Econ 101 Will Never Be the Same
(Bloomberg Opinion) -- For a whole generation, Harvard professor Gregory Mankiw defined the conventional wisdom in economics. He taught the university’s introductory course for 14 years. I read his best-selling textbooks to help prepare for grad school, and later used them when I taught undergraduate macroeconomics. When people say “Econ 101,” he’s probably somewhere in the back of their minds.
Now, the era of Mankiw may be coming to an end. He’s stepping down from Harvard’s “Principles of Economics,” giving way to an era of greater uncertainty.
Mankiw’s economics is based largely on classic ideas. The idea that the market is a mostly well-functioning system driven by rational actors engaging in voluntary trade for mutual benefit goes back to 18th and 19th century economists like Adam Smith, David Ricardo, Leon Walras, and William Jevons. And the theory of supply and demand, which undergirds much of Mankiw’s introductory-level analysis, was formalized by economist Alfred Marshall, himself the author of a famous textbook called “Principles of Economics.”
But critics of Mankiw have always perceived a political slant. Mankiw’s first basic principle of economics asserts a fundamental tradeoff between economic efficiency and equality. The reasoning is that government redistribution interferes with the optimal working of the economy. But while there are certainly forms of redistribution that injure the economy, there’s little evidence to support the notion of a universal tradeoff -- richer countries, in fact, tend to spend more on social protections. Meanwhile, Mankiw’s notion of a tradeoff ignores the possibility that more productive ways of organizing an economy may also cause inequality to fall, even without redistribution.
Likewise, Mankiw is reflexively leery of government. His principles state that while markets are “usually a good way to organize economic activity,” government intervention “can sometimes improve market outcomes.” While acknowledging the existence of market failures -- monopoly power, externalities, public goods, asymmetric information -- Mankiw gives the market the benefit of the doubt. But this libertarian view might not be accurate -- others have suggested that market failure is the norm rather the exception. Economists like Daron Acemoglu and James Robinson, for example, have posited that strong government institutions are fundamental to national prosperity, rather than a tweak or an improvement.
This libertarian slant -- which has made Mankiw’s economics course the subject of walkouts by left-leaning students -- has helped to cement the popular image of the economics profession as a supporter of laissez-faire policy and a guardian of the prerogatives of corporations and the rich. This is even as the economics profession itself has moved toward supporting more government intervention, and concern about inequality has risen:
Meanwhile, Mankiw’s approach to economics education may have a more subtle problem: an over-reliance on theory instead of data. Mathematical models and logic figure prominently in a Mankiw textbook, with supply and demand taking pride of place. But in the world of cutting-edge economic research, deductive theorizing has long been supplanted by empirical analysis:
Even the venerable theory of supply and demand has encountered major failures when confronted with data, especially in labor markets.
In other words, economics is becoming more like the natural sciences -- a discipline that first looks at the evidence, and then tries to use theory to explain those observations. Ideally, economics education should also change in order to keep pace with that shift. Just as physics students have a lab component in their introductory classes, economics students should begin learning statistical methods right off the bat. This would give them more confidence that the theories they learn actually represent observable reality instead of being concocted for political reasons. It would also teach them data analysis and programming skills that will probably be highly useful in the business world.
One set of teaching materials that emphasizes empirical research is the CORE Project, an open-source effort developed by an international collective of economists. In addition to presenting a more syncretic vision of the economy than the Olympian wisdom dispensed by Mankiw’s texts, and focusing more on hands-on data analysis, CORE’s textbooks have the advantage of being free.
The classic theories of the 19th century, the focus on logic and philosophy over data and evidence, and the libertarian conventional wisdom of the 1970s are all looking out of date. As the profession changes, so must the face that it presents to students. The result will be an economics education that professes far fewer reassuring certainties. But in uncertainty itself, there is wisdom.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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