Economy Studies

Front matter

Economy St A Guide to Rethink Seoneunllas Edle 9

Sam de Muijnck and leris Tieleman

Foreword by Martin Wolf

Table of Contents

Summary 9 Foreword by Martin Wolf 17 Acknowledgements 21 Introduction 27 Part I: Foundations 39 Introduction to the Foundations 40 Foundation 1: The Philosophy of Economy Studies 45 Foundation 2: Pluralism 57 Foundation 3: Real-World 75 Foundation 4: Values 89 Foundation 5: Diversifying and Decolonising Economics 105 Foundation 6: The Didactics of Economics Education 125 Part Il: Building Blocks 141 Introduction to the Building Blocks 142 Building Block 1: Introducing the Economy 147 Building Block 2: Know Your Own Economy 161 Building Block 3: Economic History 177

Building Block 4: History of Economic Thought & Methods 187 Building Block 5: Economic Organisations & Mechanisms 201

Building Block 6: Political-Economic Systems 217 Building Block 7: Research Methods & Philosophy of Science 235 Building Block 8: Economic Theories 251 Building Block 9: Problems & Proposals 273 Building Block 10: Economics for a Better World 285 Part Ill: Tools 297 Introduction to Tools 298 Tool 1: Pragmatic Pluralism 301 Tool 2: Adapting Existing Courses 329 Tool 3: Curriculum Review 363 Tool 4: Example Courses 373 Tool 5: Example Curricula 387 Tool 6: Courses for Non-Economists 405 Tool 7: Learning Objectives 429 Conclusion 441

Foreword

Martin Wolf

What is economics? It is the study of the economy. What then is the economy? It is how we humans “earn our living” - how we organise ourselves to wrest the means of individual and collective survival from the world in which we live.

As is true of all other living beings, humans must obtain the resources needed to survive from their environment. Most animals, even other primates, have relatively simple repertoires for finding and taking these resources. This is true even of the social insects, despite the complex division of labour within their nests and hives. Human activities are different in scale and kind. This is because human beings are intensely social and individually highly intelligent and adaptable. The complex human economy of today is the result. Moreover, since the human economy is entirely embedded in the natural and social worlds, economics needs to understand the natural and social contexts.

The classical economists did indeed attempt to do this, to the extent that this was possible in the 18th and early 19th centuries. Thinkers like Adam Smith, Thomas Malthus, David Ricardo, and Karl Marx were indeed interested in human motivation, resources, institutions, social classes, and political power. Yet such a wide canvas created problems for a discipline that wished to achieve a high academic status: it was felt to be inadequately scientific. In response, economics adopted the intellectual strategy that had worked so well for the physical sciences: reductionism. Thus, it assumed away many complexities: for it, humans were selfish, rational, and far-sighted, resources abundant, information perfect, externalities insignificant, monopoly irrelevant, interpersonal comparisons of welfare impossible, money neutral and financial markets efficient. Orthodox economics assumed away the complications created by unpriced assets, economies of scale, costs of innovation, uncertainty, stupidity, and the operations of human institutions and social values. It also assumed human beings away, putting robots in their place.

The advantage of this intellectual strategy is that it made it possible to analyse the economy as a simple equilibrium system. The disadvantage is that the assumptions are false. As the education of economists tended to become narrower and more mathematical, the nature and extent of the errors became even less apparent. The inadequacy of economics has also affected the operation of the economy itself. Arguably, it has always done so. This is, after all, the most important way in which a social science is different from a natural one. If we fail to understand the workings of the universe, it will function, though some of the machines that we humans invent may not. If we fail to understand the economy, it may not function well at all, because we in our ignorance will damage it.

A good recent example is the global financial crisis, the biggest purely economic shock of the last few decades. As Adair Turner, the influential British economist, has argued, in the early 2000s, economics came to underpin a “political ideology”, namely, “free market capitalism: the intellectual underpinning was the concept of market completion - the idea that the more market contracts could exist and the more freely, fairly and transparently they could be struck, the closer we could get to the most efficient possible outcome, most favourable to human welfare” (2010, p. 2). This idea was, to put it mildly, a mistake.

We must not exaggerate the failures of either the economy or of economics. In the broad, the economy has done its job almost miraculously well.

