Friday, May 13, 2016

Issues with Econ 101 at Three Levels

The debate about what’s right/wrong with introductory economics, which has raged intermittently since the financial crisis, is back again (here, here and here).  I’m preparing a paper on this topic for a conference this summer, so it’s been on my mind.  Here is a structuring proposal:

There are three aspects to what people like or don’t like (often the latter) with Econ 101.  The first is pedagogy—the way introductory econ is presented in the classroom.  This includes issues like the role of lectures vs workshops and projects, the balance between marching through models and exploring applications and empirical debates, and behind it all, whether the main purpose is to induce students to accept particular economic doctrines or to cultivate critical thinking on open-ended (but not anything-goes) economic questions.

The second is the intellectual content of the principles course, particularly as it is encoded in the leading textbooks.  There is a lot of drag on the textbook front, and the gap between standard 101 content and the current trajectory of the discipline is arguably wider than it has been in generations.

The third is the state of economics itself.  Some of what critics object to in intro econ is an accurate representation of how most economists think and the assumptions on which their research is based.  For instance, for every behavioral economist who tweaks U-max, there are fifty whose work is based on toy models firmly situated in Umaxia.  That includes not only most New Keynesian macro, but the micro models that apply welfare criteria to policy choice.  All of the literature on “optimal” carbon prices, for instance, is based on the assumptions that (a) there is this universal substance called utility and (b) everyone acts at all times to maximize it, so that, in the absence of market failure, prices convey utility information.  If Econ 101 takes a narrow, unrealistic line on utility and human decision-making, it could just mean that the limitations of that view are more obvious at that level than they are higher up.

Of course, these three dimensions overlap and influence one another; it’s somewhat artificial to put them in separate boxes.  But I think debates over 101 can be benefit from being clearer about just what it is that irks us.


Random said...

Thoughts on this Peter?

Peter Dorman said...

This is a bit of a tangent, so I won't take the full plunge. I see two issues for intro econ: the correctness of loanable funds and the prioritizing of a toy model over the practical experience of organizations engaged in economic management, like CB's. Both are addressed in my own textbook. I think my treatment of money and credit is the only textbook version out there that avoids the standard pitfalls. (It's general across traditional and shadow banking, it denies the existence of the money multiplier, etc.) I also adopted the strategy in the macro book (which in retrospect I wish I had adopted in the micro) of simply laying out institutional practice in the first several chapters, so that theory plays the role of interpretation, not a substitute for direct observation.

If you hack your way through all this and find what you think are defects or elisions, or simply poor choices, please let me know. I'm eager to get criticism.

Thornton Hall said...

Life on earth was a ladder for Aristotle. As one climbed the ladder the change was in "vitality". Coral was just above rocks and man was all the way at the top.

The question posed is this:
What should we say in a textbook about the ladder of life?

The answer is: nothing. Life is a tree.

Sandwichman said...

Although Thornton Hall doesn't realize it, I agree with him. The basic premise of economics 101 is false.

Class dismissed.

Thornton Hall said...

For example, what if all the talented mathematicians had not wasted time on "the social costs of carbon" and instead used the time and money for something useful and not fantasy role playing?

Bruce Wilder said...

I am pretty such it is not the talented mathematicians who do economics.

Dare I ask what is the "basic premise of economics 101"?

Thornton Hall said...

I risk lessening my impact by venturing here but I do have a working hypothesis as to the "basic premise of economics 101".

The basic premises are:
1. The subset of human social behavior that involves monetary transactions and related phenomena is a mechanical system that can be visualized in Cartesian space.
2. What individuals perceive as the inputs and outputs of conscious decision making is valid empirical evidence of how humans make decisions, and, therefore, an economist may make empirical observations by reflecting on his or her own conscious mind.

The negative, not-premise of economics:
The basic well established truth from the philosophy of science that economists do not get is that the hard sciences do not all reduce to physics. It is simply false that physics is the "micro foundations" of biology. That is why one of the most important defense mechanisms of the status quo wrongness is the debates over Popper and falsification. As long as the focus is on that side issue, the real critique from the philosophy of science is kept at bay.

