From any rational point of view, orthodox economics is in serious trouble. Its champions not only failed to foresee the greatest crash for 80 years, but insisted such crises were a thing of the past. More than that, some of its leading lights played a key role in designing the disastrous financial derivatives that helped trigger the meltdown in the first place.

Plenty were paid propagandists for the banks and hedge funds that tipped us off their speculative cliff. Acclaimed figures in a discipline that claims to be scientific hailed a “great moderation” of market volatility in the runup to an explosion of unprecedented volatility. Others, such as the Nobel prizewinner Robert Lucas, insisted that economics had solved the “central problem of depression prevention”.

Any other profession that had proved so spectacularly wrong and caused such devastation would surely be in disgrace. You might even imagine the free-market economists who dominate our universities and advise governments and banks would be rethinking their theories and considering alternatives.

After all, the large majority of economists who predicted the crisisrejected the dominant neoclassical thinking: from Dean Baker and Steve Keen to Ann Pettifor, Paul Krugman and David Harvey. Whether Keynesians, post-Keynesians or Marxists, none accepted the neoliberal ideology that had held sway for 30 years; and all understood that, contrary to orthodoxy, deregulated markets don’t tend towards equilibrium but deepen the economy’s tendency to systemic crisis.

Alan Greenspan, the former chairman of the US Federal Reserve and high priest of deregulation, at least had the honesty to admit his view of the world had been proved “not right”. The same cannot be said for others. Eugene Fama, architect of the “efficient markets hypothesis” underpinning financial deregulation, concedes he doesn’t know what “causes recessions” – but insists his theory has been vindicated anyway. Most mainstream economists have carried on as if nothing had happened.

Many of their students, though, have had enough. A revolt against the orthodoxy has been smouldering for years and now seems to have gone critical. Fed up with parallel universe theories that have little to say about the world they’re interested in, students at Manchester University have set up a post-crash economics society with 800 members, demanding an end to monolithic neoclassical courses and the introduction of a pluralist curriculum.

They want other schools of economic thought taught in parallel, from Keynesian to more radical theories – with a better record on predicting and connecting with the real world economy – along with green and feminist economics. The campaign is spreading fast: to Cambridge, Essex, the London School of Economics and a dozen other campuses, and linking up with university groups in France, Germany, Slovenia and Chile.

As one of the Manchester society’s founders, Zach Ward-Perkins, explains, he and a fellow student agreed after a year of orthodoxy: “There must be more to it than this.” Neoclassical economics is after all built on a conception of the economy as the sum of the atomised actions of millions of utility-maximising individuals, where markets are stable, information is perfect, capital and labour are equals – and the trade cycle is bolted on as an afterthought.

But even if it struggles to say anything meaningful about crises, inequality or ownership, the mathematical modelling erected on its half-baked intellectual foundations give it a veneer of scientific rigour, valued by students aiming for well-paid City jobs. Neoclassical economics has also provided the underpinning for the diet of deregulated markets, privatisation, low taxes on the wealthy and free trade we were told for 30 years was now the only route to prosperity.

Its supporters have an “almost religious mentality”, as Ha-Joon Chang – one of the last surviving independent economists at Keynes’s Cambridge – puts it. Although claiming to favour competition, the neoclassicals won’t tolerate any themselves. Forty years ago, most economics departments were Keynesian and neoclassical economics was derided. That allchanged with the Thatcher and Reagan ascendancy.

In institutions supposed to foster debate, non-neoclassical economistshave been systematically purged from economics faculties. Some have found refuge in business schools, development studies and geography departments. In the US, corporate funding has been key. In Britain, peer review through the “research excellence framework” – which allocates public research funding – has been the main mechanism for the ideological cleansing of economics.

Paradoxically, the sharp increase in student fees and the marketisation of higher education is creating a pressure point for students out to overturn this intellectual monoculture. The free marketeers are now being market-tested, and the customers don’t want their product. Some mainstream academics realise that they may have to compromise, and have been colonising a Soros-funded project to overhaul the curriculum, hoping to limit the scale of change.

But change it must. The free-market orthodoxy of the past three decades not only helped create the crisis we’re living through, but gave credibility to policies that have led to slower growth, deeper inequality, greater insecurity and environmental degradation all over the world. Its continued dominance after the crash, like the neoliberal model it underpins, is about power not credibility. If we are to escape this crisis, both will have to go.

Twitter: @SeumasMilne

We need economic theories fit for the real world

from The Guardian

The Post-Crash Economics Society at Manchester University. Photograph: Jon Super for the Guardian

The Association for Heterodox Economics welcomes student initiatives for fundamental reform of the economics curriculum, as do our post-Keynesian colleagues (Letters, 19 November). Heterodox economists, drawing on a range of theorists, including Keynes, Marx, Minsky and others, have consistently argued for greater pluralism in both economics curricula and economics research evaluation. We recognise the clear benefits of pluralism in economics: it encourages, by exposing them to alternative perspectives, the development of students’ critical thinking and judgment. Also, by drawing on a range of views, pluralism offers greater power to explain real-world events and provides the tools to solve real-world complex problems.

We support initiatives from within economics for curriculum reform (Report, 12 November). The proposed reform incorporates much of what we regard as desirable for the future of the subject: an appreciation of the complexity of the world, the importance of economic history and the history of economic thought, a recognition of the importance of environmental limits to economic activity, and a broader base of economic ideas than is taught currently. However, we are also concerned that this new initiative is too narrow, advocates evidence without the theoretical frameworks to understand it, and may simply replace one orthodoxy with another.

The Manchester students’ proposals (Report, 25 October) are the latest in a long line of appeals by student bodies for a more pluralist and relevant curriculum, following actions by students at Harvard, Cambridge and Paris. In the early 1970s an active protest by students at the University of Sydney led to the reform of the university curriculum, to include “political economy”, ie economics that takes into account, power, politics and a contest of ideas. What all of these student protests share is the demand for economics that illuminates the real world, takes in multiple perspectives and engages them. Moreover, as the recent protests have shown, students recognise the value of it to them. Fortunately, even within the monoculture of the UK economics curriculum, there are institutions in which pluralist, realistic, relevant economics is taught.

Prof Victoria ChickUniversity College London, Prof Bruce CroninUniversity of Greenwich, Prof Alan FreemanLondon Metropolitan University, Dr Andrew MearmanUniversity of the West of England, Dr Jamie MorganLeeds Metropolitan University, Dr Ioana NegruAnglia Ruskin University, Dr Wendy OlsenUniversity of Manchester, Dr Bruce PhilpNottingham Trent University, Prof Molly Scott CatoRoehampton University, Dr Pritam SinghOxford Brookes University