By co-operating, human beings could indeed support themselves and

their families vastly better than they could have done on their own.

Even our hunter-gatherer ancestors were able to combine their efforts

(by co-operating in hunting, foraging, and bringing up children), insure themselves (by sharing food), diversify their skills (by specialising), exploit differences in knowledge (by exploring different terrain or foodstuffs on their own or in groups), broaden markets (by trading) and communicate with one another (by talking). Humans massively outcompeted other animals that were individually far stronger and faster than they were.

Humans became masters of the planet. The agricultural revolution was a huge jump. But the industrial revolution was a bigger and, above all, far quicker one. The combination of scientific and technological advance with competition and supportive political and social institutions has created

a system of staggering complexity and scale. Today, the human economy supports close to 8bn people, almost all of whom live longer and more prosperous lives than those of the great majority of the mere Ibn people alive two hundred years ago. The inventiveness is no less unbelievable: estimates indicate that today the world economy produces some 10bn different goods and services (Beinhocker, 2006). Today, however, human beings and the livestock they rear for food make up 96 per cent of the mass of all the mammals on the planet (Wolf, 2021).

The human economy is, in sum, a success. But it is also a failure and even a danger: extinction rates are thought to be 100 to 1,000 times higher than their background rate over the past tens of millions of years. Thus, externalities have become far more binding, above all those created by the

Foreword global environment. Moreover, inequality is pervasive, within and across societies; the financial sector remains a source of instability; corporations are run for the benefit of narrow groups of insiders; monopoly seems to

be a pervasive force; new technologies are upending social and political relationships; the media are spreading destructive lies; and the foundations of democracy are corroding.

Economics is itself part of the problem. This is partly because it leaves out so much that matters. Itis also because what it assumes about humans

is wrong. It does not merely assume “homo economicus”, but, some would argue, encourages people to become one: selfish, competitive, and antisocial. This is debated (Girardi et al., 2021). Yet it is at the least clear that if everybody did behave as a rational self-seeker, civilised society, which relies on the unverified or unverifiable trustworthiness of one’s fellows, would almost certainly collapse. Homo economicus really could not have created Denmark or any prosperous and highly co-operative society.

Economics is not only part of the problem, because of how it simplifies, but also because of what it leaves out. This is true even though it has developed in significant and helpful directions, to include imperfect competition, analyse asymmetric information, recognise endogenous growth, measure creative destruction, discuss multiple equilibria, distinguish happiness from income and analyse actual human behaviour. The discipline has indeed become more empirical and broader, while maintaining its core virtue of rigour. Yet even this is not enough. This book indicates how economics could become better still. It does so by reclaiming economics as the queen of social sciences, the subject that seeks to analyse all aspects of the most important thing humans do together, namely, co-operate, in order to deliver flourishing lives to as many people as possible.

If economics is to do this successfully it must embrace broader perspectives. It must be more aware of what it is trying to do and of the wider context in which the economy and economics operate. It must embrace breadth and complexity. The range of knowledge and abilities needed by economists is at the heart of the necessary transformation.

In a celebrated passage, John Maynard Keynes argued that “the master economist must possess a rare combination of gifts. He must reach a high standard in several different directions and must combine talents not often found together.

He must be mathematician, historian, statesman, philosopher - in some degree.

He must understand symbols and speak in words.

He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought.

He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must lie entirely outside his regard.

He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician.” (Keynes, 1924, p. 65)

How is such a paragon to be produced? This book offers a good part of the answer. It broadens the foundations of economics, by forcing economists to understand the history of the economy and the subject and so to be aware of what economics tries to do and how it attempts do it. It proposes a practical route towards a better economic education. It provides a wide range of materials on how different schools approach the challenges and opportunities of studying the economy. It is, in sum, a distinguished effort to educate economists to become the sort of people Keynes thought they ought to be: broad intellectuals, not narrow technicians, but at the same time practical guides, not only abstract thinkers.

For many economists, the approach this book recommends will be painful. That is not just for selfish reasons. Those heroic simplifications had virtues. With them will go the old clarity about what economists are supposed

to do and how they are supposed to think. Yet the gains from a richer understanding of what the human economy exists to do and how it does and should work will more than compensate.

