What Is Wrong with Economics Education?

How many times does an undergraduate economics student hear the name “Hayek” in his or her courses? The answer, in most programs, is close to zero.

This is surprising. Friedrich Hayek remains one of the most cited Nobel laureates in economics—second only to Kenneth Arrow in mentions and citations in Nobel lectures, according to research from King’s College London. His ideas on the knowledge problem and the economic calculation debate are fundamental to understanding the limits of central planning and the role of markets.

Economics education today is not primarily designed to train economists but to produce social engineers. And yet, in most classrooms, Hayek’s name never appears. Why? Because economics education today is not primarily designed to train economists but to produce social engineers.

This point was made forcefully by another Nobel laureate, James Buchanan. In his 1964 presidential address to the Southern Economic Journal, Buchanan asked the deceptively simple question: “What should economists do?” His answer was not about what theories to teach but about how to teach. He argued that the modern economics curriculum had been captured by a vision of training future policymakers to manage society rather than cultivating economists as scientists who study spontaneous order and social processes.

The curriculum has been captured by a vision of training future policymakers to manage society. To see the problem, we must start with the question: What exactly is “the economic problem”?

There are two very different answers. The first is what might be called the “allocation” view. In this model, all means and ends are known, and the challenge is simply to compute the best distribution of scarce resources. In such a world, economics reduces to what Buchanan called “the mathematics of social engineering.” The only obstacle is technical—calculating the optimal outcome. This perspective dominates textbooks and exams.

The dominance of the social-engineering approach began with Paul Samuelson’s 1948 textbook, Economics. He wrote: “No immutable ‘wave of the future’ washes us down ‘the road to serfdom,’ or to utopia. Where the complex economic conditions of life necessitate social coordination and planning, sensible men of good will can be expected to invoke the authority and creative activity of government.” In that worldview, the economist’s role is to assist these “men of good will” in managing society.

The second approach, by contrast, insists that uncertainty and dispersed knowledge lie at the heart of economic life. Here, no one knows all the relevant information about ends and means. Because knowledge is scattered, incomplete, and often tacit, no central planner can ever calculate the “optimal” outcome. Instead, the economic problem becomes one of discovery—allowing individuals to use what Hayek called “the knowledge of the particular circumstances of time and place” through voluntary exchange in the market.

Hayek described this distinction in his famous 1945 essay “The Use of Knowledge in Society.” The economic problem, he argued, is “not merely a problem of how to allocate ‘given’ resources—if ‘given’ is taken to mean given to a single mind…. It is a problem of the utilization of knowledge not given to anyone.” That single insight reshapes the entire discipline. It helps students grasp the power of decentralized decisionmaking compared to central planning. It highlights the limits of knowledge, showing that no planner, economist, or individual can ever possess the perfect information needed to decide for others.

Unfortunately, economics education today is overwhelmingly built on the first conception. Students learn to solve equilibrium equations, calculate shifts in demand and supply, and memorize models of optimization. Rarely are they asked to reflect critically on whether these frameworks capture the world they are meant to describe.

As Austrian economist and professor at New York University Mario J. Rizzo recently noted in the Financial Times, “The students were given, mainly or only, problem-sets of a completely mathematical nature. […] There were no questions involving critical reflection on the ideas or frameworks taught.”

Rarely are students asked to reflect critically on whether these frameworks capture the world they are meant to describe. This approach instills in students the illusion that social problems can be solved by finding “optimal solutions.” In that worldview, markets are seen only in terms of failures—problems that supposedly require government correction—while genuine market solutions are ignored.

But such a mindset directly contradicts the wisdom of classical liberal economics. Thomas Sowell once remarked that, in the real world, “there are no solutions, only trade-offs.” Social life is not about perfection; it is about making choices under scarcity, uncertainty, and ignorance. The central task of economics is not to identify perfect outcomes but to understand how institutions help us cope with imperfection.

The central task of economics is to understand how institutions help us cope with imperfection. That is why students must first grasp the principles of economizing—opportunity cost, trade-offs, coordination—before they are asked to run equations. The market is not a machine to be “solved”; it is a process to be understood. Reforming economics education does not require a wholesale revolution in theory. What it requires is a shift in perspective: a new window through which to view the same theories, one that puts uncertainty and dispersed knowledge at the center.

Buchanan himself emphasized that if all preferences were fully known in advance, “choice becomes purely mechanical.” But genuine choice is not mechanical—it is open-ended and shaped by ignorance of the future. Once this is admitted, the real work of economics begins: examining how market institutions channel limited, local knowledge into socially beneficial outcomes. Markets allow people who lack full information to still truck, barter, and exchange, thereby creating patterns of coordination far beyond the capacity of any planner.

Hayek put it best: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” Yet today’s undergraduates are often taught the opposite lesson. The prevailing message is that the state can, and should, engineer better outcomes if only it has enough authority and information. Unsurprisingly, surveys such as one from the Yale Buckley Institute show that nearly half of undergraduates now say they prefer socialism over capitalism, with some even praising regimes such as Cuba.

The Hayekian perspective helps us see the gap between intentions and outcomes. Economic analysis shows that socialist policies, however well-intentioned, often produce results directly opposed to their aims. In the “solutions” perspective, we can reach what experts might regard as optimums, while in the economic perspective everything comes with a trade-off. Students need to be encouraged to analyze with that fact in mind.

Universities should be places where assumptions are challenged. That was true for Hayek and Sowell, both of whom entered university as socialists and changed their minds through exposure to new ideas. Hayek famously altered his worldview after reading Mises’s Socialism. But when higher education becomes primarily about the passive transfer of “settled knowledge”—and when universities are preoccupied with making students feel comfortable rather than intellectually tested—this transformative process is stunted.

In economics especially, students are more often exposed to catalogues of market “imperfections” and idealized models of state correction than to the realities of government failure or the limits of planning. A persistent myth on the left is that mainstream economics is simply an apologetic for free markets. The reality is the opposite: Classrooms often dwell far longer on ways the state might “fix” the market than on the ways markets themselves generate order from imperfection. Government failure is barely discussed, if at all.

That lesson—that economics is about discovery, not design—is what today’s students need most. Students thus emerge with an unrealistic picture of markets. They are taught stylized models of “perfect competition” and then introduced to an arsenal of policy tools allegedly capable of delivering that perfection in practice. It is no wonder so many come to see economics as a branch of engineering for government intervention. As Deirdre McCloskey recalled of Harvard, students assumed their destiny was to “fine-tune” the economy from Washington. Only later did McCloskey realize that the economy cannot be fine-tuned—it must be discovered through the actions of individuals.

This is the core mistake of modern economics education. Markets do not work because they meet the assumptions of abstract models. They work precisely because people, despite imperfection and ignorance, are able to coordinate and improve their circumstances through exchange. The market process is not about achieving perfection but about discovering better ways of coping with imperfection.

That lesson—that economics is about discovery, not design—is what today’s students need most and what today’s economics education most often fails to deliver.

Mani Basharzad is a junior research associate at the Institute of Economic Affairs. As an economic journalist, he has contributed to the Epoch Times, MoneyWeek, National Review, and the Cato Institute and is a regular columnist for CapX. He is an Asia Freedom Fellow at the London School of Economics’ Hayek Programme in Economics and Liberal Political Economy.