We decided to call our society The Post-Crash Economics for a number of reasons. Not because our society would not have been relevant without the Financial Crash or because anything particular changed, but because it can be used to illustrate why what we are campaigning for is so important to everyone.
Before the 2008 Financial Crisis there was a widely reported view that neoclassical economics had played a central role in solving many of the big economic questions. This can be encapsulated by Bernanke’s idea of the Great Moderation. Steady, stable economic growth was combined with low inflation. Economists argued that neoclassical economics had won the battle of ideas and that its monopoly status in faculties in the US and UK was hard earned and well deserved.
Of course, after the crisis this argument is far less convincing. Now our professors cannot justify the neoclassical monopoly. No longer can they claim that neoclassical economics has all the answers. No longer can they claim that students don’t need to learn about the importance of institutions, the Austrian critique of central banks or Minsky’s financial instability hypothesis. Of course, neoclassical economics must be a central part of any economic graduates’ education, but no longer can anyone deny that other perspectives add very important insights. Post-Crash economics education must take alternative perspectives seriously.
The now familiar story of the queen asking academics at the LSE why everyone had failed to see the Crisis coming is instructive. They replied to her in a letter citing ‘wishful thinking combined with hubris’ as major reasons. Economists in the Treasury, the Bank of England, businesses and Universities worked from an increasingly narrow definition of economics reducing contestation to technical and predictive areas as opposed to fundamental questions of objectives, definitions, assumptions and methodologies. The increasing homogeneity of mainstream economic thinking in academic departments narrowed debate and marginalised warning voices which made wishful thinking and hubris far easier. Post-Crash economics education must make the ability to critically compare and evaluate alternative economic perspectives a fundamental part of the economists toolkit.
The Financial Crisis is also a parable for the importance of historical and social contexts to economic analysis. History of economic thought is an optional third year module at Manchester and references to economic history are rare. The Financial Crisis illustrated what happens when society forgets history and how the implicit guarantee from Government encourages risk. It shows how the economy is embedded in social life, norms and values of particular historical, geographical and cultural locations. Post-Crash economics education must teach the history of financial crises and the development of economic thought.
The Financial Crisis serves as a stark example of how important the health of the economy and the discipline of economics are to our wider lives. It is one of the defining experiences of a generation and it made many people choose to study economics. When we arrived at University we realised that that theory and models we learnt were highly abstract and seemed divorced from reality. Stylised facts took the place of empirical observation and the causes of the Crisis were reduced to an ‘exogenous shock’. Post-Crash economics education must start from economic phenomena and evaluate how well economic theory explains reality. In other words, it must have more real world application.
Finally, the enormous human suffering and hardship caused by the Crisis reminds us of the importance of ethics and politics in the field of economics. What happens when the market clearing wage is too low to live on? How does power influence transactions in the marketplace or in the sphere of production? What role should the government have as lender of last resort to the financial sector or as employer of last resort for its citizens? These questions are integral to economics and the Crisis shows us why. Post-Crash economics education must restore the study of ethics and politics to its fundamental place in economic analysis.