Do I agree with everything in the book? Absolutely not. That surely is the point. A good book on the teaching and studying of economics should be challenging.

Read. Enjoy. Learn.

Foreword

Acknowledgements

Only two names appear on the cover of this book, but don't let that fool you. Economy Studies, both the book and the accompanying website, is a cooperative effort built with contributions of some 180 people. Sprawling as itis, we simply could not have written it alone, nor would we have wanted to. In this chapter, we want to tell you a bit about the process of this project, and honour the many people who made remarkable contributions to this effort.

1 Building on a Wider Movement

The story of Economy Studies is inseparable from the international student movement Rethinking Economics. Over the past decade, Rethinkers have pointed out gaps in the curriculum, argued for different material and conducted thorough curriculum reviews. Many staff members and faculties turned out to be quite interested in our proposals. Still, they generally found it hard to implement such requests, being so used to the familiar curriculum. Hence the idea germinated in Rethinking Economics meetings to make an example curriculum.

We did not want to reinvent the wheel, but rather assemble the best work from the generations that came before us. So, we reached out to a wide range of seasoned academics around the world, hoping to tap into their collective knowledge and wisdom. Overwhelmed by the breadth and depth of the responses, we have continued this practice throughout the writing process. These economists freed up some of their precious time to respond to one or more of our requests for feedback. Some of them we already knew through classes or conferences, many others had so far just been revered names in our bookcases. Each time, we were honoured and humbled by the many responses, often going in great detail.

Thank you, for many hundreds of valuable comments and suggestions: Maarten Allers, Viviana Asara, Roger Backhouse, Andrea Bernardi, Dirk Bezemer, Olivier Blanchard, Mark Blyth, Peter Boettke, Frank Bohn, Ivan Boldyrev, Wimar Bolhuis, Marcel Boumans, Björn Brügemann, Govert Buijs, Brian Burgoon, Koen Byttebier, Marcel Canoy, Wendy Carlin, Edward Cartwright, Mario Cedrini, Ha-Joon Chang, David Colander, Chris Colvin, Harry Commandeur, Marcella Corsi, Carlo D’Ippoliti, Dirk Damsma, Charlie Dannreuther, Thomas Dark, Marc Davidson, John Davis, Samuel Decker, David Dequech, Giovanni Dosi, Sheila Dow, Robert Dur, Wolfram Elsner, Ewald Engelen, Christian Felber, Thomas Ferguson, Alfredo S. Filho, Ben Fine, Svenja Flechtner, Nancy Folbre, James Galbraith, Pieter Gautier,

In the first round, before starting our own writing process, we simply asked this group of seasoned academics a few open questions. How would they define the economy, what should the core principles of a good economics education be, what courses or programmes did they find inspiring, and what it was that made these courses and programmes so worthwhile? These responses, together with many pages of notes from Rethinking Economics gatherings, would form the basis of our new curriculum proposal.

A Process of Crowdsourcing

We quickly realised that it would be impossible to write ‘the perfect curriculum’. Rethinking Economics is at its core a movement for pluralism, and does not intend to replace the current, relatively standardised curriculum with a single alternative. This does not mean that we do

not have a coherent view. It just means that it encompasses diversity of theories, methods, values, people, and programmes. We agreed, however, on the major gaps in current programmes, the basic tenets for future programmes, the design principles, and on the general direction we envision for economics education.

Acknowledgements

This, we decided, would be the form of our curriculum proposals: a modular, open-ended design toolkit built on a clear foundation of guiding principles. The core: teach students to study the economy using a broad and open-ended toolkit, rather than drilling them in a specific manner of thinking about it. Such a modular approach has two advantages. For its writers, it allowed for a collaborative and diverse yet coherent vision to emerge from a broad reform movement. For its users, it offers amenu and a variety of tools, rather than a fully formed ‘take it or leave it’ alternative structure.

