Saturday, 31 January 2015

It's out! The revised UK economics curriculum

Update 4/12/2015 
There was a final review meeting on 1st June 2015, after this Blog post was written. My summary of these discussions is available here. Some changes were accepted  in the final version of the SBSE, available here, in particular:
The phrases 'due to observational equivalence' and 'methodology of science' were dropped
Different methodological approaches are 'understood' rather than the weaker 'appreciated'
'Psychological biases' are included
'A range of evidence' is critically assessed, and methods are 'critically understood'
Despite intense lobbying, 'ethics' was not accepted as an acceptable context alongside 'historical, political, institutional, international social and environmental'. Instead, ethics is a subject area that is 'linked to'.

It's out! The UK's subject benchmark statement for economics (SBSE), against which the quality of UK economics degrees is judged, has been published online. The QAA can withdraw degree awarding powers and the right to be called a university if it is not satisfied with standards and quality. This draft 2015 SBSE appears nine months after Rethinking Economics represented student voices at the QAA committee. The QAA have a survey to gather comments from 'anyone with an interest in higher education in the UK' including students, academic staff and graduate employers.

This brief post is to review changes since the 2007 SBSE, by mapping them against student calls for theoretical, methodological and interdisciplinary pluralism.

Theoretical pluralism

There is a new statement that ‘various interpretations of commonly observed economic phenomena exist, due to observational equivalence, and hence explanations may be contested. It is therefore important that economic phenomena are studied in their relevant historical, political, institutional and international contexts' (Section 2.2). Resources are no longer 'scarce' (Section 2.1) and economics is more modestly described as 'a social science' rather than 'a key discipline in the social sciences’ (Section 2.3). The phrase ‘a coherent core of economic principles’ has been replaced with the more open-minded 'relevant principles' (Section 4.1) and the threshold levels required by students refer to 'economic theories and interpretations' rather than just a single 'theory'. Finance and income distribution have been reclassified as dynamic analyses (Section 2.2.) and the subject specific skills include 'market failure' and 'conflicts of interest' (Section 5), perhaps in recognition of Minsky and Marx.

Methodological and interdisciplinary pluralism

The problems with abstraction have been highlighted, with students expected ‘(to appreciate) the specific assumptions that guide the criteria for simplification’ (Section 3.1). Students will be assessed on their ability to use 'evidence and knowledge of institutional and historical context' (Sections 6 and 7). In terms of their role in the broader academy, economists are said to engage with a wider range of disciplines, including ‘finance, international relations, law, ethics and philosophy’.

What is left out?

There are notable absences, and this list is not exhaustive. Although governments were accepted as economic entities, financial institutions were not; and legal and ethical contexts are not included (Section 2.2). The relationship with mathematics and management remains muddled: mathematics is used and management is informed (Section 2.3). Evidence is evaluated and assessed, but never critically. The role of government and the System of National Accounts were rejected as topics, as was re-wording to encompass qualitative and mixed methods. Students are asked to 'appreciate history (of economic thought)' but not to understand it; and there is no requirement to appreciate or understand ethical issues.


Monday, 14 July 2014

UK economics curriculum: an open reply to the QAA

To: The Quality Assurance Agency for Higher Education
Southgate House
Southgate Street
GL1 1UB 

15th July 2014 (revised 31 July)

Thank you for the opportunity to suggest further changes to the QAA subject benchmark statement in economics (SBSE). I think the draft needs significant further work for four reasons: repetition; insufficient critical and open thinking; insufficient pluralism; and a need to re-prioritise to reflect employer surveys.

The SBSE could merge sections 4. 'subject knowledge and understanding' and 5. 'subject specific skills and other skills'. Finance and accounting (QAA, 2007) have a single section 3. 'subject specific knowledge and skills'.

There is wording in the both finance and accounting that emphasises critical and open thinking: 'a capacity for the critical evaluation of arguments and evidence'; 'the ability to analyse... unstructured problems' as well as an emphasis on presentation, communication and information technology skills. The SBSE could use similar wording.

