Teaching Economics the Pluralist Way

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This is a talk I gave in Amsterdam to launch the Amsterdam Rethinking Economics critique of the current state of economics “education” in the Netherlands. The text of my slides is reproduced below.

–Read the original sources—journals & books—not textbooks

  • Let experts teach maths & computing, not economists
  • Facts exist & are not theory-neutral

–Rules of accounting versus Money Multiplier

–Great Depression Soup Kitchens versus RBC “voluntary unemployment” myths

–Decline of Soviet Union versus Marxist faith in socialism

  • Learn Economic History & History of Economics
  • Learn modern “complex systems” approach to dynamics from mathematicians (see www.ChaosBook.org)
  • Learn computing & multi-agent modelling from computer scientists
  • Look at the “Cliodynamics” approach to history

–Arguably doing what economists should always have be doing

  • Use the Web for academic freedom where Universities suppress it
  • Teach Honestly
  • Economics textbooks have “airbrushed” economic theory
  • Teach Honestly
  • Absurdities like “Ricardian Equivalence” look reasonable in textbooks
  • Teach Honestly
  • Look more dubious when you read original article:
  • “Suppose now [i.e., “pretend”] that households’ demands for goods depend on the expected present value of taxes
  • I shall discuss five major theoretical objections that have been raised against the Ricardian conclusions.
  • The first is that people do not live forever, and hence do not care about taxes that are levied after their death…
  • The argument fails if the typical person is already giving to his or her children out of altruism…
  • The main idea is that a network of intergenerational transfers makes the typical person a part of an extended family that goes on indefinitely.
  • In this setting, households capitalize the entire array of expected future taxes, and thereby plan effectively with an infinite horizon.”
  • Teach Honestly
  • Does it take an Australian to tell you that that’s bullshit?
  • Did you realise that when you studied “Ricardian Equivalence” in Macro?
  • Major issues in Neoclassicism ignored or sugar-coated in textbooks

–“Cambridge Controversies” over nature of capital

  • Not mentioned (or imply won by Neoclassicals)

–Sonnenschein-Mantel-Debreu Theorem

  • Not mentioned, or treated as “Special conditions” under which market demand curve can be derived
  • Rather than “proof by contradiction” that market demand curve can’t be derived from aggregating individuals

–Empirical data that firms do not have rising marginal cost

  • Completely ignored by textbooks
  • Childish “lemonade stand” examples of factories rather than contradictory real-world data
  • But other schools aren’t saints either…
  • Teach Honestly
  • Marxists just as bad

–Still inventing excuses to keep Labor Theory of Value alive

  • It’s wrong. Get over it; or…
  • At least teach that some people think it’s wrong even if you don’t
  • Admit shortcomings

–Post Keynesians

  • Are weak on ecological issues
  • Have yet to develop a completely coherent methodology
  • Admit strengths in others

–Post Keynesians can admire Austrians on uncertainty, expectations, entrepreneurship

–While criticising them on monetary accounting & undue faith in equilibrium

  • Above all…
  • Teach Honestly
  • Teach that economists have the right to disagree with each other

–No School is perfect; All can learn from each other to some degree

  • Our approach at Kingston:

–Introductory course Becoming an Economist starts with

  • “Why Economists Disagree”

–Lectures covering methodology & major schools

  • Neoclassical
  • Austrian
  • Post Keynesian

–Emphasis on the questions that define each school

  • Each question valid in its own right
  • Each sets school to consider some issues, ignore others

Facts matter too:

  • Some facts support some schools, undermine others…
  • Teach when economists are factually wrong
  • Neoclassical “Loanable Funds”, “Money multiplier” models of money:

–Bank of England “Money creation in the modern economy

  • “Money creation in practice differs from some popular misconceptions
  • banks do not act simply as intermediaries,

–lending out deposits that savers place with them…

  • nor do they ‘multiply up’ central bank money to create new loans…”
  • Teach when economists are factually wrong
  • Actual cost structures of real firms:

–Alan Blinder, Asking About Prices (1998)

  • Teach Why Economists Disagree
  • Answers to “Which School asks which question?” should be obvious to experienced students
  • But novel for school students who think there is only “economics”:

“Can the economy equate demand and supply in every market?”

“How does innovation & change occur in capitalism?”

“How did capitalism evolve, and will it turn into something else?”

“What caused the Great Depression, and can it happen again?”

“How does the economy produce more outputs than inputs, and what are the impacts of this on the environment?”

“How do real people behave in economic situations?”

“How do relations between the sexes affect economics?”

“Can we understand the economy using tools from physics?”

