Econ 101 is What is Needed Most

|Peter Boettke|

Robert Atkinson and Michael Lind have it exactly reverse. Econ 101 isn't what is killing us, it is the denial of the practical impliactions of the science of economics that is.  One must always remember that simple economics -- basic principles derived from the logic of action in a world of scarcity -- is not simple-minded.  Critics of economics have forever tried to paint Econ 101 into such a corner --- unrealistic and unhelpful for the real world.  

How would we react if someone actually said something similar about physics?

Economics has the same ontological status as physics --- reality is not optional --- but the "laws" of economics are derived following different epistemological procedures.  This is really nothing more, or less, than what Aristotle taught about methods of analysis being chosen based on appropriateness.  Economics is about human action in the face of scarcity.  Human purposes and plans permeate the analysis from start to finish.  When economics gets derailed --- and folks it often does due to factors such as philosophical fads and fashions, or political expediency in public policy debates --- usually the culprit is one of 3 things: (1) a denial of agent rationality, (2) a denial of scarcity, and (3) a denial of how the price system works to help us cope with scracity by aiding us in the negotion of the trade-offs we all must face.  This denial can come in sophisticated form --- e.g., Keynes --- or it can come in an unsophisticated form --- e.g., man on the street.  But make no mistake about it, the denial has the same impact on the "laws" of economics as the denial of the "laws" of physics would by a man about to jump off the top of building would on the inevitable impact.  All his denials will not mean much when he hits the pavement.

Atkinson and Lind make an interesting move in their effort to deny the teachings of economic science.  First, they provide a list of 10 myths, and the first myth is an indictment of the entire discipline.  Second, they move from some basic ideas to policy applications quickly.  The problem with their tactic is that they don't really address the underlying logic of economics, and thus the qualifiers when one moves from the science of economics to the "art" of political economy.  In learning economics it is important for students to keep in mind endogenous and exogenous factors impacting the mental constructs we are working with, as well as the reason for the ceteris paribus clause.  To go back to my physics talk --- if you drop a feather from the top of a building it may very well float up first before coming down to the ground, but nobody would believe that means that the "law of gravity" was being overturned.  Same in economics; there are off-setting factors that in the basic logic are assumed to be held aside for the sake of analysis.  However, when applying the "laws" of economics to public policy, these off-setting factors must be taken into account [Just as in applying physics, the engineer must take into account factors such as wind resistence etc.].  In economics, this is where Institutional Analysis comes into play.  An appropriate institutional economics does not critique the science of economics, but provides the bridge between the science of economics and the art of political economy.

Obviously, Atkinson and Lind haven't thought through this along these lines, but instead rely on the old mainstay of critics which is to argue that economics is unrealistic and unhelpful.

Great teachers of economics, such as Henry Simons and Ludwig von Mises, believed that one of our primary tasks as economists was to dispel the public of popular fallalcies.  How would you respond to this challenge by Atkinson and Lind?

Comments

[Daniel Kuehn]

Rob Atkinson is a pain. Just a couple weeks ago he wrote a real sloppy response to a paper I had out of EPI that accused me and my co-authors of just trying to "advance an agenda of redistribution". I've got very similar analysis that's going to be published by the Cato Institute soon, so something tells me a desire for redistribution has little to do with it. You're exactly right - their principle concern here is their policy goals.

The list of myths is interesting... some of them are just plain wrong, but then the ones that make sense from the perspective of economic science are presented as if economists oppose them!

Why the contrast? They need a whipping boy and they've picked one.

[Dean Jens]

I think complaints about Econ 101 not including more sophisticated treatments about topics than it does would be a lot more compelling if people weren't repeatedly making egregious mistakes that the "simplistic" analysis would catch.

[Econpointofview]

As with most lists on the internet, I first glanced through the headers. Initially, I found myself remarkably in agreement, at least in part, with most of their points.

1. Economics is not a science in the way that I safely assumed they used the term "science". It is not physics. However, it is a science in the way Boettke and I use the term.

2. Efficiency, as used by many Samuelsonian economists, is greatly overplayed. Economists like McCloskey are right when they talk about virtues beyond prudence.

3. Institutions are important and looking at only the "market" in some perfect competition, equilibrium manner is of limited value.

And my reasoning continued for the rest...

The problem with Robert Atkinson and Michael Lind's analysis is not that economics is wrong, but that bad economics is wrong.