The main thrust of the document is 'to abstract and simplify' (2.5) and 'the study of factors that influence income, wealth and well-being'. It could instead emphasise 'the empirical grounding of the subject; being question motivated not tool motivated; and address issues such as growth, distribution and the environment' (personal notes from QAA meeting). The need to discuss the purpose of economics was made in the original INET curriculum proposal (Skidelsky, 2011). For example, topics that come up with student groups include climate change, inequality, unemployment, banking, power, gender, profit retention and tax avoidance.

A lack of theoretical pluralism is apparent in section 4.1 'a coherent core of economic principles' and 5.4 'key concepts'. The SBSE could use similar wording to the finance statement section 2: 'study pursued from a variety of perspectives, including but not restricted to, the behavioural, ethical, economic, sustainable and statistical/mathematical'.

Please note my surprise that finance and employment are considered to be 'static analyses'.

In my view, sections 2.5, 4.3, 5.4, 5.6 and 7 confuse the priorities given in the employer surveys:

The Economics Network Survey of 2012 places 'communication of economic ideas' and 'analysis of economic, business and social issues' ahead of 'abstraction' and lists 'social costs and benefits' as the most important subject-specific knowledge.

The SBE Survey of 2013 prioritised data manipulation, money and banking, financial economics, economic history, cost-benefit analysis, competition, behavioural economics, history of economic thought and financial history. These were ahead of advanced mathematics and mathematical packages. These priorities are either missing, or inconsistent, in these overlapping sections.

Where the committee have proposed changes I support these: the new bullet on 'historic and policy contexts in which specific economic analysis is applied'; engagement with finance, ethics, philosophy and international relations; a new bullet to communicate with 'non-specialists/non-economists'; brief mention of case studies; removal of the word 'scarcity' and inclusion of the words 'phenomena', sectors' and the 'pluralist perspectives/interdisciplinary synthesis' mentioned earlier.

Can you note my disappointment that it took so long to circulate the draft after the 18th March committee: as a result, even these minor revisions will not be available for the 2014-15 academic year.

Thank you for agreeing to widen the consultation to 'gather a full range of perspectives'. I hope that this will include academic groups (WINIR, PKSG, AHE and so on) as well as student groups (PCES, Rethinking Economics, CSEP, GURWES and so on) and other employers (in finance, consultancy and non-profit).

With best regards,
Neil Lancastle

Summary of comments from other committee members
1.  The statement needs rewriting to show how economics has changed since the crisis, to encourage a more pluralist approach to teaching, and to encourage critical inquiry by students.
2.  The statement needs to include economic and financial history, behavioural economics, real world case studies, banking, and the skills and topics prioritised by employers.

Economics Network. (2012). Economics Graduates’ Skills and Employability.
SBE Survey. (2013). Teaching Economics after the Crisis: The Results of the Society of Business Economists’ Members’ Survey of January 2013. Available from Society of Business Economists.
QAA. (2007). Finance.
QAA (2007). Accounting
Skidelsky, R. et al. (2011). Three year economics undergraduate curriculum

Wednesday, 11 June 2014

There are alternatives

More on the lack of public support from CORE for the student letter, calling for 'more open, diverse and pluralist economics'. However,the student letter has been signed by a diverse group of academics and economists (see below). 
This was sent to the FT on 3rd June but not published, hence the Blog.


Dr Alvin Birdi’s hope that the CORE curriculum will ‘prioritise empirically important questions’ is welcome. However, he is wrong to dismiss criticism from those outside the project as ‘off the mark and unhelpful’.  Dr Hugh Goodacre’s is not the only dissenting voice; Kate Raworth thinks that ‘to be honest I don’t feel it [CORE] bodes well’ and Ha-Joon Chang and Jonathan Aldred write that ‘teaching undergraduates economics as a series of interconnected debates at best risks needlessly confusing students and at worst actively misleading them...this is unfortunately the view taken by a leading group of curriculum reformers among mainstream economists – the CORE project group’.

