Economics gives a good return 2

May 9, 2003

Alan Shipman's attack on "mainstream" economics is outdated, misguided and wrong. If the nature of the discipline is causing a decline in take-up at A or PhD level, how does Shipman explain the buoyant demand for MScs and among foreign students?

The reason A-level economics is not attracting students is twofold: the syllabus has not kept up with developments such as game theory and asymmetric information, and is seen as boring, "theoretical and difficult"; and business studies, with a much softer A level and an easier university entry, is more attractive.

Shipman's strategy is to take the problems identified, analysed, researched and quantified by the economists he berates as evidence that mainstream economics is unrealistic and over-formalised. Mainstream economists subject themselves to scientific tests throughout the research process, from properly stated theories, testing with sophisticated statistical techniques and peer-review according to the strictest criteria. This rigorous approach may be unpopular, but it is necessary.

Shipman's case for alleged lack of realism is not helped by his reference to a study accusing economics of treating the economy as "a 'closed'

mechanical system, ignoring the complexities caused by the reflections and reactions of people, businesses and other social groupings". No self-respecting mainstream economist would dream of analysing the economy in such crude mechanical terms.

Interdisciplinary competition is the context of Shipman's attack. He writes that "while economists play these games, management schools continue capturing staff, students and research funds from them because what they teach and publish is what their sponsors and customers want to know".

I have no problems with management schools following a sponsor-led research agenda, but I have serious misgivings if the same criteria were applied to government-funded economic research. The application of economic theory to recent auctions of government-owned assets, for example, has raised some £22 billion, so has been of some practical value. Yet the "overformalised" and "unrealistic" optimal auction theory that underpinned the design of these auctions would not have qualified as something that "sponsors and customers want to know".

Economics may have problems, but these cannot be solved by Shipman's facile and poorly informed prescriptions.

Manfredi La Manna
Reader in economics
University of St Andrews

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