It is not a coincidence that John Cochrane and Paul Romer were both undergraduate physics majors. That the perfect amount of science education to be wrong about the science of human social behavior.

Sandwichman said...

The basic premise of Econ 101 is the immaculate conception of "exchange" and its subsequent mechanical articulation through the fictions of supply, demand and price. Strictly speaking, supply, demand and price are all beliefs, not quantities of things or units of account.

Those beliefs are embedded in relationships that precede, legitimate and structure exchange transactions. There is not a universal grammar and vocabulary of exchange but various languages and dialects that have evolved their own distinctive grammars and vocabularies. said...

Actually my observation is that intro texts usually have more real world caveats and stuff in them than do the intermediate undergrad theory texts, which are the worst. The macro ones are currently the worst, pushing RBC drivel with no Keynes, even after the Great Recession. As they are supposedly theory, they do not bother with empirical problems and counterexamples and loose ends, which one can sometimes find at least mentions of in some of the intro texts, which sort of try sometimes to have something to do with the real world, given who their students are, not so tied to econ. But the undergrad majors have bought in, or are viewed as having done so.

Of course grad texts are more likely to mention odd cases and exceptions, but more from theoretical issues but not from empirical facts. Grad theory texts are much more concerned with doing it all mathematically.

Peter Dorman said...

Interesting point, Barkley. I agree that intro texts are a bit more flexible than their older (intermediate) siblings. But the intro treatment feels more rigid because it actually addresses the real world and is therefore measured against approaches coming from other disciplines, journalism, etc.

Thornton Hall said...

But the including of exceptions "solution" is, logically, a declaration that whatever is going on, it's not an empirical investigation of the world.

Krugman is so open about this that its a testament to the fact that priests throughout human history have been acting in good faith. The term "Econ 101" throughout history has been astrology, chicken entrails, and an all-knowing, all-powerful, and all good Christian God. A complex set of rules exists in each case, such that a star chart, a stringy bowel or a Bible admits of an objective answer to the question posed. So, is murder wrong? Turns out you need a priest to tell you whether this is a 10 Commandments situation, or a glorious genocide of Canaanites situation. Is this a pay attention to Venus situation or a Moon situation, an Econ 101/theory situation or an odd case scenario.

Unknown said...

I went back to school at a Community College to pick up some office technology courses. And was subjected to an Intro to Business course. And compared our textbook to one of Mankiw's Principles texts and found what really irked me about Econ 101 and Econ writ more large (or at more length with more Greek letters).

Axioms presented as Truths. Accounting Identities accepted as Descriptions and not Definitions. And the overall belief that this is how Science works. Well mostly not. At least not at the Philosophy of Science level. Some scientists do believe they are looking for capital T Truth. The better and more thoughtful ones believe their goals are variously Utility, Testability and most mysteriously perhaps Beauty.

Economists don't seem to have their Poppers and Kuhns. Maybe I am just missing them. Instead they seem stuck with a model of Science that went out the door with Classical Mechanics in maybe 1888. Yet in reading Mankew you would think he was Euclid. Except that you can prove Euclid's propositions. Mankiw et all don't seem to think you need to bother. "Sic! Ergo!!" Hmm, that is not science.

Peter Dorman said...

Bruce, that's an example of a problem with economics as a discipline that has implications for day to day pedagogy in the classroom. It's very difficult to maintain a critical thinking approach (as that term is used in other fields) when presenting conventional econ. What do you do about utility, as mentioned in the OP, for instance? You can treat it as if it were settled truth, which enables you to go on and explain the various models of behavior and welfare properties that fill up the textbook. Or you can investigate it with comparisons to psychology, empirical evidence, etc., but then you've sabotaged your standard presentation. Given the nature of economics, it's impractical to follow a critical thinking approach.

Thornton Hall said...