[Predrag Rajsic]

It seems to me that Atkinson and Lind are in most of their arguments attacking the mainstream neoclassical economics, which often claims the right thing, but for wrong reasons.

[Garrett Petersen]

It really bugs me that they list "trade is win-win" as a myth. If the trade is between consenting individuals, it must be. That's just a tautology. They go off about international trade and China's industrial policy, but that's not what anyone means when they say that trade is win-win.

[FriedrichHayek]

Sciences are defined by problems -- see Hayek, Darwin, Popper, etc.

Are we talking about economics as a science?

Then we are talking about the problem of design-like or plan-like order in the concatenation of millions of separate individual plans -- what is the underlying causal mechanism beneath this order and giving rise to it.

It is simply a mistake to say, "Economics is about human action in the face of scarcity".

Economists aren't going to make progress in understanding their science and in explaining it to others until that get the basics right.

The field is constantly challenged because economists continually get the basics of the science wrong -- in the very most basic casting of what the science is about and what it does.

The science provides a causal explanatory mechanism for the wealth-producing design-like order in the coordination of millions of individual plans.

Mistaking a logic of choice for the science is the beginning of confusion, not the beginning of answering econ-bashers like Atkinson and Lind.

[Mariorizzo.wordpress.com]

There is a Chinese (I think) saying that a fool can ask more questions in an hour than a wise man can answer in a lifetime. This list reminds me of that. I would adjust it as: A fool can make more errors in a relatively short column than a wise man can correct in a lifetime.

The errors seem to be of two major kinds: (1) A&L often can't distinguish the general rule from the exceptions; (2) They do not realize that most economists do not take the idealizations of economic theory literally. These idealizations require a certain judgment to apply.

Complications of the basic model are important but often irrelevant to basic policy. And what's more: public choice considerations often spoil attempt to be subtle -- like counteracting foreign subsidies with domestic tariffs.

[Thomas Wicklund]

I'm afraid I have to disagree with your statement that "reality is not optional" in economics. Studying the various economic schools (from Austrian to post Keynesian) it's apparent that reality is at best selectively invoked depending on the argument being made.

I first learned this in college when I got the Marxist instructor for my first economics class. It bore little relationship to the intermediate class I took a few years later.

[Harrison Searles]

What is lacking in Atkinson and Lind's analysis is the basic appreciation that economics is about problems of coordination. So often in the teaching of economics, both in 101 and beyond, instructors really fail to communicate that economics proper is not about the level of GDP or employment in the economy, but rather about the chains of concatenation that create a spontaneous order permeating human action within the markets.

So, at the heart of the matter is a framing problem determining how we view the entire discipline. Is economics about understanding how the complex choreography of the markets emerges without a choreography? Or is it about providing people, especially policy-makers, with a tool box of techniques in order to manage certain measured quantities within society?

A bit of an exaggeration, perhaps. Nevertheless, I think the public's understanding of economics would be augmented if economics became primarily about appreciating and explaining catallactic order, with political considerations following at a distance.

[Wintonbates.blogspot.com]

I agree with Garrett Petersen. Attempting to argue that voluntary exchange is not mutually beneficial is like arguing that water flows uphill.

[Roger Koppl]

Winton and Garrett,

I'm going to try to channel Dan Klein.

I don't think we should neglect the qualifier that exchange is sure to be mutually beneficial
1) only in the sense of ex ante anticipations
2) only when both parties enter into the exchange freely, and
3) only if neither party misrepresents her product.

We should probably also note that it may well be unjust for one party to exploit the other party's ignorance of prices or other matters as with cabbies who overcharge, perhaps by taking a circuitous route.

The tautology about trade benefiting all traders is worth stating only because it helps your interlocutor to see that free trade (whether between persons, groups, or regions) tends generally, overall, by and large, to benefit all transactors ex post. It helps your interlocutor get over certain misapprehensions about trade, such as the common view that one party must win and the other loose. Whether trade really has the tendency to benefit all traders ex post is a broadly empirical question and not tautological.

[Smilingdavesblog.wordpress.com]

I wrote a point by point reply here:

http://smilingdavesblog.wordpress.com/2013/07/10/so-its-econ-101s-fault-hey/

and a special on trade being win-win here:

http://smilingdavesblog.wordpress.com/2013/07/11/more-on-comparative-advantage-or-living-well-is-the-best-revenge/