How economics lost its soul

Universities are training economists who can build models but don't understand the economy

Photo by Mick Haupt on Unsplash

Rethinking Economics — the international network of scholars and students that promotes pluralism in economics — has published a report on the state of the economics discipline. Specifically, the report looks at the degree to which economics degree programmes in the UK are equipping students for their future. It does so by reviewing economics programmes at 16 prestigious UK universities.

The report concludes that the economics discipline is in a pretty dismal state. It finds that the economics curriculum in the UK places more focus on training students to ‘think like an economist’ rather than providing them with an understanding of how the economy actually works. These are the main findings of the report:

• The climate crisis and socio-ecological issues are broadly absent from economic curricula. 75% of universities do not teach any ecological economics; instead, when issues of ecological sustainability are taught, environmental damage is considered as something that needs to be priced into market mechanisms.

• Economics education does not address historical and contemporary power imbalances. 55% of universities do not provide meaningful teaching on questions of historical slavery, colonialism, or neocolonialism at all. History and ethics are absent from these discussions.

• Mainstream neoclassical economics dominates the economic theories taught. Of the 480 theory modules we graded, 88.3% of them included mainstream neoclassical economic thinking focusing on rational, self-interested individuals. They are almost entirely taught through quantitative technical skills.

• Economics is taught in isolation from other social sciences. The discipline of economics should be embedded within the social sciences, and students should be encouraged to learn across other disciplines such as politics, sociology, geography, and history, but for the most part, it remains siloed.

• There are two programmes that are critical, climate-conscious, and provide an economics education fit for the 21st century. SOAS and the University of Greenwich introduce students to a range of intellectual and methodological perspectives within the economics discipline. They put a learning focus on climate, power, and inequality throughout the course.

Pluralism and non-monolithic thinking in economics departments clearly remain marginal. The debate on the state of the economics discipline got heated recently, when Ha-Joon Chang — a pluralist economist who wrote the foreword to the above-mentioned RE report — wrote a fierce critique of mainstream economics (specifically, neoclassical economics, which dominates the mainstream) in the Financial Times. His critique was rooted in the findings of the RE report. Comparing neoclassical economics to Catholic theology in the Middle Ages, Chang writes the following:

The dominance of neoclassical economics in our university curricula has created a world where we are told there is no alternative — only technical adjustments to a system that is fundamentally fair, rational and efficient. But this is fiction. Economics today resembles Catholic theology in medieval Europe: a rigid doctrine guarded by a modern priesthood who claim to possess the sole truth. Dissenters are shunned. Non-economists are told to “think like an economist” or not think at all. This is not education. It’s indoctrination.

Chang continues to take fierce jabs at neoclassical economics in his piece:

Neoclassical economics has become the Aeroflot of ideas. A friend recalls that after asking for a vegetarian meal on a flight with the Soviet airline in the 1980s, he was told: “No, you cannot. Everybody’s equal on Aeroflot. It’s a socialist airline. There’s no special treatment.” The same logic applies in today’s economics departments: you’re free to choose — as long as it’s neoclassical chicken

Chang’s piece was widely shared and applauded on social media. Even Niall Ferguson, the economic historian whose views differ from Chang politically, endorsed Chang’s piece on Twitter/X. Unsurprisingly, economists who are positioned more firmly within the mainstream came to the defence of the status quo in economics departments. Olivier Blanchard, former IMF Chief Economist, responded to Ferguson, saying, “Niall and others. Please do your homework (…) And discover, to your surprise, the degree to which researchers explore new ideas.”

But even within mainstream walls, powerful criticism has emerged. The most notable is an essay by Angus Deaton — a Nobel Prize-winning economist — outlining five major shortcomings of mainstream economics. They are the following:

• Power: Our emphasis on the virtues of free, competitive markets and exogenous technical change can distract us from the importance of power in setting prices and wages, in choosing the direction of technical change, and in influencing politics to change the rules of the game. Without an analysis of power, it is hard to understand inequality or much else in modern capitalism.

