Monday, November 13, 2006

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Assignments for the Economist blog

I'm pleased to see that the Economist has entered the blogging age, with its Free Exchange blog. As per the Economist's rules for its print magazine, there is no identification of the authorship of individual posts, but I have it on good authority that Megan McArdle is using her invisible hands to guide its development.

As I am knee-deep in day-job activities, I would like to welcome Free Exchange into the blogosphere by requesting that it comment on two memes currently making their way through the blogosphere:

1) Over at Crooked Timber, Chris Bertram asks a pointed question to libertarians -- what kinds of inequality matter?
[T]he crux of Tyler [Cowen]’s argument has been that Europe’s ageing population matters because it will lead to lower growth rates and that the compounding effect of these will be that Europe’s position relative to the US (and China, and India) will decline, and that that’s a bad thing for Europeans. Whilst Tyler insists that these global relativities matter enormously, Will [Wilkinon] suggests that domestic relativities between individuals matter hardly at all. Since I think of Will and Tyler as occupying similar ideological space to one another, I find the contrast to be a striking one, and all the more so because I think that something like the exact opposite is true. That is to say, I think that domestic relativities matter quite a lot, and that global ones ought to matter a good deal less (if at all) just so long as the states concerned can ensure for all their citizens a certain threshold level of the key capabilities.
UPDATE: Drezner gets results from Free Exchange!!

2) The left half of the blogosphere is praising to the high heavens an article by Christopher Hayes from In These Times about the "neoclassical indoctrination" that allegedly takes place in introductory economics classes:

As taught by Sanderson, economics is a satisfyingly neat machine: complicated enough to warrant curiosity and discovery, but not so complicated as to bewilder ..., and once you’ve got the basics of the model down, everything seems to make sense. As the weeks go by, ... I come to love the class. The more reading I do, the more sense the op-eds in the Wall Street Journal make. The NPR program “Marketplace” becomes interesting. I even know what exactly the Fed rate is. A part of the world that was blurry and obscure begins to come into focus. My classmates seem to feel the same way. “I never thought I’d be interested in economics,” one sophomore told me. “Sanderson convinced me I was.”

The simple models have an explanatory power that is thrilling. Once you’ve grasped the aggregate supply/aggregate demand model, you understand why stimulating demand may lead, in the short run, to growth, but will also produce inflation. But the content of that understanding turns out to be a bit thin. Inflation happens because, well, that’s where the lines intersect. “A little economics can be a dangerous thing,” a friend working on her Ph.D in public policy at the U. of C. told me. “An intro econ course is necessarily going to be superficial. You deal with highly stylized models that are robbed of context, that take place in a world unmediated by norms and institutions. Much of the most interesting work in economics right now calls into question the Econ 101 assumptions of rationality, individualism, maximizing behavior, etc. But, of course, if you don’t go any further than Econ 101, you won’t know that the textbook models are not the way the world really works, and that there are tons of empirical studies out there that demonstrate this.”

The problem cited in the last graph is the exact reverse of how I remember my own Econ 101 class. In that course, we were first introduced to perfect competition, and then we were exposed to the ways in which the real world deviates from perfect competition -- monopolistic competition,oligopoly, monopoly, and, most important, the problem of externalities. We then learned that the best way to solve many of the problems of externalities was to use market mechanisms (i.e., taxes) rather than direct controls. The end result of the course was an appreciation of how technocrats can use incentives to improve social outcomes in the economy.

Fair enough. But it was not until graduate school that I saw anything resembling the public choice approach to economics, which calls into question the ability of the government to act as a Platonic Guardian in the world of regulation.

To be fair, Hayes wrote his piece after taking a macroeconomics course, where many of these issues would not have arisen. From my experience, however, after Econ 101 students probably have a greater appreciation for how markets work, but also develop a new enthusiasm for the ways in which the government can influence market outcomes.

I'd be curious whether others who took Econ 101 had my experience or Hayes' experience.

posted by Dan on 11.13.06 at 11:04 AM


I'm having a hard time knowing what to make of that Hayes article, since (cue Inigo Montoya) the word neoclassical does not mean what he thinks it means. It's not called the neoclassical *synthesis* because it represents an unaltered adaptation of 1950s Chicago School, nor are contemporary Chicago School descendants such as L&E and institutional economics part of that intro-course simple core rather than being part of the complicating challenges to it. And, as important as intro micro is for getting the basic vocabulary and intellectual structure down, does anyone really think that undergrad intro macro is the heart of economics education?

posted by: Jacob T. Levy on 11.13.06 at 11:04 AM [permalink]

My Econ 101 experience was much like yours, Dan. My professor worked hard to stress that the simple models are based on very strict assumptions that OF COURSE don’t necessarily hold in real life. Is this not similar how most other disciplines are taught, in that you learn the general rules in your early years and you learn the complicated exceptions, nuances and extensions in your later years?

posted by: Whit Stevens on 11.13.06 at 11:04 AM [permalink]

My problem in the way intro economics is taught that students leave the class with the impression that markets are efficient in the sense that they do not waste resources.

I sense that your comments on public choice means that you have the same impression. Yes, government can be wasteful and make incorrect decisions.

But so can the private sector. Markets are always overshooting and undershooting and are hardly ever in balance in the sense that is taught in intro economics.