So you are explicitly saying, "right, I know, evolution, it's a tree, yadda, yadda, yadda... But the question remains a pedagogical one: how do we teach them about the ladder of life?"

The answer, I suppose, is, "Well, after you explaine how existence is a series of concentric sphere but before you explain that all creatures act according to their essence."

Sandwichman said...

" do we teach them about the ladder of life?"

Have to take it one rung at a time.

Peter Dorman said...

First we teach the former, and only then the ladder.

Seriously, there isn't a one-size-fits-all solution to teaching intro econ. I'm just proposing a way to parse out different aspects of the problem.

Bruce Wilder said...

Peter Dorman: Given the nature of economics, it's impractical to follow a critical thinking approach.

Purely by coincidence, I was over at Crooked Timber reading comments on one of John Quiggin's posts trying out drafts of his proposed Economics in Two Lessons, a reply to the infamous Economics in One Lesson. Quiggin's plan of attack takes a particular interest in minimum wage policy and in one of the comments Paul Wolfson plugs his own 2014 survey article with Dale Belman, What does the minimum wage do?, which article won Princeton's Bowen prize. Wolfson provided a link to the summarizing conclusion of that article and I dutifully plowed thru that summary.

Here's the link to the concluding summary.

Belman and Wolfson are reasonable fellows and competent journeymen and I have no particular criticism of their work, but it was striking to me how plainly evident in the text were the same handicaps you identified as problems of pedagogy. Shocking I know, but lo and behold the same allergy to critical thinking apparently makes empirical research difficult if not wholly "impractical".

The dogma of the downward-sloping demand curve looms large over such research, of course. The use of strong models with few observable referents prejudices results. A great deal of prideful effort goes into the pseudo-physics of estimating "elasticities" of demand. The metaphor of the labor "market" cannot be seriously questioned, but the fact of supervisory management enters only by way of an all-purpose fuzzing up, "transactions costs".

Despite the horror show, Belman and Wolfson are able to report that "moderate" increases in the minimum wage increase the earnings of the lowest paid workers with few and practically small negative effects. But, really, it is not apparent what the doctrines of economics accomplished, other than get in the way of clear thinking.

Why teach conventional economics at all? I can think of some possible answers, but I have to imagine a Greg Mankiw mouthing them.

I happen to think economics is important and there are significant insights to be had, but if critical thinking requires that you reject a macroeconomics of loanable funds or aggregate supply and aggregate demand reconciled by a price level or the dogma of a downward-sloping demand curve or an economic system of markets approaching general equilibrium in price -- well, then reject those doctrines and move on. The hoary model of perfect competition contrasted with monopoly can be taught with critical thinking intact, I think; the difference is that you are not foolishly waving out the window as if those conceptual frameworks are in any wise either descriptive or ideal. Economics is a way of thinking -- or it is nothing. Teaching a way of thinking that cannot survive critical consideration or contact with reality is a waste of life.

AXEC / E.K-H said...

The real trouble with Econ 101
Comment on Peter Dorman on ‘Issues with Econ 101 at Three Levels’

Econ 101 performs a vital function within the framework of current economic methodology: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.” (Arrow, 1994, p. 1)

This commitment to methodological individualism is — in the case of neo-Walrasianism — specified as follows: “the program is organized around the following propositions: HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub, 1985, p. 147)

Ultimately, the content of Econ 101 is derived from this axiom set. The theoretical superstructure embraces the various phenomena of the market economy from supply-demand-equilibrium to unemployment and distribution, enriched with practical, institutional, organizational, technical, historical details and examples. These informative details, however, are merely the loosely associated illustration/decoration of the theoretical hard core.

Everyone with a modicum of scientific instinct who takes a relaxed view on the axioms HC1|HC5 comes eventually to the conclusion that they are forever unacceptable. NOT ONE axiom holds water. Econ101 students, though, accept them generation after generation with minor reservations and occasional superficial variations.

More than two centuries after Adam Smith it is obvious that economics is a failed science. As parts of the whole, Econ 101 and the textbooks are false. Condensed to one word, the fatal methodological error/mistake lies in microfoundations.

