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Economics: The Disappearing Science?* Alan
Shipman © Copyright 2003 Alan
Shipman Economics can easily
explain the demise of wheelwrights, weavers and wallpaper hangers. Technical progress
dispelled the first group, globalisation the second, changing preferences the
third. The ‘dismal science’ has
more difficulty accounting for its own disappearance. But the downtrend in UK
economics has now persisted too long to be dismissed as a mere correction
after momentary excess. Entry of home students to
PhD courses has fallen to “dangerously low levels” according to Royal
Economic Society research published in 2000. Two of the country’s most
prestigious institutions (London School of Economics and Nuffield College,
Oxford) had, that year, attracted no new UK doctoral students. Demand for
national funds to support these had also slumped to the level of supply,
while sociology and politics maintained their usual over-subscription. The Royal Economic Society
gives a predictably economic explanation for the flight from higher degrees.
“Relatively low pay and unattractive working conditions in academia” persuade
high-flyers to seek higher returns on their instructional investment. Writing
before stock markets stumbled, report authors Stephen Machin
and Andrew Oswald noted that City economists could earn up to five times
their academic counterparts, with senior management, consultancy and civil
service jobs also catapulting more basically qualified economists above the
professors who taught them. At Oswald’s Warwick University, the proportion of
first-class honours students staying on for further study dropped from 80% in
1983-5 to 33% by 1995-7. But if this were the only
explanation for decline, demand for more basic economic qualifications would
have held up. In reality, the PhD numbers plunge is the culmination of a fall
in interest all along the economist production line.. Shrinking UK postgraduate entry results from steady decline in
undergraduate and taught masters interest, now mirrored in the final pre-university
years. Entries for economics A-level slid from over 32,000 in 1993/4
to less than 20,000 in 2000/01. The American Economic
Association has dug more deeply for explanations of its own declining
undergraduate enrolments, which peaked in 1990. American Economics
Association research suggests this is due not just to doubts on the economic
rewards of staying the course, but disillusionment with the way it is
structured and taught. From being a historical and literary subject, whose
journals could still be understood by non-specialists into the 1960s, the
subject’s ‘mainstream’ research has become submerged in mathematical
modelling and statistical analysis. A
shift in assessment methods from essays to exercises and multiple choice
tests further opens the subject to mathematicians who have never read the
economic ‘classics’, while closing it to those who study nothing else.
By ‘formalising’ past ideas
into highly stylised models, economics has become a narrow problem-solving
exercise, denying students the big picture they expect it to provide. With
dialogue confined to a shrinking range of specialists familiar with the same
formulae, the subject’s past power to clarify everyday dilemmas has if
anything been reversed. “Many college seniors who have taken an economics
course still show a lack of understanding of basic economics,” laments the
latest American Economics Association survey of economic literacy by William Wallstad and Sam Allgood,
echoing recent British results. Though adept at deducing a rational agent’s
optimum consumption bundle, new graduates are often baffled by practical
questions - what happens when an exchange rate falls, who sets monetary
policy, or what can be done to fend off a recession. Detachment from reality is
especially a deterrent for women and ethnic minorities, whose second-class
status is confirmed in other Royal Economic Society surveys. In the UK women
comprise one-third of PhD candidates and hold almost the same proportion of
fixed-term lecturers in economics, but hold only 17% of permanent
lectureships, and 4% of professorships. Although family-unfriendly faculties
are part of the explanation, the earnings gap for unmarried women (14% below
male counterparts) is actually greater than that for married women (‘only’
9%). Similar discrimination was found for ethnic minority economists, who on
average earned 8% less than white counterparts, even after adjusting for
their relatively greater youth and resultant shorter experience and
publication records. Reviewing these millennial
results, Royal Economic Society president Partha Dasgupta and women’s committee chair Carol Propper looked across the Atlantic for salvation,
inferring from a strong PhD market that “clearly US economics continues to
generate innovation and intellectual excitement.” When, as end-century chair
of the Cambridge economics faculty, Dasgupta led a
radical redesign of its undergraduate course, he had little hesitation in
swapping ‘Cambridge Tradition’ for the North American approach. Cambridge’s new course,
whose final phasing-in this year will coincide with the hundredth anniversary
of the original, downgrades Keynesian demand deficiencies, business cycles,
capital debates and income distribution effects, in favour of more statistics
and mathematical modelling. Supporters say the expanded technical toolkit
will restore the subject’s relevance to those who currently by-pass it for
