Suggestions for incremental change to public economics courses, drawn from the ten building blocks of Economy Studies.
Change often happens incrementally and slowly. In the economics textbook market, for example, there is an unwritten rule that new textbooks cannot differ more than roughly 15% from the standard textbook in order to be ‘acceptable’ (Colander, 2003).
While our book clearly breaks this rule and proposes more far-reaching and fundamental changes in most chapters, in this chapter we focus instead on how existing courses could be adjusted incrementally. By doing so, we hope to assist educators in improving and adapting the courses they teach without needing to rip them up and start again, as well as helping students make suggestions for how this could be done.
First, we set out the typical contents of current public economics courses. Second, we provide our suggested additions and changes. It is important to note that we pose all these suggestions as potential sources of inspiration, not a checklist of all the things that necessarily should be included. After all, there is a practical limit to what can be taught within a single course.
Typical contents of current courses
Courses on public economics today generally focus on neoclassical (partial or general) equilibrium models with the aim of establishing what would be the ‘optimal’ course of government (in)action. Government intervention is justified on the basis of market imperfections, such as externalities, public goods, imperfect competition and asymmetrical information. But students are also taught to be wary of market distortions and government failures arising from self-interested rational behaviour of politicians, voters, and civil servants. In this way, students often learn to think in terms of trade-offs between equity and efficiency. Recently, behavioural insights on policy design are increasingly incorporated in public economics courses. These theoretical ideas and models are used to treat a broad range of topics from taxation and redistribution to pensions, social policy and public finance.
Frequently used textbooks:
- Economics of the Public Sector by Joseph Stiglitz
- Fundamentals of Public Economics by Jean-Jacques Laffont
- Public Economics by Gareth D. Myles
- Public Economics: The Macroeconomic Perspective by Burkhard Heer
- Public Finance and Public Policy by Jonathan Gruber
- Public Finance by Harvey S. Rosen and Ted Gayer
- The Economics of Taxation by Bernard Salanié
- The Economics of the Welfare State by Nicholas Barr
- Intermediate Public Economics by Gareth D. Myles and Jean Hindriks
Suggested additions and changes
Practical skills and real-world knowledge
When teaching students about the economics of the state, it can be informative and motivating to discuss not only economic theories, but also the real world. Rather than just talking about government organisations and policies in the abstract, one could make use of (recent and local) cases and spell out questions and dilemmas that arise from these. Besides learning about the real world through case studies, students can benefit from learning about the specific institutions and government structures that shape the (national) economy.
Students can also benefit from learning about practical policy tools. A key part of the work of professional economists is analysing specific cases and possible policy interventions. To prepare students for this, it is useful to devote time to teach them about practical policy tools. The most famous of these is the traditional cost-benefit analysis, based on neoclassical economics. Recently new policy tools, such as risk-opportunity analysis based on complexity economics and participatory evaluation inspired by the cultural approach, have been developed and these are increasingly applied in practice. To ensure students acquire up to date knowledge and skills we suggest also teaching these younger approaches and exposing students to recent developments in the field.
For more detail, see Building Block 2: Know Your Own Economy and Building Block 9: Problems & Proposals.
- To introduce the policy tools, reading materials can be of use, but they will probably have the most lasting impact when combined with practical exercises in which students have to apply the tools themselves. For cost-benefit analysis, a useful book is: Cost-Benefit Analysis: Concepts and Practice by Anthony E. Boardman, David H. Greenberg, Aidan R. Vining, David L. Weimer, most recent edition from 2018. For participatory evaluation, the following book can be of help: Participatory Evaluation Up Close: An Integration of Research Based Knowledge by J. Bradley Cousins and Jill A. Chouinard, from 2012. Risk-opportunity analysis is newer and has yet to be explained in a textbook, but an useful working paper explaining the tool and providing examples of applications is: Risk-opportunity analysis for transformative policy design and appraisal by Jean-Francois Mercure, Simon Sharpe, Jorge Vinuales, Matthew Ives, Michael Grubb, Hector Pollitt, Florian Knobloch and Femke Nijsse, from 2020.
- The Oxford Handbook of Public Policy by Robert E. Goodin, Michael Moran, and Martin Rein, from 2008. An extensive book, which provides a useful overview of different aspects of public policy, such as the role of economic policy tools, engagement of stakeholders, and producing and evaluating policy.
