The key to understanding the future of economics lies in the past

Patrick McDonagh argues that economic teaching needs a change in direction to avoid another crash


Almost a decade has passed since the onset of the great recession which caused enormous damage to the world economy, both in its initial onslaught, and from ill-considered policy responses which have often proved to be nothing short of folly.

This crisis brought a well-deserved public ridicule and criticism of the profession of economics; Robert Lucas the famed Nobel Laureate and economist in 2003, only a few years before the crisis proclaimed said that the “central problem of depression prevention has been solved, for all practical purposes, and has infact been solved for many decades”. Such a statement seems nothing short of fantasy given the past decade.

Since then, there have been calls for changes to how economics is taught at university level. Trinity has made small changes to reflect this. The junior sophister module now features behavioural economics in place of mathematical microeconomics.

While such a change is welcomed it does not go far enough.  The department falls down in offering dedicated economic history modules. So far, the only Economic History module within the department is the senior sophister World Economy module, with history comprising only half of that module. It is a small topic within the senior freshman Economy of Ireland module, and  the junior sophister European Economy module. But this is not enough.  

Students need to engage with theory versus reality

The inclusion of more economic history within the degree, ideally as a module offered in either Junior or Senior Freshman year would allow incoming students to actually engage with how textbook theory plays out in historical reality.

It would show the historical evolution of economies and to see the practice of ideas such as free trade and protectionism, different currency regimes and the role of inflation. It would also make clear that such views cannot be separated from political arrangements.

It is difficult to appreciate Britain’s dedication to free trade in the nineteenth century without much awareness of its political role as a global empire. The workshop of the world had the gunboats to enforce free trade which suited political interests at home.  

Examples abound of phenomena that provide a different way of viewing economic systems. The ancient Mesopotamians had a very sophisticated economic system over four thousand years ago with interest bearing loans, long distance trading and future markets.

They also had centrally planned interest rates which remained stable over several centuries and had over the many centuries in its history changes from what appear to be planned economies to what we would call free market economies.

One does not need to go back that far; the inclusion of a dedicated economic history module explaining the Industrial Revolution would be just as valuable, or a history of the globalised world economy since the sixteenth century.

It is too late to wait till the final year to offer such a module, as not having a good grounding in economic history can be proven counterproductive. Furthermore, many students studying economics as part of programmes such as TSM, PPES and BESS, may already have dropped economics before their final year.  

Repeated mistakes and political discontent: bad decision making

The policy responses to the great recession of 2007 show a deep hubris embedded in complex economic models which often did more damage than good. A knowledge of modern twentieth century history would have offered a useful corrective.

The austerity policy of the United Kingdom resulted in them having a worse crisis than it did during the great depression in the 1930s. A mere eighty years after the worst economic crisis in modern history, the British pursued policies that were very reminiscent of Chancellor Bruning of the Weimar Republic, the so called “Hunger Chancellor” who engaged in mass austerity in the a period of economic decline. In both cases there was huge economic and social damage done and interestingly a rise in extremist political parties.

In 1930s Europe, notably in Germany, poor economic policies led to the rise of extremist political parties, proven by the success of the Nazis and communists. This was again witnessed in recent years, in the rise of far right parties in Europe such as UKIP, Le Front National and Golden Dawn, as well as far left socialist parties in Spain and Greece.

The failure to learn something from this earlier disaster has cost Britain dearly. It is in order to ensure that the next generations of economists within Ireland and elsewhere are aware of past crises that the department in Trinity and other universities need to offer more teaching in economic history.

We can learn from the past

It would provide a wider appreciation of how economies operate, especially over time, and to learn how economic theories actually work out in practice. It would help to prevent the kind of arrogance shown by Nobel Laureate, Robert Lucas in 2003. As far as recorded history shows, there have been economic crises in all sophisticated societies, ranging from issues such as debt to financial flows and liquidity.

Such changes would show that the Trinity Economic department is willing to deal with the challenges facing the discipline, and adapt to them.  Mathematical theory is the norm within the discipline and the maths is important. It would be short sighted to say economics needs to get rid of maths.

However economics is not physics, and should not aspire to be physics. Elegant mathematical laws of society are flawed, as people don’t operate according to equations. Maths is crucial for many parts of the subject, but it should not be overdone. Many mathematical ideas within economics are nothing but utter sophistry designed to further academic careers.

If economics wishes to remain a subject dedicated to the study and ultimate improvement of society, it must remain grounded in events that have happened in practice in society. The inclusion of behavioural economics and the study of psychology for third year students is a welcomed change as it promotes a better understanding of people, yet Trinity needs to go further.

The introduction of an economic history module in earlier years would be a crucial first step in Trinity being able to produce economists who have a greater understanding of the world we live in, and how practical and effective many economic ideas actually are beyond the textbook.