Keynes identified the weak spot intuitively and switched to macrofoundations. He formulated the formal core of the General Theory as follows: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (1973, p. 63)

This elementary syllogism is conceptually and logically defective because Keynes did not come to grips with profit (Tómasson et al., 2010, p. 12). This means that the whole Post Keynesian theoretical superstructure has also been built upon false premises. Let this sink in: Keynes had no idea of the fundamental concepts of economics, viz. profit and income, and neither pro- nor anti-Keynesians realized it.

With Samuelson’s textbook, the conceptual blunder became canonical part of Econ 101: “GDP, or gross domestic product, can be measured in two different ways: (1) as the flow of final products, or (2) as the total costs or earnings of inputs producing output. Because profit is a residual, both approaches will yield exactly the same total GDP.” (1998, p. 392). The fatal error/mistake resides in the premise income = value of output which holds only in a zero profit economy.

Standard economics is PROVABLY false with regard to the two most important features of the market economy: the profit mechanism and the price mechanism (2015). Both, the Walrasian and Keynesian strand of standard economics lack sound axiomatic foundations. Thus, Econ 101 does not transmit valid knowledge about how the economy works but is essentially an incubator for the reproduction of scientific losers.

Egmont Kakarot-Handtke


I Will Never Accept The Terms of Service said...

Thornton Hall says:

"and, therefore, an economist may make empirical observations by reflecting on his or her own conscious mind."

You bet. Maybe economics professors should be forced to take one or two advanced undergrad philosophy classes, so they can learn about the basic rules of reasoning and inference, as well as the fabulous empirical revolution that happened in the rest of the academic world about 300 years ago. I've got my philosophy degree, and I'm trying to stop myself from screaming in econ class.

Bruce Webb says:

"Economists don't seem to have their Poppers and Kuhns. Maybe I am just missing them. Instead they seem stuck with a model of Science that went out the door with Classical Mechanics in maybe 1888. Yet in reading Mankew you would think he was Euclid. Except that you can prove Euclid's propositions. Mankiw et all don't seem to think you need to bother. "Sic! Ergo!!" Hmm, that is not science."

You bet. I encourage any economics professor to take first-year sociology. He'll be dumbfounded by what an actual social science looks like: recognition of multiple conflicting points of view, and fixation on data as conclusive final proof or disproof of theory, for example. In economics, it looks like empirical study is an afterthought, meant only to prove whatever political position he's trying to buttress, while ideology isn't even acknowledged as the only driving factor.

Peter Dorman said:

"Given the nature of economics, it's impractical to follow a critical thinking approach."

My. God. And thus the fundamental problem with economics. Every other discipline in academia DEMANDS critical thinking. From undergrads. It's vital. It's what makes academia what it is. If you refuse to advocate critical thinking in undergrad econ, you may as well take economics out of university and teach it all on the Von Mises Institute chatrooms.

Peter Dorman said...

These objections support my point. There are some criticisms that are specifically about Econ 101 and others that are really about actually existing economics (AEE). You're not going to fix AEE in the principles classroom (level 1) or the principles textbooks (level 2). It can't be done. AEE (level 3) has to be addressed through research and advocacy at a high level of argument, with careful theory and empirics. Once we have a new economics with a track record in applications, we can write intro textbooks for it. Sign me up. Until then, if you're honest with the students, you have to teach about AEE.

Of course, there is some scope for critical approaches and even for sneaking in the odd discordant concept or two. Those who have read my textbooks know that I try to do this. How far to take it depends on the situation of the teacher and the reasons why the students are in the classroom. How important is it for you to turn out students who can survive higher level econ courses? To what extent are the students there to explore the conundrums of the real world vs getting credits and moving on? How much time do you have? What kind of supervision do you face? Each instructor has to find her own way. Above all, there isn't an agreed upon alternative AEE out there, ready to use, suffused with goodness and truth. If there were we should all teach it, but we can't fashion it on the fly in the intro classroom.

