Economic curriculum reform: why do we need it?

A student learns a paradigm to become a member of a particular scientific community. As he graduates, he “joins men who learned the bases of their field from the same concrete models, his subsequent practice will seldom evoke overt disagreement over fundamentals.

- Thomas Kuhn, The Structure of Scientific Revolutions

The economic curriculum reform has been a burgeoning topic of debate in academic and policy circles 2008

The economic curriculum reform has been a burgeoning topic of debate in academic and policy circles since the global financial crisis erupted in 2008. High-level policymakers and student groups from numerous universities around the world are pushing for a curriculum reform to bring the so called “dismal science” closer to the real world and introduce pluralism into its educational system.

A single dominating paradigm in economics

One of the most controversial aspects of the current economics curriculum is that it focuses almost exclusively on mainstream economics - both Neoclassical and New Keynesian. The International Student Initiative for Pluralism in Economics’ (ISIPE) state that:

Such uniformity is unheard of in other fields; nobody would take seriously a degree program in psychology that focuses only on Freudianism, or a politics program that focuses only on state socialism. An inclusive and comprehensive economics education should promote balanced exposure to a variety of theoretical perspectives...

The report Economics, Education and Unlearning by the Post-Crash Economic Society heavily criticises what they call the “monoculture” of mainstream or orthodox economics at the University of Manchester, which they claim is a generalised problem in UK universities:

Monoculture makes it easier for professors to believe that their way is the only way to do economics

This monoculture also makes it easier for professors to believe that their way is the only way to do economics or at least that it is the only valid way which in turn justifies its status as the only kind of economics taught at our university. Many of our lecturers sincerely believe that the economic paradigm their methods represent is the only legitimate way of doing economics…

It is no accident that economics is dominated by a single paradigm: applying Kuhn’s theory

Economics is a monoculture discipline because it is an established normal science, while other social sciences are still pre-paradigmatic.

Following the historic evolution of natural sciences, Thomas Kuhn describes in his Structure of Scientific Revolutions how science evolves from a ‘pre-paradigm period’ to a ‘normal science’. Once it has become a normal science, it progresses through consecutive cycles involving crises that may lead to a scientific revolution and its subsequent paradigm shift, returning to normal science.

The pre-paradigm period “is regularly marked by frequent and deep debates over legitimate methods, problems, and standards of solution, though these serve rather to define schools than to produce agreement.” Instead of having a consensus over a single paradigm that defines how the science should progress, there is “competition between a number of distinct views of nature, each partially derived from, and all roughly compatible with, the dictates of scientific observation and method.”

A paradigm arises when a scientific community universally recognises a set of scientific achievements “that for a time provide model problems and solutions to a community of practitioners”. A paradigm’s achievements have to be “sufficiently unprecedented to attract an enduring group of adherents away from competing modes of scientific activity.” It also needs to be “sufficiently open-ended to leave all sorts of problems for the redefined group of practitioners to resolve […] Men whose research is based on shared paradigms are committed to the same rules and standards for scientific practice. That commitment and the apparent consensus it produces are prerequisites for normal science, i.e., for the genesis and continuation of a particular research tradition.”

When a paradigm (as defined above) exists, we can speak of a normal science. Kuhn describes the kind of research performed by a normal science “as a strenuous and devoted attempt to force nature into the conceptual boxes supplied by professional education.”

Normal science, the activity in which most scientists inevitably spend almost all their time, is predicated on the assumption that the scientific community knows what the world is like […] Normal science, for example, often suppresses fundamental novelties because they are necessarily subversive of its basic commitments.

Kuhn only mentions economics once in his essay, when he briefly discusses the state of social sciences back in 1962:

It may, for example, be significant that economists argue less about whether their field is a science than do practitioners of some other fields of social science. Is that because economists know what science is? Or is it rather economics about which they agree?

Funnily enough, when Kuhn wrote his essay, macroeconomics had not yet reached the consensus of being dynamic, quantitative and micro-founded. This would not happen until the beginning of the 70s when the freshwater vs saltwater schools had a pre-paradigmatic battle of sorts - a crisis - that did not lead to a scientific revolution. Neoclassical economics arose as a definitive victor when Keynesian economists decided to use the methods of the dominating paradigm (i.e. to micro-found their theories) to create what became New Keynesian economics.

If all normal sciences are dominated by a single paradigm, why should we worry about the lack of pluralism in economics?

In short, the world has become too aware of the anomalies (those phenomena that cannot be explained by the paradigm) of economics to keep ignoring them or explaining them in an ad hoc manner within the paradigm. Thus, economics is facing a crisis that may lead to a scientific revolution and introducing pluralism to its educational system could increase its likelihood.

No paradigm can explain all the phenomena of a science. Behavioural and experimental economics have been highlighting the anomalies that cannot be explained under the assumption of rational expectations since the publication of Prospect Theory in 1979. Contrary to what Popper’s falsificationism would suggest, falsifying a paradigm is not enough to reject it. And going back to Kuhn:

The decision to reject one paradigm is always simultaneously the decision to accept another, and the judgment leading to that decision involves the comparison of both paradigms with nature and with each other […] To reject one paradigm without simultaneously substituting another is to reject science itself.

