The other day I said that when someone says something is
just Econ 101 you can be confident it is probably not Econ 101. I have a couple more
examples now. Simon Johnson writes about Saving
Capitalism from Economics 101.
He writes that
All across the United
States, students are settling into college – and coming to grips with “Econ
101.” This introductory course is typically taught with a broadly reassuring
message: if markets are allowed to work, good outcomes – such as productivity
growth, increasing wages, and generally shared prosperity – will surely follow.
Unfortunately, as my
co-author James Kwak points out in his recent book, Economism: Bad Economics and
the Rise of Inequality, Econ 101 is so far from being the whole story
that it could actually be considered misleading – at least as a guide to
sensible policymaking. Markets can be good, but they are also profoundly
susceptible to abusive practices, including by prominent private-sector people.
This is not a theoretical concern; it is central to our current policy debates,
including important new US legislation that has just been put forward.
One core problem is
that market incentives reward self-interested private behavior, without accounting
for social benefits or costs. We generally overlook our actions’ spillover
effects on others, or “externalities.” To be fair, Econ 101 textbooks do
discuss this issue in some contexts, such as pollution, and it is widely
accepted that environmental damage needs to be regulated if we are to have
clean air, clean water, and limits on other pollutants.
“widely accepted” does not include by President Donald Trump’s administration,
which is busy rolling back environmental protections across a broad range of
activities. The New York Times counts 76 rollbacks in progress. The thinking behind this policy
is straight out of the first few weeks of Econ 101: get out of the way of the
market. As a result, there is a lot more pollution – including more emission of
greenhouse gases – in America’s future.
It is not what is taught in introductory econ
courses. I do not know of any textbook that makes the case that if markets are
allowed to work good things will surely follow. Mankiw is one of the more
politically conservative econ textbook authors. One of his ten principles is
that markets are usually a good way to organize economic activity, but it is
followed immediately by the principle that government can sometimes improve market
outcomes. The one chapter on perfect competition is followed by three chapters
on monopoly, oligopoly and monopolistic competition. There are chapters on
externalities, public goods and discrimination. If Mankiw isn’t teaching Ayn
Randian libertarianism, who is? Stiglitz? Krugman? I don’t think so.
He then notes that this description of ECON 101
isn’t actually Econ 101. Economists do tell students about things like externalities.
And that the need for government regulation to protect the environment is “widely
If it is not what is taught in Econ 101 what is
it? Turns out that it is the views of the Trump administration.
Then Johnson immediately switches back to blaming
Econ 101. His argument seems to be “This is what you learn in Econ 101. Okay,
its not actually what you learn in Econ 101, but I’m going to keep blaming Econ 101 anyway. His coauthor Kwak uses the same approach in his
Blaming the Trump administrations economic
policies on Econ 101 is about as accurate as blaming his foreign policy on Introduction
to International Affairs courses.
At least this video on Economic Man versus Humanity: a
puppet rap battle
has cool puppets. I like puppets. Right now, I’m looking
at the four marionettes from Prague that hang in my home office.
Her rap, however, is terrible. Oh good lord
the verse she makes. It gives a chap the bellyache. She presents one of the most inaccurate interpretations of economic assumptions: that economists assume that
people should only care about money and things. You can gain satisfaction from
whatever you want: fancy cars, giving to charity, or baking great bread. There is
nothing in economics that says you should be making money instead of playing
music music, as the puppets apparently want to do. If you enjoy playing music,
you should probably play music, but, like any other choice, playing music has a
You must give up something else
you could have done with that time and money. Economists don’t say what you
should want to do; they just say that, other things equal, if the benefits of
doing something goes up people will tend to do it more and if the costs go up
people will tend to do it less. And the stuff in the video about the planet
being here for our use. That’s not economics. That’s the weird fundamentalism of
Ronald Reagan’s secretary of the interior James G. Watt.
People who want to improve economic education need to start
with real economics. Not these silly straw man Econ 101s. As I’ve said before,
economics needs better critics.