There are occasions when CORE members engage with those on the outside calling for alternatives. Andy Haldane wrote a supportive foreword to the report by students at Post-Crash Manchester, but they were dismissed by Diane Coyle as failing to ‘recognise the breadth of the courses available’ and by Simon Wren-Lewis as being 'fundamentally misguided’.

More generally, the CORE steering group and CORE contributors appear united in their dismissal of alternative curricula: not a single one appears to have signed the ISIPE open letter. Surely someone from CORE has an encouraging word for the students? After all, the letter is signed by a diverse group of academics and economists, many of whom leave helpful comments: Ann Pettifor, Stephanie Blankenberg, Molly Scott Cato, Robert Pollin, Michael Ash, Achim Truger, Arne Heise, Doyne Farmer, Thomas Piketty, Lord Robert Skidelsky, Alan Kirman, Ha-Joon Chang, James Galbraith, Peter Mooslechner, Lars P. Syll, Victoria Chick, Geoffrey Harcourt, Marc Lavoie, Geoffrey M. Hodgson, Sheila Dow, John Komlos, Paul Davidson, Steve Keen, Engelbert Stockhammer, Jean-Paul Fitoussi, Matheus Grasselli, Gary Dymski, John Weeks, Ken Binmore, Malcolm Sawyer, Mathew Forstater, Ozlem Onaran, Stephen Fazzari, Sheri Markose, Tae-Hee Jo, Thomas Palley and Yuval Millo. 

Best regards,
Neil Lancastle

Postgraduate student in finance and economics, University of Leicester

Wednesday, 28 May 2014

Spinning from the CORE

What have the CORE steering group and the ISIPE student letter got in common? The short answer: nothing.

If you scan the list of supporters (last scan, 5th October 2014) you find that not a single steering group member has publicly supported the ISIPE call for 'a more open, diverse and pluralist economics'. Some of us have received private messages of support, but it would be fantastic if someone like Diane Coyle (chair of the steering group and acting chairman of the BBC trust) or Eric Pentecost (chair of the Royal Economic Society's CHUDE committee) were to sign the letter.

Especially when 'CORE in the news' includes ISIPE press coverage with the phrase 'we try to link to all the mentions of the CORE project in the media'. Anyone would think this was the 'citation cartel' and 'invisible college' that Victoria Chick referred to at the Post-Crash Manchester fringe event.

Outside of CORE, a growing body of voices are stating publicly that the CORE curriculum is too narrow. Kate Raworth wrote on her blog that:

'CORE’s twenty modules are works in progress...but to be honest I don’t feel it bodes well... it’s only when we reach Module 17 that we learn about ‘The economy of the Earth’... and in the outline of the whole curriculum there doesn’t appear to be any room to discuss whether or not unlimited economic growth is theoretically, technically or socially possible".

Hugh Goodacre wrote in the FT that:

'Far from introducing a wider range of viewpoints, [CORE] excludes any method or theory other than the same old simplistic platitudes about equilibrium and disequilibrium and all the rest of it. It aims to justify to first-year students the fact that their further curriculum will centre overwhelmingly on mathematical models constructed on that basis, and far from welcoming student discussion in its formulation, consultation on the course by students and dissenting staff was rigorously denied'

Ha-Joon Chang and Jonathan Aldred, writing in support of the student campaign in the Observer, point out that 'in Cambridge, like every other elite university, the undergraduate economics curriculum has remained almost the same'.

These comments suggest little has changed since this survey of undergraduate economics programmes published in 2012. The original INET UK Economics Curriculum Committee, led by Lord Skidelsky, found that courses in microeconomics emphasised theory and mathematics; macro courses relied heavily on New Classical thought; and only two out of twelve universities discussed economics from a qualitative perspective such as history of economic thought, economic history and philosophy of economics.

