Economics helps people live better lives

As textbook authors and educators, we read John Kays contribution to the May 21 Financial Times with interest. Kay has two specific complaints about economics training.  The first is that modern universities care little about teaching, as opposed to research.  The second is that instruction in economics and finance is insufficiently pragmatic and overly ideological.

We disagree on both fronts.

First, teaching has become a core component of virtually every faculty member's job. A poor teacher would have a difficult time receiving tenure in most universities.

Second, we (and many economists) view teaching students as imparting a way of thinking, not a set of immutable facts or even models. In our textbook, and on this website, we focus on the use of a set of core principles for understanding the financial system.

The idea is that students should understand concepts like present value, risk, moral hazard, time consistency, and the like. When combined with a focus on incentives and thinking about what happens at the margin, students using these concepts will be able to understand the financial and economic system as it evolves.

Beyond this, however, economic modeling does have value in and of itself. Models are a disciplining device that ensures logical consistency. And, in a macroeconomic setting, models help us to think in general equilibrium terms — something that even 40 years after first being exposed to economics, we still find difficult. It is this discipline that is essential if we are to come to a useful understanding of the world.

More broadly, we see economics as a tool to help people live better lives. It is for this reason that we wrote the textbook that we did — one that is focused on using economics every day. So, while we agree that economics as a discipline and the teaching of economics need to evolve (not least to take advantage of the exciting advances in educational technology), there is no need for a revolution.

As for student reaction, Kay rightly points out that there is a difference between reacting to economics and to economists. Put another way, economics as a discipline has much more to offer than the policy recommendations of any individual economist.