Our first rough draft, just 70 pages long, saw the light of day at a long weekend workshop in January 2019, where it was picked apart and put together again lovingly by Daniel Obst, Eric Sargent, Alexandra Sokolenko, and Sally Svenlen. Special thanks here go to Ross Cathcart, Cameron Fay, and J. Christopher Proctor, who have acted as this project’s godfathers from start to finish. We are grateful to the Independent Social Research Foundation for funding this workshop. Following this workshop, we took eight months to come to a fuller draft, including much more detailed building blocks, detailed lists of materials and a full version of the Pragmatic Pluralism approach.

In September 2019, we went back for more comments. We once again sent out the manuscript, now around 150 pages, to the same group of professors, and again were honoured to receive many pages of valuable feedback. In the year that followed, we processed their comments, additions, critiques and other suggestions to create a new manuscript. We then organised a final round of feedback in the summer of 2020. We went back to the group of seasoned academics mentioned in the list above for a final time, now sending them each one or two relevant chapters to receive more in-depth thematic feedback. At the same time, a group of about twenty rethinkers edited one chapter per week per person for about two months, ensuring that every chapter would pass through many pairs of eyes and hands.

3 Constructing the Toolkit: An Iterative Process

Throughout the writing process, we also held some twenty try-out workshops and discussions to broaden and sharpen the work. Many thanks go to the organisers of all these workshops, conferences and gatherings: the Royal Netherlands Academy of Arts and Sciences (KNAW), the Dutch Ministry

of Finance, the Oikos and Netzwerk Plurale Okonomik student movements,

The Haque University of Applied Sciences (THUAS), the Italian Association for

the History of Political Economy (STOREP), the Goldschmeding Foundation

and the Commission for Education, Culture and Science of the Dutch House

of Representatives. We especially wish to thank the Rethinking Economics

staff team, who have brought together such an extraordinary worldwide network of young academic freethinkers so many times. This book

could not have been written without your tireless organising behind the scenes. In addition, the Vrije Universiteit Amsterdam, the Radboud University of Nijmegen, Utrecht University and Leiden University provided inspiring discussions and use cases of early drafts.

The try-out workshops also helped to sharpen another component of the project: course design workshops at economics faculties, using

an abbreviated version of the Economy Studies toolkit for the initial brainstorming. In November 2020, Rethinking Economics International organised an Economy Studies Expert Training, where Rethinkers from five different continents came together online for four weeks to discuss the book and how to conduct such workshops in their own region. The feedback from the participants in this series of sessions sharpened the workshop format in many ways.

It was in these workshops that the book grew to take its final size and shape. Through discussions with fellow Rethinkers and many academics, we came to realise that a curriculum proposal or a set of building blocks with guiding principles alone was not enough: it needed a head and a tail. So, we fleshed out the Foundations more clearly, and added several more Tools chapters to get closer to the practical realities of everyday teaching work, such as Adapting Existing Courses and Learning Objectives. All this greatly expanded the book’s waistline, to the dismay of our publishers. Still, we believe it is worth it, as the project’s range is now much more complete: from basic principles to practical application within a single framework.

Throughout this process, we had a steady and warm home at the independent Dutch thinktank Our New Economy. We are very grateful for the unwavering support and wide variety of help given by our great

24 Acknowledgements crew of colleagues: Sjaak Beirnaert, Peter Mulder, Maarten Nijman,

from brainstorming sessions and feedback to connecting with faculties

to organise workshops, and from dissemination strategy to social

media. Special thanks go to Charlotte van Dixhoorn, for a close edit of more than half of the book and to Julika Frome for helping us out with communications and organising the book launch. Anne de Kok helped us to build a beautiful website accompanying the book.

At Amsterdam University Press, Inge van der Bijl patiently and constructively guided us through every step of the publication process. At Matterhorn, Bob van den Berg crafted the wonderful designs for every page of this book.

We are also very grateful that Martin Wolf took the time to write such a powerful and incisive foreword - it feels like the missing puzzle piece of the book.

We also want to thank our friends and families for their support. In particular, we want to thank Tane Nieuweboer, Katrien Eisenloeffel and Marion Molliet for putting up with us during this writing process, which was often in the evenings, weekends and holidays, and all the stresses that came with it.

All remaining errors are, of course, our own. In addition, as the main authors of this book are two young white university educated middle-class men from the Netherlands, the book has an inevitable bias towards our own experiences. We hope that you, the reader, will help us to make the next edition sharper and richer, by pointing out errors and omissions and suggesting better teaching materials and techniques.

