It's time to demystify economics

There is a widespread perception since the 2008 global financial crisis that economists – more precisely, the free-market economists who have dominated the world in the last three decades – have miserably failed in their job of managing the economy. Unfortunately, the world has been too forgiving of these economists. Despite the fact that they have completely bungled their jobs, the same economists are still telling the world what to do.

However, this state of affairs may not last for long. Undergraduate students have formed the International Student Initiative for Economic Pluralism across 19 countries in four continents, calling for greater openness and plurality in the teaching of economics. Employers have become more vocal in complaining about the quality of the ‘products’ that they get from economics degree programmes – highly trained in mathematics and statistics, but very narrow in theoretical perspectives and very ignorant of real world economies.

More importantly, it is increasingly recognised that ordinary citizens need to get involved in economic debates. In a democracy, you will never get a decent policy in any area unless the voting public is interested and knowledgeable enough about it and the economy is no exception.

Despite this recognition, most people are reluctant to learn economics because there is a widespread perception that it is a very technical subject that is beyond the reach of non-specialists. This fear of economics has reduced the ability of citizens to influence economic policy-making, making them increasingly feel powerless and thus disinterested in democratic politics.

This need not be the case: most of economics can be understood by anyone with a secondary education, if it is explained in an accessible way, which is what I try to do in my new book, Economics: The User’s Guide.

Many economists believe themselves, and tell other people, that economics is a ‘value-free’ science, like physics or chemistry. However, my book emphasises that economics is a fundamentally political and moral subject – indeed, it started out as a branch of moral philosophy. Whereas the particles and forces studied by physicists and chemists do not hold political and moral views, the human beings who populate the economy do, and therefore we cannot fully understand the economy without understanding politics and ethics.

Moreover, even the boundary of the economy – and thus the scope of economics – is determined by ethical and political judgments; for example, child labour used to be a perfectly legitimate object of market transaction until the early 20th century even in the richest countries. This means that the market itself is a political construct, rather than a natural order that should not be tampered with by ‘political’ intervention. Once we realise this, we begin to see how no economic argument can be free from politics.

All of this means that there cannot be one ‘correct’ way of ‘doing’ economics. And indeed, there are nine ‘schools’ of economics (and that’s only counting the major ones), including three varieties for free-market economics alone (Classical, Neoclassical, and Austrian). They all make different political and ethical assumptions, focus on different things (for instance, production or exchange), and have different theories about how economies change.

It is important to learn about different types of economic theories and their respective strengths and weaknesses, because reality is complex and therefore we can understand it in its full complexity only when we have a range of theories at our disposal. To deal with today’s economic problems we need different economic approaches for different issues. The dominant Neoclassical economics can be very powerful when we analyse well-specified problems in a setting in which technologies and politics are stable, but we need the Austrian and the Keynesian approaches in order to better deal with situations characterised by uncertainty and instability. We should use Institutionalist and Behaviouralist approaches more, if we are to come up with robust solutions about systemic reforms – be they about finance or the welfare state. To think about reviving economic dynamism in the long run, we have to learn more from the Schumpeterian, the Developmentalist, the Classical, and the Marxist schools.

It is not necessary – or even possible – for citizens who are not economists to learn economics at a professional level. However, it is possible – and necessary – that they acquaint themselves with the main economic theories and their respective strengths and weaknesses. When combined with some knowledge of real world economies, such knowledge will enable them to make informed judgments on economic issues and exercise what I call active economic citizenship. It is time that we de-mystify economics.

Ha-Joon Chang is Reader in the Political Economy of Development and has just published Economics: The User’s Guide, which aims to explain economics in a way that most people can understand. Dr Chang will be speaking about the book as part of the Cambridge Series at the Hay Festival later this month.