Why are there still so many dissenting voices? It has been suggested in a Reuters Blog that students 'underestimate the scale of the intellectual scandal'. Looking at the press coverage, it seems the campaign also underestimates the scale of the intellectual spin. As Imre Lakatos might put it, the CORE has a  'protective belt' or positive heuristic which is more flexible and 'forges ahead with almost complete disregard of 'refutations' (Lakatos, 1980: p51).

Wednesday, 9 April 2014

Campaigning for the long-run at the Post-Crash fringe

The fantastic Post-Crash Manchester held a fringe event to the Royal Economic Society (RES) conference. What better than a discussion between Victoria Chick and Diane Coyle? We heard their very different views on pluralism, on the openness of the RES and other institutional barriers to change.

For Diane Coyle, the problems are a 'gap' between between research and the curriculum, and a 'gap' in public understanding. While she accepts that some economists in the US might simply 'add a little bit of financial friction in DSGE models' she thinks it is a mistake to say that UK economics is monolithic.  Her vision of a pluralist curriculum was one motivated by questions and evidence, where history matters, economies are dynamic and we do not have a grand, unified theory that works in all contexts.

For Victoria Chick, the 'castle had been captured' by a scientific model, a 'mechanical elephant' that replaced dialogue between schools. Yet discussing the source of our differences, like the Sufi elephant in the parable, is much more informative. Economists used to agree to differ, and tell their own stories, but we learn less that way and 'the last thing we want to do is bicker and be indecisive'. Victoria said the same principles apply today between heterodox and mainstream economists.

In the workshop sessions, we had already swapped stories about barriers to change. Economics students at LSE take the very good LSE 100 course which asks big questions such as 'how should we manage climate change?' using 'different approaches to evidence, explanation and theory' from across the social sciences, but there are no credits awarded. At Glasgow, a six-week Post-Keynesian course by Alberto Paloni was being supported by undergraduate teachers. At Manchester, the heterodox economist who taught their 'Bubble, Panics and Crashes' course was on a temporary contract and 'let go' when the course was dropped. These are real barriers, with long-term impacts on those involved.

The audience questions about institutional barriers brought very different responses. Diane had already suggested that 'you only get one chance at this' because under the research excellence framework (REF) funding goes towards research, not teaching: she did not know how students could change the REF. Diane also disagreed that the direction of change at Manchester was too narrow, and thought that the RES was 'absolutely open to debate'. Victoria, on the other hand, found these institutional factors to be 'very problematic' with the general impression that the RES did not want to create space for discussion, a 'citation cartel' in economics and an 'invisible college'.

Diana had asked the meeting to 'appreciate efforts to reach out and help when it is there', yet I was left with the sense that other schools are being used but not recognised. If promotion depends on citation levels, yet you were not cited during the era of the 'mechanical elephant', you have already left the profession. Addressing this goes beyond research ethics, much as the RES could learn from the AEA. It requires recognition of key contributions despite their publication in heterodox journals. That requires discussion, humility and intellectual honesty. The system for promoting academics needs to be more flexible, and to reward and encourage innovative research and teaching.  For many in the room, these are campaigns that have, and will continue to take, a lifetime.

Saturday, 4 January 2014

Avoiding bubbles with pooled funds

There's a simple formula which shows how a speculative bubble can grow. With present value (P) and a positive rate of return (r) to time (t) the value of the annuity (A) rises exponentially:

With a negative return the bubble tends towards zero. Since balance sheets have both assets and liabilities, there are four possible bubbles and anti-bubbles:

Financial Crisis Observatory (2013)

There are much richer mathematical possibilities to represent a return series, such as braid groups; the problem here is not so much the representation as the fact that there are bubbles. The uncertainty could be managed by simply pooling the tail risks, for assets and liabilities. The short-term characteristics are less susceptible to expectations, measurement errors and variance in the rate of return. Only as the future unravels do the long-term characteristics reveal themselves. The pooling of tail risks is a common insurance strategy and, when there is market failure, unravelling these long-term characteristics falls on governments and central banks.

