Can education prevent a future economic crisis?

May 20, 2009 by
Filed under: Education Matters 

As economists search their souls, a view is emerging that human social and psychological factors should have a far more central role than the hard science of economic modelling gives them. If that’s the case, while stimulus packages and regulation are all as we cope with the aftermath of the crisis, in the longer run it may be that we should look to education to save us from ourselves in future.

Incidentally, I say this as one of the select band of people who, in a small way, predicted the financial crisis. And it’s a status I hold in common with a taxi driver who gave Robert Shiller a lift recently.

Shiller was giving a seminar at the RSA this morning (and will be speaking here again on Thursday) about his new book Animal Spirits. He happened to mention that he was in a cab with a taxi driver in New York. As they drove past the big cranes working on a series of new developments, the driver turned to him and said something along the lines of ‘there’s something wrong here - it can’t last’.

For my part, I have had the deposit for a house set aside for several years now, and have been resisting calls from my family and friends to buy a property. I know very little about economics, but I had a completely unscientific idea that the plethora of property obsessed shows on TV were both reflective of and actively selling the idea that prices would go up forever. And that idea, well, it just didn’t feel right. It felt like people’s descriptions of the early 1990′s.  So I held off.

In their zeal for accurate scientific models economists missed the housing bubble coming. Shiller argues this was, at least in part, because they don’t account for human psychology (‘Animal Spirits’ he calls them, and which are the title of his new book) which in fact plays a major role in driving economies. So me and the taxi driver managed, however dimly, to see something coming when they didn’t.

Shiller makes the simple point that people tend to respond to stories, not facts. If people see data that contradicts a dominant narrative they tend to dismiss it, or rationalise it away somehow. So, in a boom we ignore the fact that house prices have gone done as recently as the 90′s.

Today, now the bubble has burst, we have an equally damaging narrative about pessimism for the future, and a lack of trust in financial institutions and political leadership.

If human psychology is central to driving markets, it would seems that some degree of boom and bust is probably inevitable. But we could manage the consequences better if we solved two problems.

1. How do we help people deal critically with the dominant stories around them, and avoid groupthink?

2. Part of dealing with a bad time is to behave responsibly in the good times. But in such times, the pressure on politicians is to deregulate and spend, precisely because we feel good. How can we create the conditions where democratically accountable politicians can resist this popular pressure?

I have two suggestions as to how education could, in the longer run, further the above ends:

1. Realise that history might be the best popular guide to financial future: just as geography as a subject has connected intimately to the challenges of climate change and international development, so history could play an important role in informing our stories about our economic present with our past. History could help develop a shared understanding of good times and bad times, and the painful social realities of inflation and deflation. We should stop boxing financial education in, and let it permeate the curriculum in this sort of way.

2. We should decouple the story about greater wealth from the story about happiness and wellbeing - we can use education to embed the idea that happiness and wellbeing are just as linked to helping others and pursuits with intrinsic worth (learning musical instrument as opposed to earning more).

Is this a line of thought the RSA should pursue?


Comments

  • Max Hogg

    Hello Ian!

    I’d wholeheartedly agree that one of the roles of education is to help people to be critical about the dominant stories around them. This would help prevent the bubble of the financial crisis, as well as open up the debate about whether greater material wealth is a good thing or not.

    On a more positive note, I think it might also encourage ingenuity and innovation, as young people would emerge from education more able to ‘think the unthunk’ and come up with inventive ideas to make the most of entrepreneurial opportunities.

    I think the methods you suggest could encourage this, although I think Matt Grist has identified an even more effective way over on his social brain blog (http://socialbrain.rsablogs.org.uk/2009/05/08/learning-to-think-is-not-all-about-thinking/#comments)

    He suggests that. to help kids to make sense of the world and ‘think for themselves’ teachers should subtly emphasise the skills associated with disciplines, as well as the knowledge they are teaching. By doing this across disciplines, he suggests it will help kids to grasp a set of principles about how the world works and understand how and when those principles should be applied. This will help them to think for themselves or, in your words, deal critically with the stories around them. (He explains it better than I can!)

    This definitely sounds like something the RSA should pursue, and I’d love to help out when I come to join you.

    Max

  • Max Hogg

    Hello Ian!

    I’d wholeheartedly agree that one of the roles of education is to help people to be critical about the dominant stories around them. This would help prevent the bubble of the financial crisis, as well as open up the debate about whether greater material wealth is a good thing or not.

    On a more positive note, I think it might also encourage ingenuity and innovation, as young people would emerge from education more able to ‘think the unthunk’ and come up with inventive ideas to make the most of entrepreneurial opportunities.

    I think the methods you suggest could encourage this, although I think Matt Grist has identified an even more effective way over on his social brain blog (http://socialbrain.rsablogs.org.uk/2009/05/08/learning-to-think-is-not-all-about-thinking/#comments)

    He suggests that. to help kids to make sense of the world and ‘think for themselves’ teachers should subtly emphasise the skills associated with disciplines, as well as the knowledge they are teaching. By doing this across disciplines, he suggests it will help kids to grasp a set of principles about how the world works and understand how and when those principles should be applied. This will help them to think for themselves or, in your words, deal critically with the stories around them. (He explains it better than I can!)

    This definitely sounds like something the RSA should pursue, and I’d love to help out when I come to join you.

    Max

  • http://www.thersa.org/projects/education Ian McGimpsey

    Thanks, Max.

    I think Matt’s post and this one have quite a bit of common ground. As Matt points out, realising the connection between skills/competences and subject content is a way of ensuring young people have good guides for action, decision making and thinking critically.

    I am (much less clearly!) suggesting that the skills of history allied to historical content could support young people to resist the kind of damaging collective story that got told about the housing market.

    Ian

  • http://www.thersa.org/projects/education Ian McGimpsey

    Thanks, Max.

    I think Matt’s post and this one have quite a bit of common ground. As Matt points out, realising the connection between skills/competences and subject content is a way of ensuring young people have good guides for action, decision making and thinking critically.

    I am (much less clearly!) suggesting that the skills of history allied to historical content could support young people to resist the kind of damaging collective story that got told about the housing market.

    Ian

  • Rainstomper

    did you even do any rasearch? i don’t even time to read the above garbage. i’m too busy stealing kisses with janet. we’re not wasting time on this any longer.

    liam + janet.

  • Rainstomper

    did you even do any rasearch? i don’t even time to read the above garbage. i’m too busy stealing kisses with janet. we’re not wasting time on this any longer.

    liam + janet.