  • Major issue for school students is they’ve only learnt “economics”, “physics”, “maths”, “history”
  • Question of “how should one do economics (& physics, etc) not asked
  • I introduce the issue of methodology by the example of astronomy…
  • Teach Why Economists Disagree
  • How can two people look at the same thing and see it so differently?
  • Developing a new realistic economics
  • Parallel course “Capitalism” covers

–Economic History

–History of Economic Thought

  • Both as “live” subjects

–Fukuyama’s report of the “End of History” was greatly exaggerated

–Economics undergoing rapid evolution right now

  • From Lucas “central problem of depression prevention has been solved, for all practical purposes, and has in fact been solved for many decades.” (2003)
  • To Kocherlakota “we simply do not have a settled successful theory of the macroeconomy.
  • The choices made 25-40 years ago … should not be treated as written in stone or even in pen.
  • By doing so, we are choking off paths for understanding the macroeconomy.” (2016)
  • Developing a new realistic economics
  • Subsequent courses (Economic Modelling, Macro)

–Teach Neoclassical vs Post Keynesian views of Macro

–Introduce essential techniques for genuine dynamics

  • Basics of dynamic systems

–Including stability & instability of linear & nonlinear systems

  • System dynamics
  • Cliodynamics
  • Essentials of multi-agent modelling
  • New foundation degree in Economics & Computing starting in 2018

–Half computing & half economics over 3 years

  • More computing in early years, more economics later years

Economists are not competent to teach basics of computing

  • Just as not competent to teach the basics of mathematics
  • Courses not enough

–Can’t cover all of literature and support areas in 24 semester units

  • Really interested students need to read outside courses as well
  • Existential challenges
  • Viability of non-mainstream economics always tenuous

–Suppressed at leading universities (Oxford, Cambridge, Princeton)

–Survives at low-ranked universities (Kingston, UMKC)

  • Poorer funding, less academic freedom, more bureaucrazy

–Vulnerable to “market reforms” of education

  • Australian government removal of “caps” on student numbers led to closure of economics at UWS

–Preliminary enrolment went from 120 to 16 in one year

–Similar policy in the UK in 2015

  • Halved Kingston’s Humanities intake across the board
  • TEF “Teaching Evaluation Framework” next year will compound the damage with institutional “Gold, Silver, Bronze” Medals for an entire University’s teaching staff
  • Pro-pluralist unis (Kingston, Greenwich, etc.) likely to receive Bronze awards, pro-mainstream (Oxbridge) Gold
  • Bureaucrazies who dreamed this up deserve Lead Medals
  • Existential challenges
  • Ranks lowly in research studies given Neoclassical gatekeeping on “leading” journals
  • Blanchard’s recent calls for broader approaches in journals welcome:

–“It has to become less imperialistic. Or, perhaps more fairly, the profession (and again, this is a note to the editors of the major journals) must realize that different model types are needed for different tasks.” (“Do DSGE Models Have a Future?”)

  • But mainstream journals still highly resistant to non-paradigm papers

–2013 debate with AER Macro editor after rejecting “modelling Great Moderation & Recession” paper without refereeing:

  • “But what if they get more information about the future? How would that change things?”
  • Mainstream journals will continue to exclude non-paradigm papers

–Makes promotion difficult for non-Neoclassical economists

  • Universities & funding bodies remain hostile to pluralism
  • So pressure for change from students, public, still vital
  • For more…
  • My next book Can we avoid another financial crisis?

–Coming out in April/May 2017

–Short: just 25000 words; Non-technical explanations of

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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7 Responses to Teaching Economics the Pluralist Way

  1. paulie95 says:

    Steve, I think that for the bubble and debt to pop. You need to tell people the truth. You need to tell people how commercial banks essentially create money out of nothing, and then receive an enormous profit in the form of interest. How for the banks, more debt means that they can increase these profits, so these banks increase their lending with the knowledge that they will be bailed out if they run into trouble. How these banks are incentivised to lend out as much money as they physically can.

    If you tell people these facts, I’m confident that this debt and property price speculation will quickly come to an end.

  2. Steve Keen says:

    The bubble will pop regardless of what I say, but raising awareness? That seems to involve more then simply letting the truth be known bm

  3. paulie95 says:

    To put it simply. Tell the public how the banking process operates. How commercial banks through the process of credit create money in our system. If people are aware, there likely to think twice before going into significant levels of debt. I mean, economists and many working within the banks know what actually happens. How money supply, through the process of lending, has increased exponentially in recent years.

  4. paulie95 says:

    *I mean, economists and many working within the banks don’t know what actually happens. How money supply, through the process of lending, has increased exponentially in recent years and how the majority of that newly created capital has been added to Sydney and Melbourne property prices.

  5. nickekahn says:

    Dear Prof. Keen,

    I teach intermediate micro, and sadly I’m expected to cover the standard neoclassical nonsense. While I mention to my students why there are problems with much of what they are learning (e.g. SMD) I’ve always struggled to find suitable nontechnical readings to assign. Would you happen to have any suggestions? Thanks!

  6. nickekahn says:

    Aside from “debunking economics”, of course 😉

  7. whutchin says:

    Steve, I’ve only recently begun to follow your work, but I find it very insightful and relevant. I have one question for you if have a moment – not explicitly related to this video.

    In terms of endogenous money creation, do you distinguish between the channels of bank lending and market lending? I know you observe total private debt, which builds from both sources. The latter channel seems to follow the traditional posit that financial institutions act as intermediaries. Bond markets, if anything, create securities, which can be utilized as money in some ways, however.

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