My Perspective: Day 2 – Australian Conference of Economists 2012

Day 2 of the ACE Conference started with a keynote speech from Professor John Quiggin of University of Queensland on the conference’s main theme ‘The future of economics: research, policy and relevance’.

Quinn took a “glass-half-empty” view on the future of the economics field, arguing that there was a policy crisis on multiple fronts. Professor Quinn lambasted the profession for its research remaining largely irrelevant to key public policy problems, explaining that academics were too focussed on internal professional incentives that mainly came from the private finance sector. He spent some time acknowledging the recent achievements in microeconomics, especially in assymetric information, risk and uncertainty and mechanism design. By contrast, he branded macroeconomic theory “useless”, blamed modern finance theory on light-handed regulation that caused the GFC, and then argued that limitations to public economic theory hurt government’s ability to respond to the crisis. As a result, Quiggin argued, we are now struggling with high unemployment, repeated financial market failures and sovereign governments crippled by the enormous cost of bailouts. He claimed that this sequence of events clearly illustrated the spectacular failure of the market liberal model, but then showed his frustration that this model still remains the economy orthodoxy.

Fortunately, Professor Quiggin proceeded to give his opinion on what needs to happen within the profession to change this inertia. He acknowledged that these problems were difficult questions to solve, but argued that the profession made it more difficult by obsessing over obscure theories to land themselves a prestigous American Economic Journal entry to add to their personal CV. Quiggin argued for change in reward structures, so that economists viewed policy work with credit and recognized that the publication structure was way too disconnected from what economics is supposed to be. He ended with a sobering thought – “the GFC should have changed us, but it didn’t and we are now on a path to irrelevance”. Let’s hope those words elicit some change in attitude, but I very much doubt it.

The second presentation I will touch on tonight is that from Stephen King, professor of undergraduate economics at Monash University. Professor King spoke on the topic, ‘Are economics graduates fit for employment?’ He dismissed the topic of the speech completely in his first line, in a way that to my mind was perculiar indeed. He said that the content of undergraduate courses should not focus on what employers would find useful, but rather to what students find useful. In my opinion, the two go hand in hand; students want to study content, whether it be theories or application, that make them more employable. Therefore, by logic, they want to study ideas, concepts and theories that employers find relevant and useful. The great weakness of our educational institutions is the time wasted on theories that matter very little in practice.

Professor King then argued that our undergraduate economic courses should have less maths and more history, as this is essential to understanding the underpinnings of current economic theory. I agree that economic history, whether it be examples of economic theory in practice or the the history of economic ideas, should play a part in an undergraduate economics course. But I don’t think it should be a substitute for quantitative analysis; this is the essence of economics as a science.  I would actually argue that the weakness of our economics majors is the lack of quantitative courses included in our undergraduate economics majors, given that it limits student aspiring to further study at prestigious overseas institutions.

Another interesting day from ACE, with other notable speeches from David Gruen who argued that productivity has to be our focus if we are to continue our economic prosperity, and Professor Lawrence White who gave a fascinating account on the history of economic ideas over the last century. I recommend everyone interested in the history of economic thought to read his book, ‘The clash of economics ideas: policy debates and experiments over the last hundred years’.

Tomorrow from ACE2012:

– A keynote speech from Professor Ross Garnaut on ‘Rebalancing China’s pattern of development,

– A public lecture on ‘The Status of the Russian economy’ from Padma Thesai

If you want to follow ACE 2012 during the day, I will be tweeting for @ESSA_unimelb, and watch this space tomorrow night for my blogo n Day 3 from ACE2012.

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