We also hope you will take the project further. The book and website are Open Access and Creative Commons, which means they can be freely shared and adapted: you may download digital copies of the book for free. You may also copy and redistribute this material in any medium or format, remix, transform, and build upon the material for any purpose, even commercially. We very much hope you will do so.

“Idon’t care who writes a nation’s laws, ifIcan write its economics textbooks.”

Paul Samuelson (1990, p. ix)

Economies can broadly be described as open systems of resource extraction, production, distribution, consumption and waste disposal through which societies provision themselves to sustain life and enhance its quality. Their functioning is fundamental for and intertwined with many other human endeavours. Whether it is putting food on the table, providing medical care, ensuring a roof over one’s head, fighting a war, running an education system, organising a social outing for a football club or simply getting a coffee, all these actions require interaction with these larger economic systems. Given this importance, good economists are vital for society, at every level. It is their job to investigate the inner workings of the larger systems, help society navigate them, assist in designing parts of them, and monitor their functioning to continuously improve them and avoid unintended consequences or breakdowns.

1 Why Redesign Economics Programmes?

Economists today are in positions of considerable power and influence. Primarily, as key policy experts and advisors in many different policy areas. Under a layer of political supervision, economists are at the head of many of the most powerful public-sector organisations in the world: central banks, ministries of finance, social and economic affairs, and international organisations such as the International Monetary Foundation (IMF) and the World Bank. Indeed, some argue that we live in an econocracy, a society in which improving the economy has become the main purpose of politics (Earle et al., 2016). In the private sector, economists co-direct and influence the behaviour of banks and other large corporations.

Additionally, the economic ideas that are dominant in society exert an influence far beyond the formal advisory of professional economists, guiding decision-making of citizens everywhere. After all, economic dynamics are at the core of many of the aforementioned societal challenges. Anyone grappling with those problems may look towards economic ideas to understand and help solve them: informally, in day-to-day discussions and literature, but also formally through an economic education. In the United States alone, every year two million undergraduates take at least one economics course (Siegfried & Walstad, 2014).

Indeed, as Nobel laureate Friedrich Hayek (1974) noted, the influence of economists and their ideas can sometimes be intimidatingly large. In his acceptance speech, he remarked that ‘the Nobel Prize confers on an individual an authority which in economics no man ought to possess’, particularly because ‘the influence of the economist that mainly matters is an influence over laymen: politicians, journalists, civil servants and the public generally.’ The professional authority of economists, often based upon its image of being both more policy-oriented and more ‘scientific’ - in the sense of being more like the natural sciences such as physics - than other social sciences, is crucial

in understanding the influence of economists in society (Akerlof, 2020; Fourcade et al., 2015).

Today, a clear and systemic understanding of the economy is more important than ever. The 2007-2008 financial crisis yielded widespread unemployment and bankruptcies, only to be worsened recently by the COVID-19 global pandemic. The world remains one of great inequality, where 1% of the world’s population owns more wealth than the other 99% combined (Hardoon et al., 2016). The industrial system is simultaneously causing the world’s 6th mass extinction (Ceballos et al., 2017), and destabilising the climate, something that has long received too little attention in economics (Butler-Sloss & Beckmann, 2021; Oswald & Stern, 2019). The uncertainty and insecurity resulting from this rapid and frequently threatening change is driving increasing numbers of citizens into the arms of autocratic populists, who promise strength, stability and simplicity (Mounk, 2018).

To face these and coming challenges, we need a comprehensive understanding of our economic system. The COVID-19 pandemic in particular has shown that if we are to effectively manage our economy,

we need an all-round, real-world understanding of how economic sectors work, how they are intertwined with each other, what roles various

forms of government play versus the market, how citizens economically depend on each other, and how the economy is embedded in our society at large. A single theoretical framework cannot be enough for this. A range of approaches which prioritise different methodologies, assumptions, units of analysis and outcomes will be necessary to gain a more complete understanding, as well as the critical thinking skills to be able to choose the

28 Introduction most appropriate approaches for the problem at hand. As well as debating alternative policies, we also need to be able to go deeper and debate the values which underpin our judgement of policies, as well as envisioning, designing and debating alternative policies. In short, economists of the future have a lot of work to do. They will need a thorough and diverse training to prepare them for this.

