Originally published in Issue IV of the St Andrews Economist
By: Mayank Kapadia
Much has changed in our understanding of economics since the downturn that hit the world in 2008. In the view of former Chairman of the Federal Reserve, Ben Bernanke, it is essential that knowledge be passed on to economists of the future. Dr. Bernanke recently addressed a class of economics undergraduates at George Washington University in Washington, D.C., and spoke about the usefulness of understanding the present and future by gathering information and experience drawn from historical events.
Using the case in point, when faced with his toughest test at the dawn of the financial crisis where a subprime crisis led to a credit crunch, Bernanke looked to the Great Depression of the 1930s. From early 1933, most of the world faced high unemployment and low liquidity, which lasted for about ten years. Policymakers at that time chose fiscal and labour law reforms, which were slow and led to a slow albeit good structural recovery. Wanting to avoid a similar ‘lost decade’, Bernanke combined conventional and unconventional monetary policy to get the USA to spend its way out of the debt crisis.
Though the 1930s approach was traditional Keynesian ideology, Bernanke was able to adapt economic theory to the present crisis because extensive research and findings about the Great Depression existed. In turn, economists are now studying Bernanke’s approach to the recent crisis, since unconventional monetary policy had never been used before.
Much in the same way, students can benefit from understanding past successes and failures of various economic policies used in a vast array of situations and countries. Sometimes students, especially in the sub-honours level, question the current approach to teaching economics, where a quest for objectivity can overshadow the subjective nature of the subject, or where outdated formulae and theories take precedence over case studies and the interaction of policies with different markets.
Starting next academic year, however, that limited mode of teaching stands to change in some UK universities, including University of Warwick and University College in London (UCL). Wendy Carlin, an economics professor at UCL, along with many academics and economic consultants, is leading a project that will add to the existing economics curriculum by including environmental economics and financial markets prominently into beginning modules rather than only in specialised final-year honours modules.
The importance of learning from the past, and approaching any subject with an evolutionary mindset, cannot be exaggerated; never more so than in the still-developing field of economics – and in the still- developing minds of economics students.