University of Ballarat, Business School Working Paper, 2011 @ http://goo.gl/dp2rnh recovered on September 7, Productivity Commission, Behavioural Economics and Public Policy, 2008 @ http://goo.gl/NAA5aW recovered on September 7
[ix] Stephen Matchett, “Tedious teaching blinds students to the fact economics matters,” The Australian, February 13
[xi] Anthony Stokes and Edgar Wilson, “Catering for individual student learning differences in economics,” American Journal of Business Education 2,9 (December) 2009, 41-47
[xii] Henry Ergas, “What ails Treasury cannot be fixed with a knight of the long knives,” The Australian, September 6