Fortunately, the discipline has many crucial insights to offer its students. Economists have demonstrated how the pursuit of self-interest may

lead to benefits for society at large (Adam Smith), how the capitalist system forces not only workers but also employers to compete and fight for ‘survival’ (Karl Marx), that we pay not only in money but also in opportunity cost (David Green), how the sum of the actions of many sensible, reasonably-acting individuals may be chaotic and generate explosive irrationality (John Maynard Keynes), how developed countries can enrich themselves at the cost of developing countries even without directly plundering them or extracting resources through military power (Raúl Prebisch), how innovation and economic destruction are part of the same process of turbulent economic development (Joseph Schumpeter), how roughly half the work we do, such as care work, is never paid for (Betsy Warrior), that economic development is not (only) about growth but about capabilities and freedom (Amartya Sen), how communities can be able to sustainably manage vital resources without formal rules and property rights (Elinor Ostrom), and how well-intended actions of human provisioning may wreak havoc on the ecological systems that support all life on this planet (Herman Daly).

We, the authors of this book, chose to study economics because we wanted to understand the powerful dynamics within the economy that lie behind the world’s challenges, and to learn ideas that might help to solve them. While we learned much of value in our programmes, we also found that they were not sufficiently broad, open-minded and realistic to help us really get a thorough grasp of how the economy actually works.

For one, the majority of the insights listed above were not part of our programmes. If we had not been informed by curious classmates that the field of economics was much wider than what we were being taught, we would never even have known about them. Neither did we learn to discuss the moral foundations of economic discussions. Why, for instance, are we striving for economic growth? Does this goal still make sense and how does it relate to other goals, such as ecological sustainability and social equity? What is a ‘well-functioning market’, and when and why do we want one? Nor did we learn much about the economy as it actually exists in the real world: few of us could have listed the main sectors in our home countries, explained how the bargaining processes between workers and employers works in practice, or set outthe connection between capitalism and global warming in any more detail than an informed newspaper reader.

Most current programmes are organised around ‘thinking like an economist’ (see Proctor, 2019, for an overview of curriculum analyses in different countries). That is, they focus on training students to think from the neoclassical perspective and to use econometrics, while disregarding other valuable theoretical approaches and research methods. Furthermore, the approaches that are taught are predominantly abstract, rather than based in real-world practice, and claim to be value-free.

Giants on Whose Shoulders We Stand

This movement has produced an extensive literature of proposals and discussions about economics curriculum reform, which we will briefly discuss before setting out the contribution of Economy Studies itself and the internal structure of this book. To go directly to the overview of this book’s parts and to see reading suggestions for faculty, students and other audiences, skip ahead to the next section of this chapter, This Book: Structure and Reading Guide. For more history and detail on the debate about economics education see Butler et al. (2009); Fullbrook (2003); Garnett Jr et al. (2009); Hodgson et al. (1992); Hoyt and McGoldrick (2012); Lee (2009); Reardon (2009); Spiegler and Milberg (2013); Thornton (2016); Tieleman et al. (2017).

For brevity, the literature review starts in 2007, the year the global financial crisis started and as a result the movement for economics curriculum reform received an enormous boost. In this year, Teaching Pluralism in Economics (2007) was published; a collection of essays edited by John Groenewegen, which discusses the desirability of pluralism

and the different forms it can take, the importance and usefulness of interdisciplinarity, history, and problem-based learning, and differences between an economics education in the United States (US), Germany and the United Kingdom (UK).

Two years later the Teagle Foundation report was written by David Colander and KimMarie McGoldrick (2009) about how economics majors in US liberal education could be improved. The report argues programmes should focus more on “big think” questions about highly complex issues as well as the real-world contexts in which economic problems are situated. Colander and McGoldrick also suggest experimenting with new teaching strategies, encouraging active classroom participation and open conversations, and developing teaching commons with openly shared materials and exercises. They also provide organisational suggestions for improvement, such as increasing attention to teaching skills as well as subjects such as economic history, history of economic thought and institutions in PhD programmes so that the next generation of teachers will be better equipped and prepared.