Economics needs to be make changes

EPA An undated hand-out picture provided on October

8 by Perus Central Bank Reserve, showing the commemorative coins of the annual meetings of the
World Bank and International Monetary Fund (IMF). The writer says the IMF has suggested that
economists look beyond the West and stop seeing the world through an almost purely advancedeconomy lens. Photo: EPA.
The market volatility at the start of this year raises a question that has lingered since the global
financial crisis: Can economists be trusted?
Ever since 2008, economists have come under attack for being out of touch, including by Queen
Elizabeth II, who wondered how they could have been so mistaken.
Eight years on, there is still no profession more in need of a few changes.
So here is my own five-point plan for how we economists can bring about a revitalised, more
relevant, profession.
- Get interdisciplinary: In the time of Smith, Ricardo, Marx and Malthus, economists saw it as their
vocation to consider the interplay between economy, society and politics.
Nowadays you would be lucky to find an economist who had opened the cover of one of the great
works, never mind one who is friends with a sociologist.
Economics has cut itself off through the imperialist tendency to see itself as the king of social
sciences.
While economic concepts and ideas have penetrated other disciplines, economists have been much
less keen to embrace other disciplines in their own work.

As Marion Fourcade, Etienne Ollion and Yann Algan have recently shown, articles in the most
respected political journals cite the top economic journals six times as often as the other way
around, and the difference is even starker for sociology.
Just as worrying, in a survey of US professors, more than half of economists disagreed with the
statement that in general, interdisciplinary knowledge is better than knowledge obtained from a
single discipline, compared with under a third of professors in history, finance, psychology, politics
and sociology.
It is vital that economists look beyond economics, at the influence of society, politics and religion.

Not only should economists engage with other disciplines; from real-world experience in finance or
business to working with charities, there is a lot to be learnt from life outside of the ivory towers if
economics is to become more real.
- Look beyond the West: Just last week, the new chief economist of the International Monetary Fund,
Maury Obstfeld, suggested that economists need to stop seeing the world through what is an almost
purely advanced-economy lens.
The figures speak for themselves. In the 1980s, 36 percent of global gross domestic product (GDP)
and 43 percent of global GDP growth was accounted for by emerging and developing economies.
In the last five years, these numbers have increased to 56 percent and 79 percent respectively.
Obstfeld identifies precisely the kind of topics that need to be on any core economic syllabus these

days: classic issues related to the balance of payments capital flows and their management, foreignexchange intervention, vulnerabilities in external balance sheets, and the determinants of current
account balances, trade patterns, and trade volumes.
A detailed coverage of these areas should be the base of economics courses.
- Promote a sexual revolution: In Britain and the US, there are about three times as many boys
studying economics at degree level as there are girls.
This is not only a problem for girls, locking them out of potentially lucrative job opportunities that
could help to close the gender wage gap, it is also a problem for the discipline itself.
It is only by incorporating gender that economists can reach a fuller understanding of the causes of
poverty, slow growth and inequality.
As we eagerly await the publication of Progress and Confusion: The state of macroeconomic policy in
May, edited by four leading experts and for which only three of the 28 contributors are female, we
are left wondering just how much further and faster economics and the world economy could be
progressing if only more women studied economics.
- Focus on data: Of all the skills that students acquire, probably the ones that are most useful later
on are the quantitative tools they develop.
In developing such tools, however, the current emphasis is on mathematical proofs rather than on
how to apply techniques to real-world data.
A rebalancing is required.
Along the way, it would also be helpful if students were properly introduced to the wealth of data
available these days, and to the basics of both how to clean it up and how to think about causality in
the context of real-world scenarios.

As economist Barry Eichengreen

recently pointed out, thanks to Big
Data and the fresh appeal of economic
history, economic research is already
undergoing a quiet evidence-based
revolution, one which should
significantly improve policy advice in
the future.

If teaching is to keep up with the skills required, the

classroom will need to dedicate more time to the
practical as opposed to theoretical side of data analysis.
- Get in touch with our human side: Our economy is not
ruled and operated by robots but by real people with
quirks and imperfections or, as a behavioural economist
such as Richard Thaler would put it, we suffer from
cognitive biases.
While some economists see the departures from the rational behaviour assumed by their models as
nothing more than trifling, others of us believe that it is only by accepting that humans are human
that we can explain the real fundamentals of economics: the causes of boom and bust, the drivers of
entrepreneurship and growth, and how people can become locked into poverty.
Psychology is even more important when seen in the context of risk and uncertainty.
It is one thing to assume that we can all behave rationally when the future is known, but quite
another when we face up to the fact that economic agents operate in the context of a completely
unknowable future.
While we cant predict everything this year has in store, we can hope that economists will do a better
job in the future than they have recently.
That will only happen if universities change the way they prepare students, both for jobs in the
private sector and for academic research.
Only then will economics truly redeem itself.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg and its
owners.
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