- Handbook of Policy Formulation by Michael Howlett and Ishani Mukherjee, from 2017. Another extensive book, which focuses on how policy is made with its different aspects, such as choosing policy goals and instruments, policy appraisal techniques, and the politics of defining and resolving policy problems.
A range of analytical tools and approaches
There are many different economic perspectives on the state, but in a course one cannot practically treat all these in detail. Current courses focus mainly on neoclassical ideas, increasingly accompanied by some attention on behavioural ideas. We propose to present students with a broader and more balanced overview of economic debates about the state. Neoclassical and (post-) Keynesian ideas are generally most prominent and students should become familiar with their conflicting ideas about the roles of the state. Recently, new ideas on the state coming from evolutionary economics, such as the concepts of the entrepreneurial state and mission economy, are increasingly influential and therefore relevant for students to learn about. If there is more teaching time (made) available, students could also be made familiar, in more and less detail, with the other perspectives on the state, such as the Marxian, behavioural, Austrian, historical, complexity and classical perspectives.
For more detail, see Building Block 7: Research Methods & Philosophy of Science, Building Block 8: Economic Theories.
- Economics: The User’s Guide by Ha-Joon Chang, from 2014, chapter 11. This brief and accessible pluralist book contains a useful introductory chapter on the role of the state.
- Economics After The Crisis by Irene van Staveren, from 2015, chapter 6. This well-written textbook sets out the neoclassical, post-Keynesian, social economic and institutional perspectives on the state.
- The Economy by The CORE Team, from 2017, chapters 14, 15 and 22. This successful textbook provides an introduction into mainstream ideas and empirical findings on fiscal, monetary and public policy.
- Principles of Economics in Context by Jonathan Harris, Julie A. Nelson and Neva Goodwin, most recent edition from 2020, chapter 12 and 25. This useful textbook, which pays particular attention to social and environmental challenges, devotes two chapters to tax and fiscal policy in specific.
- The Entrepreneurial State: Debunking Public vs. Private Sector Myths by Mariana Mazzucato, from 2013. An influential and well-written book, inspired chiefly by evolutionary economics, on the role of the state in innovation.
- Alternative Theories of the State by S. Pressman, from 2006. A useful and informative collection of essays which introduces readers to the institutional, Marxist, post-Keynesian, feminist and behavioural perspectives on the state.
- Money and Government: The Past and Future of Economics by Robert Skidelsky, from 2018. This well-written and insightful book introduces readers to historical and current debates about the state, with particular attention to neoclassical and Keynesian ideas.
- Political Economy: The Contest of Economic Ideas by Frank Stilwell, most recent edition from 2011. A well-written textbook, with parts devoted to classical, Marxist, neoclassical, institutional, and Keynesian economics and particular attention to ideas surrounding the state, reform, policy and economic systems.
Institutions and different ways of organising the economy
States come in many shapes and forms. Students should become at least somewhat familiar with the wide varieties in (welfare) state arrangements, and more generally political-economic systems. Knowledge of these varieties will help students in their careers to situate and contextualise the problems and cases they have to deal with, in the broader systems that they are part of.
For more detail, see Building Block 6: Political-Economic Systems.
- The Three Worlds of Welfare Capitalism by Gøsta Esping-Andersen, from 1990. This classic describes three types of welfare states, the liberal, conservative and social democratic regimes, by exploring their social policies, pension systems, power relations, and labour markets.
- Varieties of Capitalism: The Institutional Foundations of Comparative Advantage by Peter A. Hall and David Soskice, from 2001. Another highly influential classic on differences in economic systems, here with a central distinction between liberal and coordinated market economies with respect to industrial relations, social and monetary policy, corporate governance, vocational training and education, and inter-firm relations.
- Debating Varieties of Capitalism: A Reader by Bob Hancké, from 2009. An insightful collection of essays provides a good overview of the debates surrounding theoretical and empirical controversies that followed the publication of Hall and Soskice’s classic. Besides this reader there are many useful studies and papers on the varieties of capitalism, including of Latin American and Asian varieties. This can be of help as it can be particularly useful for students to read material on the variety of capitalism of their own country.
