BBC documentary sets Economics blogs ablaze with pluralism debate

As many of you will know, early December 2014 saw the release of the BBC Radio 4 documentary ‘Teaching Economics after the Crash’ which covered the student movement for pluralism in the teaching of economics of which CSEP has played an important part. Student voices from CSEP and Post-Crash Manchester featured alongside the international networks Rethinking Economics and ISIPE (which we are a part of!). An eclectic and high-profile array of supporters from INET founder George Soros to Bank of England deputy governor Andy Haldane also presented their reasons for change.

Ever since, the economics blogosphere has been monopolised by the ensuing debate. This post brings you up-to-date on the latest in this verbal engine

It was Tony Yates who got the ball rolling who, pulling no punches, launched an eviscerating critique of the documentary:

“It’s a great story, well told. But, it is just that. In its totality, a distorting dramatisation, on account of allowing multiple silly, uninformed critiques to go unchallenged in the program.  Yet presented as a reasonable, impartial take on what is going on in economics.” Continue reading

Financial Crises and the Neoclassical Lullaby of Equilibrium

Note: The views expressed by the author are not necessarily those of CSEP Committee members or the society as a whole.

When I started studying economics in the autumn of 2008, I thought I had arrived at the right place at the right time. The global economy was on the brink of its largest downturn in 80 years. When I graduated in 2012, the GDP in the Eurozone was lower than when I entered the course. Yet I had learned nothing whatsoever about the economic crises that had taken place in the meantime! I realised that they had been trying to lull me asleep with the lullaby of equilibrium [1]. At the end of my studies, I mustered all my energy in a desperate attempt at a wake-up call.

I discovered that there are many good theories out there that could account for – and even some that predicted – the financial crisis. I was bewildered by the fact that my teachers and textbooks did not mention these perspectives. Were they simply unable to grasp the problem at hand?

The result of my efforts was my master dissertation, in which I asked: Is neoclassical economics – by its very nature – unable to theorise about the causes of financial crises? The answer to this question was ”yes”. Let me explain why. Continue reading

Irrational assumptions? In partial defence of rational economic models

An oft-heard criticism of economics is that people do not behave rationally. Economics though, widely assumes that they do, and indeed by some definitions, economics is merely the application of rational choice theory. Surely the economics profession cannot be swept aside so easily however.

From the point of view of human nature, rationality is more defensible than it might seem. Clearly humans are driven by emotion, and if rationality were defined to be in opposition to this then there would be a case that this was not a good description of how humans are. But for an economist, rationality is not just cold-calculating conscious thinking, rather it is any behaviour consistent with the maximisation of an agent’s utility. And there is no reason emotion cannot be consistent with this. A baby who cries when it wants something to eat is certainly more rational than one that keeps quiet and goes hungry. A property-owner facing intruders who responds angrily to their presence will make a credible signal that she means business in telling them to leave her land. Continue reading

The Urgent Need for Inclusive Capitalism

The narrative of a free market radicalism which has hijacked the global economic agenda and is spurring rapid increases in inequality, thus threatening capitalism itself, is becoming surprisingly mainstream. 10 years ago the view that capitalism is prone to extremism to its own detriment was something you would expect to hear from an academic or leftwing student, but rapidly growing inequality is pushing some of the most influential economists in the world to reevaluate how our economic status quo has developed. Mark Carney gave a speech to the “Conference on Inclusive Capitalism” recently where he highlighted the issues with inequality and look at some ways to rebuild and protect the social capital of our economy. I believe it is incredibly important to start having these discussions now, as we begin to rebuild and reregulate the financial sector, and the fact that the governor of the second oldest central bank in the world has addressed these issues suggests that things might be starting to change. Continue reading

“Pluralism, is that even possible? ” — The 2014 NY Rethinking Economics conference

A few weeks ago I attended the Rethinking Economics (RE) New York conference, organized by a group of enthusiastic students that set up a local chapter to rethink economics and the Economics education in their city, and whose work’s fruits all of us almost 1000 participants (and the online followers) could enjoy from the 12th to the 14th of September 2014. Rethinking Economics is a network of pluralist economic groups that launched in the Summer 2013 in London and has now spread around the globe. The Cambridge Society for Economic Pluralism was one of its first member-groups.

Attending the event gave me two distinct emotional reactions: one of joy for a great success achieved during the last year, followed by a sobering portion of realism, though in combination with considerable excitement, about some of the formidable challenges awaiting us now. But let me explain the first feeling first. Continue reading

How I learnt to stop worrying and love Economics

Disclaimer: the views expressed by the author are not necessarily those of all CSEP Committee members and are not necessarily the position CSEP tries to promote.

I’ll be honest, when I started studying Economics at Cambridge three years ago I was more than a little disappointed. The macroeconomics course seemed almost ridiculously stylised – did anyone actually believe in that the basic Solow growth model was a good approximation for how economies grew; that the four quadrant model was particularly explanatory; or that nominal interest rates always moved one for one with inflation? The models we used for micro were of people who are perfectly rational and have perfect knowledge, which didn’t seem like it could possibly be relevant. Conversely I found the history paper, which was applied, far too involved to understand whilst hung-over in lectures. Consequently I flunked it.

In fact I didn’t really start to enjoy economics again, which I’d loved at school, until midway through my second year. I can still clearly picture when this happened, the day when I really got it. I was in the UL over Easter in my second year revising macro and read David Romer’s Advanced Macroeconomics chapter on unemployment. It’s a dense book, and in total it took about four or five hours of reading, note taking and trying a couple of the exercises.  At the end of it, and to no-one in particular, I announced “I get it, I understand why unemployment happens”.  Continue reading

What is Tirolonomics? – A round-up from the blogosphere

Jean Tirole won a Nobel prize a few days ago, obviously. But why? What is his work about? Who, exactly, cares? We explain, by bringing you the best commentary from around the internet, and more. In short … it sort of defies classification. From an interview with Binyamin Applebaum:

‘There’s no easy line in summarizing my contribution and the contribution of my colleagues. It is industry-specific. The way you regulate payment cards has nothing to do with the way that you regulate intellectual property or railroads. There are lots of idiosyncratic factors. That’s what makes it all so interesting. It’s very rich. Continue reading