On January 20th, the LSE will host a debate that includes Geoff Hodgson and Tim Besley as well as others on how the teaching of economics should change in light of the financial crisis of 2008. Hopefully we can get a report on this from either Tony Evans or Paul Lewis (or both).
I am not sure what the upshot will be of all of this soul-searching among economists over how they understand the object of their studies and how they communicate knowledge to their students (undergraduate and graduate). To me we need to reconnect again with the core ideas of exchange and the institutions within which individuals engage in exchange. In a very simple way it is about understanding the positive sum games of free exchange on the market, and the zero and negative sum games of political interference with the market. Ultimately, it boils down to understanding the rules of the game that promote peaceful social cooperation under the division of labor so that societies realize generalized prosperity and avoid conflict, poverty and squalor.
If I were to email over to Tim Besley what I would hope the LSE would reaffirm in economic education is the great tradition of Robbins, Hayek, Plant, and Coase (among others, see Buchanan's various discussions of the LSE opportunity cost tradition), and to emphasize the focus on, as O'Driscoll summed up in his classic work on Hayek, economics as a coordination problem. The coordination problem is the intellectual puzzle economists must solve, understanding the role of the price system and the entrepreneurial market process is the solution; the mechanism through which the entrepreneurial market process works to coordinate economic activities through time is economic calculation and the institutional pre-requisite for economic calculation is the private property order and sound money.
If economics taught that basic message clearly and spoke truth to power forcefully with that basic message, then I don't think we would be in the mess we are in. Unfortunately, that message is not taught as clearly as it should be, and economists more often than not compromise their message when speaking to those in positions of political power. And as for an explanation of the crisis, I think blame should be placed squarely where it belongs. It is the deviations from a private property order and a market economy driven by profit and loss, as well as the deviations from sound monetary policy (often caused by fiscal irresponsibility) that are the cause of the crisis. Don't blame the phatoms in the air of 'utopian economics'. The flawless precision of mathematical economics did not usher in an era of laissez faire that has run afoul of economic reality. It was instead the lingering consequences of a Keynesian coup of economic thinking that impacted "conservative" and "liberal" economists and politicians for over 50 years. Too much public debt, too loose of monetary policy, too big to fail mentality, too much government interference in the economy across the board. I hope Tony and/or Paul will report that such a message was represented on the panel even if to be dismissed. But somehow I doubt it will. Too bad because I consider the LSE as historically one of the truly great centers for economic research and education in the world.*
*One of the great thrills of my professional life was to give the 2004 Hayek Lecture at the LSE in the Old Theatre.