- Comparative economics in a transforming world economy by J. Barkley Rosser, Jr. and Marina V. Rosser, most recent edition from 2018. A highly useful and broad book describing many varieties of advanced market capitalism, varieties of transition among socialist economies, and alternative paths among developing economies, with chapters on many countries, such as the United States, Russia, Sweden, China, India, Iran, South Africa, Mexico, and Brazil. It is particularly useful for students to learn about their own country. If that country is not included, as is the case for us as Dutch citizens, it can be useful to supplement the book with teaching material on the national political-economic system.
- Understanding and Managing Public Organizations by Hal G. Rainey, most recent edition from 2014. A useful textbook discussing how to understand the dynamic context in which government organisations operate and strategies and dimensions relevant for managing them.
Societal relevance and normative aspects
Government (in)action is the central matter of debate in politics. For any economists working on the matter, it thus is critical to be familiar with the various normative perspectives on public policy. These concern both normative principles for decision-making and normative visions for the economy as discussed in Building Block 10: Economics for a Better World. Courses often already discuss utilitarian principles and assumptions, but could be further enriched by also discussing other normative principles and approaches.
Besides learning about these more general principles and visions, it can be useful to discuss recent debates about key policy issues. This can be done by juxtaposing the different problem analyses and proposed solutions related to the issue at hand. This can help make normative differences more concrete as well as bringing together normative, analytical and practical aspects.
For more detail, see Building Block 10: Economics for a Better World.
- Economic Analysis, Moral Philosophy, and Public Policy by Daniel Hausman, Michael McPherson, and Debra Satz, most recent edition from 2016. A great introduction into normative economics, covering its many areas and topics from welfare economics and utility theory to liberty, equality and justice.
- A Guide to Ethics and Public Policy: Finding Our Way by D. Don Welch, from 2014. A brief but insightful book providing a broad framework for evaluating policy proposals and outcomes, organised around five moral principles: benefit, effectiveness, fairness, fidelity, and legitimacy.
- The Routledge Handbook of Ethics and Public Policy by Annabelle Lever and Andrei Poama, from 2019. This useful collection of essays treats many different aspects of the ethics of public policy, from monetary, tax and trade policies to the minimum wage, anti-discrimination and social policies.
- The Oxford Handbook of Professional Economic Ethics by George F. DeMartino and Deirdre McCloskey, from 2016, chapters 25-33. This insightful collection of essays explores the different aspects of ethics in economics, with one part devoted to ethical issues related to economic policy advice and analysis.
The history of the state, from an economic point of view, is a fascinating topic that could enrich public economics courses. The role of the state in the economy has drastically changed over time, so learning about these historical developments can help students imagine a broader range of possibilities as well as understand the current situation and its unique characteristics better. The state has also played a central role in economic thinking, particularly in macroeconomics. Besides teaching about the history of the state itself, it could thus also be useful to treat the history of ideas about the government.
For more detail, see Building Block 3: Economic History and Building Block 4: History of Economic Thought & Methods.
- A Companion to the History of Economic Thought by Warren J. Samuels, Jeff E. Biddle, and John B. Davis, from 2003, chapter 27. An extensive and detailed collection of contributions covering many periods and developments in the history of economic thought, with a chapter specifically devoted to the history of economic thought about governments.
- Money and Government: The Past and Future of Economics by Robert Skidelsky, from 2018. This well-written and insightful book introduces readers to historical and current debates about the state and macroeconomy, with particular attention to neoclassical and Keynesian ideas.
- Austerity: The History of a Dangerous Idea by Mark Blyth, from 2013. This influential and well-written book traces the intellectual history of the ideas of austerity and expansionary fiscal contraction, connecting it to wider developments in economic thinking and reality.
- States versus Markets: The emergence of a global economy by Herman Schwartz, most recent edition from 2010. This book explores the history of the global economy, with particular attention to the role of markets and the state.
What to take out
To create space for the above suggested additions, we advise focussing more on the key ideas and intuitions behind the taught models and devote less teaching time to their technicalities and mathematics. As teaching students to reproduce and work through mathematical models often takes up a large part of the teaching time, this would give the teachers the opportunity to devote more time to practical knowledge, the relevance, institutions, and history. Furthermore, a more even balance between neoclassical economics and other economic approaches could be achieved by decreasing the number of neoclassical ideas and models that are taught.