Imagine, instead, if financial asset and liabilities were split into short-term and long-term annuities: the short-term being held privately, and the long-term being owned by a pooled or government fund. With an increase in the general level of risk, such as unmitigated climate change, the value of the long-term pooled fund would fall. With effective mitigation, the value of the long-term pooled fund would rise. If time (n) represents the length of the short-term annuity, the value of the long-term pooled fund to time (t) is approximately:

That gives the government or pooled fund a present value to assess risk mitigation projects. If the assets are firms or buildings at risk from climate change, the impact on the long-term value is what matters. Here, there is certainly scope for better maths and better estimates of the risks. Within this pooled fund we already have the tail risks for climate change, and assets that are absent from the national accounts: oceans, forests, air and water.

Whether or not private markets function at these longer maturities is highly unlikely. Poverty and high-risks are indistinguishable, because both are a preference for cash today. Long-term estimates for natural assets are heavily contested, such as the industry figures for carbon. There is no obvious private incentive to mitigate tail risks, except perhaps in a well-regulated and mandatory insurance market. Mitigation projects would convert an uncertain stream of insurance cash flows into a fixed sum: the higher value of the long-term annuity less the project cost. However, few (if any) firms and households insure events beyond next year, let alone beyond their lifetime.

So while pooling tail risks would seem to avoid the excesses of asset and liability bubbles, the quadruple problems of poverty, under-insurance, valuation errors and the government as an 'insurer of last resort' remain. There is no incentive for private interests to deal with tail risks. No-one will join a pooled fund today when they think they have the winning lottery ticket tomorrow. The politics will fail as long as the majority believe they are one step ahead of environmental and financial risks.

Financial Crisis Observatory. (2013). Financial Bubble Experiment. Available at:

Saturday, 7 December 2013

How to start a crypto-bank run

First published 7th December 2013
Updated 7th December 2017

A friend who is a crypto-currency evangelist gave me a Bitcoin a few years ago, which I jokingly accepted as a 'store of value'. When I heard, in 2013, that China was banning direct trade in Bitcoins, I suggested my friend cashed in on the basis it was a bubble*. He didn't. For a while I rolled the crypto-dice: my gains were enough to pay for a decent family Xmas that year but there was a run on Bitcoin after the China ban and, since then, some of the crypto-currency I was gifted has been seized by the US Secret Service.

I find it difficult to believe there is a 'natural price' or that 'par' will emerge from this chaos: I think insiders will profit and outsiders will lose. To exchange Bitcoin for cash I paid FOUR sets of fees: a percentage to the trading platform; a fixed spread to the settlement platform; an exchange rate fee from USD to GBP; and a transfer fee to a 'recognised' UK holder of GBP: total fees were over 10%.

Crypto-currencies have seen the most unexpected people jump into bed together: drug dealers, geeks, crypto-anarchists and libertarians. On the left, their anger is directed at private interests; on the right, it is directed at government.  But crypto-currencies look like Wildcat banking to me, with an unregulated network of international crypto-exchanges that will collectively run out of liquidity during a crash. Derivative exchanges also come and go. Until the next liquidity crunch, like any Ponzi scheme, crypto-currencies will lure new buyers with their illusion of profits. 

Without anyone to uphold 'par', the most obvious lesson is to have stronger regulation of the exchanges. This 2017 tweet sums it up perfectly:


* This post on Bitcoins makes a good point about their self-reinforcing nature. The basic foodstuff of crypto-banks is the Bitcoin. If derivatives are settled in Bitcoin, and crypto-banks and firms are bought and sold in Bitcoins, their scarcity drives up the price and perpetuates the bubble.