It is like Churchill said about democracy, it is a horrible system but it is still better then anything else we have tried.

I am consistently encountering people that have taken the intro economics class that argue that markets can never be wrong are wasteful, and that is not what economics says.

posted by: spencer on 11.13.06 at 11:04 AM [permalink]

As a matter of fact I just got back an Econ 202 (Macro) exam this morning and frustratedly had many of these exact same realizations. We spent day after day on these AS/AD static models which, seems to me, are excellent at showing what does NOT happen in real life. The model is entirely based on the notion that LRAS curve doesn't change, but of course it changes, it changes every year! So what good are these models? Well, they're really neat ways to introduce these ideas but if you're ready to move on, then they become frustrating as hell. And instead of moving on, letting these abstractions sink in and getting closer to reality, we studied them in minute detail in a manner that leant itself well to creating questions and problems for exams but not terribly useful for charting reality.

I'm venting, does it show? How do I convince my professor that the reason I stink at this class is because I understand it all better than she realizes?

posted by: spliff on 11.13.06 at 11:04 AM [permalink]

My general undergrad econ classes have been fairly similar to Hayes's experience. I skipped the introductory ones, but the problem persists in most of the traditional courses I've taken. It's only in graduate and non-mainstream courses (developmental, environmental) that I've really been pedagogically exposed to the problems of the models. And frankly, much of that exposure has been my by asking "but what about...?"

posted by: ptm on 11.13.06 at 11:04 AM [permalink]

A couple more notes -

My econ coursework has been at the University of Utah, chosen primarily because of it's proximity to skiing.

"does anyone really think that undergrad intro macro is the heart of economics education?"

Around here, yes, people do.

posted by: ptm on 11.13.06 at 11:04 AM [permalink]

My experience was closer to Dan's experience. My Econ 101 professor was quite clear on his course being an introduction to economics, and an introduction only.

I assumed then, I think rightly, that having devoted his professional life to economics this professor would be pained to think that students leaving one of his large introductory lecture courses might believe that they really grasped all the interesting things about this course of study.

posted by: Zathras on 11.13.06 at 11:04 AM [permalink]

I am a current Tufts undergrad & Econ major. My introductory microeconomics class (Tufts' version of ECON 101) wasn't quite the same.

My professor was subpar. His political attitude was an attempt at "a pox on both their houses," though it wasn't terribly difficult to tell that he leaned pro-Bush (this before the '04 elections.) The Socratic method wasn't his style - he preferred lecturing with the occasional good joke. He did have us chant "free trade is good for all people," ignoring that there obvious losers of trade. I whispered something deragatory about it to the person sitting next to me, but 200-person lectures aren't the sort of places where you challenge the Prof. We did discuss externalities (specifically in regards to tobacco and pollution, IIRC.)

The second semester, introductory macro, was much better and stayed as true to theory as there was time for. Nuance was explained as much as possible. My intermediate macro class, again due to a poor professor, was focused solely on neoclassical models. Luckily, those students who made it that far didn't buy too much of his rhetoric.

I have not encountered public choice theory in an academic setting, though if anyone knows a readable, pop-Econ book on the subject, I'd be happy to hear it.

posted by: Jumbo on 11.13.06 at 11:04 AM [permalink]

He did have us chant "free trade is good for all people," ignoring that there obvious losers of trade.

I think that's how Dr. Drezner starts his day...

posted by: Mitchell Young on 11.13.06 at 11:04 AM [permalink]

A quick response, particularly to Jacob Levy's comment. I'm aware that the article is guilty of some terminological sloppiness. Part of that is due to the constraints of the article, in which i had to set up some (rough) distinctions up top and immediately explain to non-expert readers why said distinctions were important. I'm aware that Chicago School and economics and neo-classical economics are not the same thing (the former, as I understand it, being a subset of the latter). But my understanding and reading on this topic suggests it was the economists at Chicago who pioneered the approaches that came together under the broad rurbic of the "neo-classical synthesis" later on. So, I think it's fair to say that the mainstream of today's economics field is in large parts a descendent of the Chicago School.

Then there's also the issue of macro and micro. I sat in on (and studied for and took the exams for) Sanderson's macro class. But I also say in quite a bit on his micro class. There's significant differences between the two in the degree to which they impart the kinds of ideological, dispositional biases that I'm discussing, but, if anything, that tendency was far more pronounced in micro than in macro. In macro, the legacy of the fact that the field was founded in its modern incarnation by Keynes means that any instructor has to wrestle with the business cycle, recession, and the possibility of the government to improve on market performance (by, say, stimulating demand). Whereas in micro, there was far less discussion of what might be called "political economy" and far more discussion of the theoretical functioning of the economy as described by a series of relatively simple, stripped-down models.

It's important, also, to understand where Sanderson is coming from. He sees his students as coming to him with all sorts of wooly-headed and knee-jerk liberal positions on the role of the government and the functioning of markets. Part of his goal is to disabuse his students of these notions, and for that reason, he's not going to put a ton of stress on market failures, externalities, less-than-perfect-competition etc, because what he wants to emaphsize is that, contrary to what the majority of his students probably think going in, markets work.

posted by: Chris Hayes on 11.13.06 at 11:04 AM [permalink]

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