The current economic paradigm has not been replaced and will not be replaced until a better substitute arises; there is also no way back to the pre-paradigm period, although “research during the crisis very much resembles research during the pre-paradigm period…”

All crises begin with the blurring of a paradigm and the consequent loosening of the rules for normal research. As this process develops, the anomaly comes to be more generally recognised as such, more attention is devoted to it by more of the field's eminent authorities.

Using Kuhn’s terminology and definition, economics is in a crisis period as the world has become too aware of its anomalies. And as noted by Benoît Cœuré, “the Nobel prize co-awarded to Robert Shiller last year will certainly encourage more research in [an alternative] direction”.

The teaching of economics is “both rigorous and rigid”. An economics student learns the paradigm (mainstream economics) to become a member of the economic community. As he graduates, he joins economists “who learned the bases of [the] field from the same concrete models, his subsequent practice will seldom evoke overt disagreement over fundamentals.”

This is exactly how Kuhn described the educational system of any mature science. But in the case of a science that is facing a crisis, changing this rigid educational system to a more pluralistic one, might help to increase the likelihood of a scientific revolution, i.e. the transition to a new paradigm.

For Kuhn, science progresses in two levels: in a cumulative manner through puzzle solving or efforts to fit nature into conceptual boxes of normal scientific research and in leaps through scientific revolutions. Without the latter, i.e. if the scientific community was not aware of anomalies, and crises and paradigm shifts did not occur, science would degenerate.

Student networks around the world call for a curriculum reform

What most of the leading student organisations and other global institutions are jointly pushing for is an economic curriculum with increased pluralism and greater relevance to real-world policy issues.

By pluralism these institutions mean, as ISIPE’s open letter puts it:

Theoretical pluralism: covering a wider range of schools of thought

Methodological pluralism: including qualitative methods

Interdisciplinary pluralism: the interaction between economics and other social sciences, for instance, philosophy of economics, history and history of economic thought, psychology, political science, etc.

“Bringing the discipline closer to the real world” could be interpreted in at least two different ways. For some, it is a call for less abstraction (less model-based) and more empiricism in economics and public policy analysis. For others like Benoît Cœuré, it is about introducing more real-world complexities, instead of stopping short at the models’ often oversimplified representations of reality.

The former interpretation might not be a problem for all economics undergraduate programmes, as some departments do emphasise applied over theoretical economics. But in many cases, the analysis of real-world events with theoretical tools is relegated to Q&A sessions or to the final class of each course, which is often not even graded. Regardless of the way we interpret it, bringing economics closer to the real world would allow students to apply the theoretical tools they learn to analyse contemporary challenges.

Breeding better economists for better policies

“Today’s undergraduates are tomorrow’s policymakers”. Improving the economics curriculum is essential to produce better equipped professionals and deliver better economic policies in the future.

For a central banker, the problem with the economics curriculum is a different one. In his speech, Rethinking economics after the crisis, Benoît Cœuré emphasises the temporality problem between academia and policy making: academia pursues a long-run objective of searching for the truth, while policymakers “do not have the luxury of a long time horizon”.

Unfortunately, these different temporalities have an impact on economic thinking. The typical methodology of economic theory is first to consider a frictionless benchmark, corresponding for instance to a long-run steady state equilibrium, and then enrich it with frictions. While this is understandable from a methodological point of view, this approach can easily imply a neglect of the short and medium-term dynamics, drastic adjustments and complexities that are important for central banks.

Benoît Cœuré’s perspective is somewhat different from that of student groups: although he also mentions the need for a more pluralistic approach and making economics more relevant for policy, he focuses on the importance of teaching of frictions and complexities of the real world within the mainstream approach, something that is usually only covered at the PhD level.

Another unfortunate outcome is that the typical economics curriculum tends to emphasise the frictionless benchmark more than the realistic variants. Shifting the academic focus to a world with frictions would have a welcome impact on teaching, allowing central banks to hire from a pool of young economists better equipped with methods and tools to address policy challenges...

The most common justification for using oversimplified models at the undergraduate level is that they involve a degree of mathematical complexity that goes beyond what an average student can be expected to understand. Nevertheless, the implications of micro-founded models with frictions, market failures, sticky prices and other real world complexities, like bounded rationality, can be taught effectively without the mathematical rigor of a doctoral programme.

Students’ understanding of economics could be greatly enhanced by teaching them economic intuition and conclusions of complex models that they would otherwise only learn if they undertook a PhD in economics.

Concluding remarks

To recapitulate, economic schools should improve their economics curriculum by:

Schools should bring economics closer to the real world

Bringing economics closer to the real world though the introduction of complexities into undergraduate level education: this would allow public institutions, as well as private firms, to hire from a pool of better equipped young economists with tools to address policy challenges and understand our current unconventional economic environment.

Increasing theoretical, methodological and interdisciplinary pluralism without giving up the necessary rigor - which prepares students to solve the puzzles of normal science - in the teaching of mainstream economics. This would result in a new generation of more critical economists that are more likely to question the foundations of economics and will ultimately lead scientific progress.

I gratefully acknowledge Esther Bañales and Noah García for their editing and suggestions and professor Luís Marciales for his comments.

All quotations from Kuhn (including both, those in quotation marks and paragraphs in italics are taken from: Kuhn, Thomas S. (2012-04-18). The Structure of Scientific Revolutions: 50th Anniversary Edition . University of Chicago Press. Kindle Edition.