Peter T said...

If the issues are
- that AEE is fundamentally flawed, but
- that the basics of AEE are a pre-requisite for employment, and
- no generally agreed alternative to AEE exists

then would not one solution be to teach AEE basics in as succinct a form as possible, and then use the time saved to explore alongside this empirical (sociological) research into key economics subjects - maybe the firm and the labour market?

Peter Dorman said...

Yes, that's one solution and many instructors get great results from it. It has pluses and minuses.

AXEC / E.K-H said...

Econ 101: Dull teachers and dull students in the endless loop

Economics claims to be a science. This is a serious case of self-delusion. Science is well-defined: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994, p. 31). The fact of the matter is that neither Orthodoxy nor Heterodoxy satisfies the consistency requirements.

What we actually have is what Feynman famously characterized as cargo cult science, and from this follows: “So we really ought to look into theories that don’t work, and science that isn’t science.”

Boiled down to the essentials this is what standard economics is all about “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point” (Krugman). Because these premises are false everything based upon them is scientific garbage. Where from did Krugman and the other econ profs get the idea to take the maximization-and-equilibrium world as a starting point? It is from their former Econ 101 courses. Krugman & the others simply never realized that there is something deeply wrong with supply-demand-equilibrium and all that. So they in turn busily produce silly maximization-and-equilibrium modls, give unfounded economic policy advice, and teach Econ 101. As a result, cargo cult science reproduces itself in an endless loop.

In order to get out of the loop Econ 101 teachers in general and Peter Dorman in particular have to clearly understand:
• Economics is not a social science,
• methodological individualism is the wrong methodology,
• no way leads from the understanding of human behavior/action to the understanding of the behavior of the market system,
• the axioms of Walrasianism and Keynesianism are forever unacceptable,
• the elementary economic concepts profit and income have never been consistently defined.*

Taken together, these deeply ingrained errors/mistakes explain why economics is a failed science.** The choice for the next Econ 101 generation is either to repeat the senseless maximization-and-equilibrium loop or to quit microfoundations and to rebuild economics upon the correct macrofoundations.

Egmont Kakarot-Handtke

Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT:
Edward Elgar.

* See post ‘How the intelligent non-economist can refute every economist hands
** See post ‘Economists’ three-layered scientific incompetence’

Thornton Hall said...

I have a degree in philosophy as well. I really think if we could get the Phil department of any US university to spend one year reading the output of the Econ department we could improve the lives of billions of people quite dramatically.

If you've been taught how to reason, Economics makes you want to scream at the moon, stomp around the room and break things.

Thornton Hall said...

It seems to me that the job of university professor includes:
A) noticing that he has framed a problem in a way that admits of no solution, and
B) the sort of devotion to truth which insists on re-framing the problem relentlessly until the truth prevails.
(Where "prevails" does not equal "being mentioned in a footnote".)

AXEC / E.K-H said...

Thornton Hall

You say: “I really think if we could get the Phil department of any US university to spend one year reading the output of the Econ department we could improve the lives of billions of people quite dramatically.”

Econ 101 and the textbooks are PROVABLY false. Economists have achieved not much of scientific value since Adam Smith: “Thousands upon thousands of scholars, as well as thousands of statesmen and men of affairs, have contributed their efforts to the attempt to understand the course of events of the economic world. And today this field of investigation is being cultivated more extensively, than ever before. How is it, then, that in all these years, and with all the undoubted talent that has been lavished upon it, the subject of economics has advanced so little?” (Schoeffler, 1955)

Now it is well known that philosophers are scientifically even more incompetent than economists and you claim that with the help of the Phil department of any US university “we could improve the lives of billions of people quite dramatically.”

That is beyond ridiculous. The actual problem is to publicly and officially downgrade philosophers, economists, so-called social scientists and other feeble thinkers and loud speakers from science to proto-science.*

Egmont Kakarot-Handtke

* See ‘The future of economics: why you will probably not be admitted to it, and why this is a good thing’