The most important steps to improve the training of young economists would be to make economic history and the history of economic thought compulsory in all undergraduate teaching of economics. Both survive, if at all, as curricular options that the brightest are discouraged from taking. The rich history of economic thought has been replaced by a narrow range of currently fashionable mathematical “models” taught and often learned by rote: the sweeping panorama of economic history, by a training in econometrics, the accuracy of whose data is necessarily confined to the last few years. Yet it is these theoretical models and econometric forecasting techniques that were caught lamentably short by the economic collapse of 2008.
Behind the dismissal of economic history and the history of ideas lies the mistaken view of economics as a natural science, whose knowledge base automatically cumulates. For example, anything worthwhile in the old has been incorporated in the new, and can therefore be neglected. This ignores the fact that, unlike in the natural world, the reality that economics aims to study and understand is constantly shifting, largely as a result of our own actions. The future is not just full of unknowns, but, in Donald Rumsfeld’s immortal phrase, of “unknown unknowns.”
The study of the past can help economists narrow the scope of the “unknown unknowns” by casting their net wider. Models that tell us economic collapses cannot happen are no use in trying to understand what did happen in 2008; for this we must go back to such historical greats as Keynes, Hayek and Schumpeter. Forecasting models based on average data of five “good” years cannot begin to guard us against the manias, panics and crashes that have punctuated economic history. If the recent collapse can restore forgotten knowledge to the education of future economists, it will at least have done some good.
For the other contributions to Room for Debate: Rethinking how we teach economics, visit www.nytimes.com/roomfordebate/2012/04/01/how-to-teach-economics-after-the-financial-crisis