• Philosophy and ethics: In contrast to economists from Adam Smith and Karl Marx through John Maynard Keynes, Friedrich Hayek, and even Milton Friedman, we have largely stopped thinking about ethics and about what constitutes human well-being. We are technocrats who focus on efficiency. We get little training about the ends of economics, on the meaning of well-being—welfare economics has long since vanished from the curriculum—or on what philosophers say about equality. When pressed, we usually fall back on an income-based utilitarianism. We often equate well-being with money or consumption, missing much of what matters to people. In current economic thinking, individuals matter much more than relationships between people in families or in communities.

• Efficiency is important, but we valorize it over other ends. Many subscribe to Lionel Robbins’ definition of economics as the allocation of scarce resources among competing ends or to the stronger version that says that economists should focus on efficiency and leave equity to others, to politicians or administrators. But the others regularly fail to materialize, so that when efficiency comes with upward redistribution—frequently though not inevitably—our recommendations become little more than a license for plunder. Keynes wrote that the problem of economics is to reconcile economic efficiency, social justice, and individual liberty. We are good at the first, and the libertarian streak in economics constantly pushes the last, but social justice can be an afterthought. After economists on the left bought into the Chicago School’s deference to markets—“we are all Friedmanites now”—social justice became subservient to markets, and a concern with distribution was overruled by attention to the average, often nonsensically described as the “national interest.”

• Empirical methods: The credibility revolution in econometrics was an understandable reaction to the identification of causal mechanisms by assertion, often controversial and sometimes incredible. But the currently approved methods, randomized controlled trials, differences in differences, or regression discontinuity designs, have the effect of focusing attention on local effects, and away from potentially important but slow-acting mechanisms that operate with long and variable lags. Historians, who understand about contingency and about multiple and multidirectional causality, often do a better job than economists of identifying important mechanisms that are plausible, interesting, and worth thinking about, even if they do not meet the inferential standards of contemporary applied economics.

• Humility: We are often too sure that we are right. Economics has powerful tools that can provide clear-cut answers, but that require assumptions that are not valid under all circumstances. It would be good to recognize that there are almost always competing accounts and learn how to choose between them.

When a towering figure within the mainstream launches this kind of criticism, it’s a clear sign that mainstream economics needs an overhaul.

I’ve long taken an interest in economic pluralism and how economics can become a more inclusive and interdisciplinary social science, engaging with real-world economic issues more deeply. My view is that economics degrees have, for the most part, become subpar degrees in mathematics, isolating themselves from other social sciences and important real-world applications. During my undergraduate studies in economics, which couldn’t have been more mainstream, one of our professors actually told me and my fellow students that it’s not their job to teach us the economics of the real world. I remember being shocked. The obsessive focus on abstract models and lack of concrete applications in my undergraduate curriculum eventually started to deeply frustrate me. When my non-economics friends asked me the simplest of questions about the economy, I found myself unable to answer them. While the quantitative skills taught in mainstream economics degrees are useful for employability in that they provide a solid understanding of numbers and charts, it has serious consequences when economics graduates don’t understand what’s happening in the actual economy.

The focus on mathematical formalism and consequent abstraction from important issues in the real world do not only have consequences for understanding the economy — it also has consequences with respect to the questions asked within the discipline. Far too many economists are concerned with how a change in measured variable X affects measured variable Y rather than asking normative, important questions such as: Is capitalism preferable to socialism? What are the global consequences of China’s rise in the world economy? What are the limits of looking at climate change purely through the lens of market failures? In fact, I’ve met many economists who say that they think economics is a ‘hard science’ that should be unconcerned with these types of questions. Both Adam Smith and Karl Marx, two of the most important figures in classical economics, would turn in their graves if they heard this. Despite their political differences, these two scholars approached economics in a similar way. They both understood that economics is shaped by human values, social norms, and ideologies. According to Smith and Marx, to be an economist is also to be a philosopher.

The crisis in economics education isn't just an academic problem — it's a societal one. When policymakers, business leaders, and analysts graduate with a mathematically sophisticated but contextually impoverished understanding of economic systems, it has serious consequences. An army of economists out there has been taught to prioritise market efficiency over social outcomes and treat complex socioeconomic challenges as mere technical puzzles. If economics is to become a truly relevant and responsive social science, we must reclaim the diversity that once defined the discipline.