Ever notice a lack of, um, good economics in today's economists?
Economic books. Image by genericface
You're not the only one. And it's probably because students are barraged with models and regressions, but don't get the basic nature of economics, what scarcity and competition do, and how the "invisible hand" of self-interest guides... everything. From the Martin Center.
The economics major is in dire straits. Across the nation, econ curricula aren’t instilling an appreciation for, or even a familiarity with, the economic way of thinking. Theory classes limit the power of economic analysis by reducing markets to sterile exercises in “perfect competition,” or else subordinating social science to social control by obsessing over “market failures.” Empirical classes equip students with sophisticated statistical tools but at the cost of reducing applied economics to data-mongering.
The unfortunate result is that econ majors are almost always half-educated and quarter-lettered. They can memorize models and run regressions. ... But they’re unable to explain why popcorn costs so much at the movies ...
Yet it’s not hopeless. All the materials that professors need to train economists well are already available....
Whatever the texts and series of classes, a serious economics program should graduate only those students who demonstrate proficiency in each of the following areas:
The nature and scope of economics. Economics is defined not by what behaviors it studies but how it studies those behaviors. The economic way of thinking begins with purposiveness: All action is an attempt to improve self-perceived wellbeing. Furthermore, to act means to choose, which means tradeoffs are unavoidable. ...
Economic modeling. Learning economics requires thinking in models. Models are deliberate simplifications of reality designed to isolate a few key variables (market prices, rates of production, profits, etc.) so we can explore the causal relationships among them. ...
Scarcity and competition. Resources are scarce whenever there is an opportunity cost associated with their use. Always and everywhere, we must decide how to allocate limited means among competing ends. Choosing one pattern of resource use necessarily means forgoing others. Cost and choice always go together.
Scarcity necessitates competition, yet not all forms of competition are created equal. War, pillage, and plunder are the most common forms of competition in human history. These rationing mechanisms create widespread misery and poverty (except among the winners). In contrast, market competition under the rule of law is comparatively recent and rare. This rationing mechanism creates widespread contentment and wealth (even for the losers). One of the most important tasks of economics is to discover which forms of competition are compatible with social flourishing and which aren’t.
Comparative institutions and the “Invisible Hand”
... The market process is a devised-not-designed system, which encompasses many formal and informal institutions. Markets channel self-interest and harness dispersed knowledge to produce widespread material prosperity. Nobody acting within the market intends this. Households want to consume as much as they can as cheaply as they can; businesses want to produce as much as they can as cheaply as they can. Guided by the price system, the complex and often contradictory plans of demanders and suppliers reconcile on terms acceptable to all. This is the famous “Invisible Hand conjecture,” postulated by Adam Smith in 1776: “Every individual … neither intends to promote the public interest, nor knows how much he is promoting it … he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”
Much of the accumulated wisdom of economics simply isn’t present in today’s undergrad courses. We need a concerted effort to put the economic way of thinking back into the econ major. ... If we don’t start fixing things now, it won’t be long before economics deserves its low reputation as the “dismal science”—and it will be our own fault.
Read the whole thing here.
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