Tuesday, 26 July 2011

Math and Economics: Staying Ahead of Events

You don't have to look far to see why economics is important to understanding world events. Take the front page of any major newspaper.

The debate in Washington over the U.S. debt ceiling. The euro zone's struggles with Greece (and vice versa). The Arab spring. Investor's views of News Corp's value following revelations of phone hacking by journalists at one of its newspapers.

Guess who?
How could you begin to grasp the complexities of any of these titanic issues without examining the economic forces at work?

Perhaps less easy to understand is why it's important to understand mathematics in order to master economics.

Incoming students who have been taking the SAIS Online Math Tutorial this summer, with the help of seven DVDs covering 86 modules, may be asking themselves that question. As might prospective applicants.

I asked Prof. Erik Jones about this relationship between mathematics and economics. Here is what he told me:

"At SAIS we teach economics both for substantive reasons and for methodological reasons. We want students to understand how the economy works but we also want them to realize why we believe it works that way. The recent economic and financial crisis is a perfect illustration of the importance of this combination. Many people had simple rules of thumb to explain how liberalized capital markets should be more stable than tightly regulated markets; many fewer understood the importance of basic assumptions about human rationality that lay at the foundation of those rules of thumb. When those assumptions proved to be incorrect – as former Federal Reserve Chairman Alan Greenspan explained to the House of Representatives – the whole edifice of free market economics came crashing down.

Prof. Erik Jones
"The connection between  the assumptions that underpin economic thought and the rules of thumb that guide ‘conventional wisdom’ works through logic as expressed in mathematical models. Those students who do not understand mathematics will never be able to trace back the links between what they think they know about how the economy works and what they assume to be true about the world writ large. As a consequence, they will never be able to anticipate what will happen should their assumptions prove incorrect. They will be trapped in the crowd, doing whatever everyone else is doing and hoping for the best. Our goal by teaching mathematics for economics is to help students avoid that fate. We don’t intend to turn SAIS students into mathematicians, but we do intend to give them the understanding that they will require to stay ahead of events."

If you're tempted to wager that the connection between mathematics and economics is relatively recent, think twice. The use of math in economics dates back at least to the 17th century before hitting its stride in the 19th.

I'm sure at least one of our readers can tell us more about the symbiotic rapport between math and economics -- if not now, then in a few more months.

Anyone seen this before?
In the meantime, let's get back to brass tacks. Incoming students are strongly encouraged to take both the pre-calculus and calculus tests online this summer before starting their course work. It's the best way to make sure you will thrive at SAIS.

Anyone who comes up short -- it happens -- will have an opportunity to take math catchup classes, either in pre-term or after, and to take the exams again.

The obvious question is: Am I required to take the math tests and to pass them?

The answer is less obvious. Do yourself a favor. Study the material, pass the tests and tackle economics with the confidence and skills you will need to succeed.

Questions? Send them to admissions@jhubc.it.