How Economics Lost Its Identity (Australian Edition)

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I will never forget the late summer day on which Johnny Smith (not his real name) came to my office at UNSW full of excitement about his incipient undergraduate career. “I want to work as an investment banker!” he told me passionately. “That way I can maybe retire when I’m 30. I chose economics since it’s all about money.” I paled. “So, what can I read to get a head start on how to make money? Do you have some articles you can recommend?”

Young Johnny is not the only one. The word “economics” has been the victim of identity theft all across Australia.

Countless individuals have over the years searched for a neat word to capture something they find important about society, and “economics” has just seemed to fit time and again. What was really meant might have been “greed”, “corruption”, “business”, “power”, “class warfare”, “cost-benefit analysis”, “stock-market activity”, “social injustice” – any number of abstractions – but “economics” just sounded so mysterious and erudite, not to mention blameworthy. This definitional dog’s breakfast has permeated our society, and now we have a whole generation of school-leavers who have not the faintest clue what economics is really all about. And neither, in many cases, do their teachers.

How did we get into this situation? Is it really a problem, and if so, what can be done about it?

Mixing business and economics

Modern misconceptions of economics, which arguably begin to take shape in high school, result in part from the conceptual heaviness of the discipline. It is hard even for PhD economists to explain to a layperson what economics is really all about. The discipline’s heaviness makes it a natural target for violating simplifications and incorrect associations.

The blending of economics and “business” together in the school curriculum is a good example. While economics (together with law and psychology) is a founding discipline of many business-related areas of activity, such as marketing, management, and accounting, it is fundamentally different in terms of orientation.

The lens of economics is oriented impartially, toward trying to understand how the greatest possible good can be brought to an entire society given resource scarcity; the tools of most other business disciplines fit more naturally into a partisan analysis, such as determining how a company can write the most effective advertisement or attract the most productive employees. If we’re going to teach economics or business in high school at all, then not acknowledging this fundamental divide sets economics up already for an identity crisis.

Moreover, truly understanding the most enlightening ideas of economics requires a degree of sangfroid that does not come easily to high school students or even to their teachers. Far easier to declaim in a passionate essay against Tony Abbott’s latest policy faux pas than to think through strategically what might really work to address the issue, in view of the incentives and opportunities facing governments, regulators, and players on both sides of private-sector markets.

Knowing this, those tasked with writing an “economics curriculum” may be sorely tempted to punt and fill student hours with definitions to memorize and cookbook recipes for how one vague and disembodied economic aggregate affects another. They may even be tempted to use the opportunity of setting the curriculum to pass along a teaspoonful of their own philosophy in the guise of standard economic thinking.

Economics or social studies?

Is this a problem? Arguably yes, not only because it’s misleading, but because it crowds out other information. We as parents and as a society should worry if our school-leavers do not know, at a minimum, the ingredients in clear-headed decision-making and the basic structure of how our society functions.

To make sense of the daily news and to make sensible decisions in their private and professional lives, children should be taught that investing resources in one activity entails a sacrifice of both those resources and the next-best activity that could have been pursued; that incentives matter for the behaviour of everyone, including groups like lobbyists, terrorists, and company boards; that most of our society’s wealth is generated in the private sector, which employs most of us; and that the main role of our modern, democratically-elected government is to tax economic activity and use the proceeds to produce public goods that everyone enjoys (like security, infrastructure, and education) and make welfare payments to the least well-off 20% or so of our citizens.

Australian students should have these topics illustrated with examples from around the world and from Australia, in the course of which they will learn basic socioeconomic facts about their country: what do we make, what and with whom do we trade, and what do we do all day in our work? What are our regulatory structures and our political, legal, and financial institutions in broad terms, and how do they provide the stability and services required for productive activities to take place? How are our federal and state budgets spent, in broad terms? How does our country compare along all these dimensions to the OECD, to our neighbours in Asia, and to developing countries?

I wouldn’t label the topics above “economics” – they are more like what used to be called “social studies,” blending bits of economics, political science, and law. This type of no-nonsense primer is enough to prepare school-leavers to make their way in the world without pretence about how it works. If they later study economics at university, fine: the academy is arguably better positioned than high school teachers to teach them what the discipline is really all about.

Putting custody of the discipline’s identity back into the hands of the international academy makes sense. After all, it is we who have the biggest incentive to help economics find itself again in Australia.

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