business studies or other social disciplines. However, critics charge
that narrower focus and procedural prescriptiveness
are what have stifled interest, just when the spread of everyday economic
problems – from widening world inequality to underfunded
personal pensions – should be reviving it. A reductionist
search for optimising ‘microfoundations’ neglects
economies’ ‘emergent’ properties, produced by individuals’ interactions and
not predictable from their actions. Economists build an unrealistic ‘micro’
picture, based on well-informed rational choices that even statistically
trained subjects seem incapable of making. They thereby lose the macro
picture, denying (or ascribing to state interference) such awkward phenomena
as persistent unemployment and growth-rate differences, because the models
point to ‘equilibrium’ and ‘convergence’. In his just-published Reorienting
Economics*, Dasgupta’s Cambridge nemesis and
leading ‘realist’ Tony Lawson goes beyond the usual arguments about what to
measure and how to model, tracing the economists’ troubles to the way they
view the world. He accuses the mainstream of twisting the economy to fit
mathematical analysis by treating it as a ‘closed’ mechanical system,
ignoring complexities due to reflection and reaction by its constituent
parts, and their need for social institutions to ster
through the complexity. Economists’ search for surface ‘event regularities’,
showing which policy levers to push, displaces concern for the more relevant
underlying tendencies and structures, whose surface manifestations resist statistical
disentanglement. Mainstreamers’ mistake, Lawson argues, is to mimic
(nineteenth-century) natural scientists in ‘inducing’ general principles from
superficial observation, or ‘deducing’ them from axioms, when all they can
realistically do is ‘retroduce’ the deeper reality
from surface effects. Instead of arguing, in a
classic example, whether sighting of a black swan negates the universality of
white swans, realists want to re-focus on the mechanisms that generate and
change swans’ colour. Many alternative views are demanding attention from the
mainstream. Evolutionists emphasise the path-dependent nature of
technological and industrial change. Institutionalists
deny the reducibility of all social structures to individual decisionmaking and voting. ‘Austrian’ theorists point out
how markets can coordinate choice by interdependent individuals with
scattered and limited information, inverting the textbook depiction of fully
informed and behaviourally independent individuals. ‘Post-Keynesians’ seek the
return of aggregate demand to explanations of economies’ short-run cycles,
and of income distribution to accounts of their long-run growth. UK calls for a rethink have
found strong resonance elsewhere in Europe, notably the ‘post-autistic
economics (PAE) movement’ launched on the internet
by disgruntled French students in 2001. As the PAE’s
Crisis in Economics** manifesto hit the press in early April, the plea
for pluralism reached the ‘other’ Cambridge, with 700 Harvard students
rallying behind Professor Stephen Marglin’s
campaign for a broader-spectrum introductory course. Colleagues’ rejection of
his eclecticism drove home the dissenters’ point.. Machin and Oswald speculate at the end of their
2000 study that shrinking supply will eventually cause a jump in economists’
price, until their soaring pay brings financially savvy students flocking
back onto their courses. But loss of initiative to more inclusive disciplines
could thwart that recovery. Non-mainstream staff and students displaced from
economics faculties have often found more fertile ground in business schools
and other social science departments, where methodologies snubbed by peer
review still prosper in the marketplace. In an
accompanying survey of minority representation, David Blackaby
and Jeff Frank interpreted the high proportion of expatriate staff in higher-ranked UK economics departments as confirming the UK’s
entry into a global market for top economic talent. But if the commercial
capture of home-grown high flyers is as widespread as the Royal Economic
Society suggests, this import of labour to resolve local skill gaps owes more
to the pattern of the UK’s National Health Service than football’s Premier League. Economists used to joke
that they had solved the unemployment problem – for economists. For much of
their subject’s history, this could be done without any professional entry
restriction. As chroniclers Keith Tribe and Alon Kadish have shown, pioneering courses at London and
Cambridge faced a protracted struggle to attract sufficient students. Most
continued to see classics, history, law or moral philosophy as firmer career
foundations, or preferred to keep their elegant mathematics unsoiled by
social concerns. A century on, that attitude seems to be returning. Economics
that continues to sidestep reality could soon be down to economy size. * Tony Lawson (2003) Reorienting
Economics, London and New York: Routledge ** Edward Fullbrook (ed) (2003) The Crisis in Economics, London and
New York: Routledge
*This
article appeared in The Times Higher Education Supplement, 2 May 2003, under
the title ‘Dismal Returns of Micro-Men’ Alan
Shipman (alms@aol.com)
is a freelance economist, affiliated lecturer in the Faculty of Social and
Political Sciences, Cambridge University. His books includeThe
Globalization Myth, The Market Revolution, and Transcending
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