Arnold Kling  

Textbook Omissions

No Entitlements Crisis?... Or is it Medicaid?...

After studying leading graduate economics textbooks in micro, macro, and industrial organization, Dan Johansson writes,

Among the 19 books, only 2 references are made to entrepreneur, only 5 to institutions, only 8 to property rights, and not a single reference to economic freedom, invention, or tacit knowledge. It is quite obvious that economists have eradicated entrepreneurship and institutions from core Ph.D. training.

Thanks to Don Boudreaux for the pointer.

I believe that there is an uphill battle that is worth waging against mainstream economic education.

I agree that entrepreneurs are central actors in the economy. In the freshman class I taught at George Mason this year, the very first exercise I gave to my students was to get into groups, with each group pretending to launch a simple business, such as a lawn mowing service or a video game arcade.

In Learning Economics, there is more focus on the issues that Johansson raises than in standard textbooks.

At all levels of economic education, I believe that there is too much emphasis on mathematical techniques and too little emphasis on the forces that really drive economic growth and which account for differences in economic performance across societies.

For Discussion. How can one go about changing economic education?

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CATEGORIES: Economic Education

COMMENTS (13 to date)
Deb Frisch writes:

AK via DJ via DB alerts us to the dire situation in economics education:

Among the 19 books, only 2 references are made to entrepreneur, only 5 to institutions, only 8 to property rights, and not a single reference to economic freedom, invention, or tacit knowledge. It is quite obvious that economists have eradicated entrepreneurship and institutions from core Ph.D. training.

How many make reference to behavioral economics, the scientific research demonstrating that much current economic theory is based on axioms (that is, assumptions) that are empirically false?

How much textbook space is given to the research by Daniel Kahneman, a 2002 recipient of the BS Prize in Economic Sciences?

I'd bet very little - reality-based economics is still viewed as a quaint hobby that some maverick economists (Thaler, Laibson, Loewenstein, Camerer, Rabin, Plott) engage in. The vast majority of economists prefer the old-fashioned, rational-choice, faith-based approach.

Brad Hutchings writes:

Maybe we need to see these stories of entrepreneurs told outside of academia. Look at the popularity of The Apprentice in the college educated 25-40 demographic as a sign that there is a demand among the presumably smart class to learn about entrepreneurship. The solution is "tell more stories". Someone will notice and want to tell the stories in academic settings. There are already a bunch of courses at serious biz schools based on The Apprentice. It's not even novel or controversial anymore. We're winning.

Lawrance George Lux writes:

Deb is quite right about the adoption of behavioral economic based upon actual statistical data, rather on outdated formulization unworkable even when first stipulated.

The reason 'entrepreneur' lacks use is because, like I, the spelling must always be checked! A secondary rationale lay in the fact entrepreneurship cannot be outlined in any functional way. No Businessperson can ever clearly articulate why their business was a success or failure; able only to state it's operation entailed mydraid hours doing dozens of different things each and every day. lgl

John Palmer writes:

Here is an excerpt from something I wrote on this subject:

Let me pose a question that might shed some different light on the subject: What if there had been no Bill Gates and no Microsoft?

My expectation is that some other firm would have developed approximately the same software in approximately the same time frame and faced approximately the same legal entanglements from having been too successful. If this expectation is correct, then it is important that economic theory not place too much emphasis on specific entrepreneurs or specific institutions.

Tom Kaminski writes:

There isn't much new in Johansson's findings. Mark Skowson surveyed undergraduate textbooks and found much of the same. He wrote a scathing attack on how economics is taught in his book Economics on Trial. Skowson also attacked quite a few other aspects of these texts, which are based largely on a Keynes/Samuelson model of how an economy works. I'm not an economist, but I've read a lot in the area, and I must say that such things as the Aggregate Supply Curve strike me as empty intellectual constructions. Such formulae can be manipulated to give you after-the-fact "explanations" of economic conditions, but they are worse than useless because they include an unacknowledged bias towards government intervention in the economy. From what I've read, most of those who believed in the validity of the ASC completely missed what was going on in the economy in the 1980s because the reality conflicted with the theory. And when I recently looked at a current Macro textbook, I realized that the content could not really explain what happened during the Reagan years. Ah, academics! Ever happy to prefer theory to experience. TK

Ray writes:

Entrepreneurship and property rights are so neglected because we’re still living in a world in which anti-capitalism and Keynesian economics are either embraced outright or subtly melded into a quasi-free market platform.

When I was with Morgan Stanley, I had got myself into an email argument with their Singapore based economist. He had written a paper proposing a “new” kind of capitalism that was little more than the same old disproved Keynesian, government spending model couched in capitalistic language.

Long story short, there was nothing new about what he had proposed; government spending, wealth redistribution, IMF loans and on and on. He even cited “The Mystery of Capital” to support his ideas though his ideas ran 180 degrees contrary to what de Soto had written. (And this guy’s main job description is advising third world countries.)

Point being that the collectivists are still in charge in academia. They simply cannot let go of the grand scheme of central planning and entrepreneurship and private property are of course anathema to the idea of a centrally planned economy.

I keep a well worn micro text on my shelf by Gwartney, Stroup and Sobel. The same Gwartney of Florida State and Good stuff.

Chris R writes:

I think that this problem is bigger in macro than in micro, for the simple reason that it's difficult to teach dynamic problems to math-phobic undergrads. How many of them have even seen Ramsey-Cass-Koopmans type models, let alone more interesting stuff? We're stuck teaching crap like AS-AD or IS-LM while research has gone in completely different directions since 1939.

