What Department Should Teach Economics?

Those who cannot learn from history are doomed to repeat it.--George Santayana


At the HNI Shareholders meeting, President and CEO, Stan Askren, made a point to tell shareholders that the past does not predict the future. There are always unforeseen events that are random or exogenous that lie outside the realm of normal that alter the future. For example, who could foresee the credit crisis and the mortgage mess.

What’s wrong with looking at history and making an inference about the future? Bestselling author, Nicholas Taleb, points out that history suffers from a problem of induction that he calls the Black Swan. When one moves from specific examples to general conclusions, there’s always a problem that a random event can alter the expected outcome. Looking at history provides comfort because it rules out randomness. It’s like a brain suave for those who are afraid of risk.

In fact, economists say that one should not let sunk costs determine future decisions. What happened in the past should be irrelevant to future decisions.

There’s another problem when using history as a guide in teaching economics. The problem lies in the brain’s tendency to find patterns in past events and think that one should have predicted the events that followed given these past events. This is what Taleb calls the post hoc narrative fallacy. In other words, hindsight is 20/20.

So when economics is taught in the history department, there’s tendency to teach it with a post hoc narrative and tendency to use induction. For these two reasons alone, economics should be taught in the business department.