The point is, undergrad textbooks, especially macro ones, bear little resemblance to what people are actually working on these days.

I'd say that of the macro folks I know, they're much more pro-free-market on average than game theorists or labor economists. Sure, we probably use too many black boxes in macro. Everyone does. But, entrepreneurship is also a nebulous term. By this, do people mean people who open businesses? Invent new products? Own small firms with lots of idiosyncratic risk? Or is that word just an excuse to ignore whether or not a model of the world fits together? If you mean any of the former, be explicit about what you mean. If you mean the latter, likewise.

It boils down to people using Marx or Keynes or Friedman or Hayek to justify some preconceived view of the world without being explicit about assumptions and vocabulary. Vulgar Marxists, vulgar Keynesians, and vulgar libertarians all miss the point. If I want scripture-quoting I can go to church. If I want to ask questions about the world, I should do so and be prepared to change my mind. This is difficult. We all bring different priors to the table. Something will always be missing from a model.

To the Austrians out there: Work on your concept of equilibrium. You need your stories to tie together. I like your emphasis on individualism but incentives aren't the whole story.

To the Marxists out there: Pay attention to incentives and accounting. A dose of methodological individualism might do you good. Interesting things have happened since 1848.

To the supply-siders out there: Pay attention to accounting and be willing to recalibrate your models. You seem generally interested in incentives, but the existence of an effect (ahem, Laffer curve) does not indicate importance. Also, try cracking open an advanced textbook. Not one of the crappy undergraduate ones. Watch out for those transversality conditions.

To the vulgar Keynesians out there: The Great Depression is over and socialism turned out to be a terrible idea. You need to get beyond 1939. Also, growth and business cycles are different things. If you're really a vulgar Marxist, admit it. Otherwise, pay attention to incentives.

To my fellow economists: If you can't translate a mathematical model back to English at the end of the day, it's probably a stupid model. Even so, it might still be stupid. Also, get out there into the real world. Take a non-econ job at least once in your life. This should cut down on the arrogance a bit.

Boonton writes:

How important are inventors and entrepreneurs to economics? Adam Smith, if I remember correctly, spent more time on 'ordinary people' like the baker, butcher and candlestick maker. Their actions were motivated by personal gain but the market allowed those selfish motives to be translated into actions that make everyone else happier.

Entrepreneurs came into their prime as actors in economic theory not in classical free market economics but in Schumpter's theory of 'creative destruction'. Their role is transitory, though. They discover something new but it is your everyday actor that incorporates that new discovery into the everyday economy.

For the record, has economics explained booms-recessions better with the AD-AS LS-IM model or with entrepreneurs?

Ray writes:

An individual embarking on a venture to open his own bakery or butcher shop would indeed be acting in the role of an entreprenuer.

An entrepreneur loosely defined is a profit-seeking decision maker i.e. one who decides to open a bakery or some such operation for profit.

Ray writes:

Inventors without the entrepreneurs are useless. Edison’s light bulb was not an overnight success. J.P. Morgan made Edison’s most recognizable invention an everyday reality.

Likewise, Rockefeller’s grasp of economics allowed him to create an empire and in the process, dramatically reduce the cost of home heating oil. His economic streamlining prefaced the innovations that truly made for lower production costs.

Boonton writes:

I only partially agree. If you open up the definition of entrepreneur up as much as Ray wants us to it basically becomes 'anyone who seeks to work for a living and get money'. This is covered very nicely by economics texts.

Rockefeller and people like him are covered under the theories of monopoly, oligarchy, and so on. Reducing the cost of home heating oil is a nice example of economies of scale, which is also covered in any standard mico text.

If you focus on inventors, innovators and others then you are treading on Schumpeter's territory where the innovator causes the economy to produce 'creative destruction' as an old industry is replaced by a newer one. I think the reason this isn't covered as much isn't because of bias but because we do not have really good theories to explain this. Technological innovation is often presented as a random element in many an earthquake or period of unusually good weather...rather than an element to be explained by the model.

Ray writes:

The definition of an entrepreneur that I offered up is not an expanded or “opened up” paraphrase. Key phrase in my definition is that of “decision maker.” I said it was loosely defined simply because I was not quoting the text book I keep on my shelf verbatim.

Nonetheless, the decision maker is not only the boss, as a hired manager could be, but one who “decides” what business to open and run i.e. the owner and risk taker.

This is the text book and universally understood definition of entrepreneur. So the man who decides to risk his capital and open a bakery or butcher shop, not simply go to work in one, is the entrepreneur. No entrepreneurs, that is, no one deciding to take the risk to open a new business, the hired cogs that Boonton describe would have no where to go and 'make money.'

It is impossible to divorce the role of the business owner from a free economy. When economic text books, at any level, neglect entrepreneurship in general, they are not only skipping one of the key components to a free economy but they are also by implication spending that time on something else. What else? From my own experience in the financial industry, that ‘what else’ is the same old planned-economy drivel dressed up and given a different name.

I can’t say that strongly enough; teaching economics, micro or macro, and leaving out entrepreneurship is akin to teaching someone to fly without teaching them how to take off or land.

Boonton writes:

How essential is your definition to the macro economy? A huge portion of the economy is done by large corporations. The decision makers and risk takers in these organizations are usually employees working on salaries. Those risking the capital (i.e. stockholders) are usually doing so indirectly.

I don't know what economics textbooks you are talking about. I haven't read one where 'planned economies' were emphasized in any serious manner aside from noting that they don't work.

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