Arnold Kling  

Teaching Un-Normal Economics

Alternative Energy and Rent-Se... Economics in Candyland...

Greg Mankiw writes,

Having observed many failed textbook projects over the years (I won't mention names), I notice several predictable pitfalls. They include:

...The author has views of the field that are too idiosyncratic to appeal to the vast majority of instructors who teach the course.

The pressure on textbook writers is for conformity and homogeneity. Daniel B. Klein has some concerns about homogeneity and what he calls "normal economics."

But a little experience with normal economics shows that "market failure" is a fundamental analytic category in economics, whereas "government failure" is scarcely used, and when used is more frequently used in a sense meaning failure to achieve its goals or failure relative to other (imperfect) institutional arrangements.

Built into the normal science, then, is a double-standard that is prejudicial against free markets. Other aspects of "normal" economics are prejudicial against free markets. Model building, for example, the exalted mode of discourse, tends to eclipse some of the important virtues of free markets. I would even say that model building tends to render the very idea of freedom nugatory—that is, the idea of freedom is vital because life is not like an equilibrium model.

Klein attempts to summarize the views of economists like myself, a minority that he estimates as constituting 10 percent of the economics profession.

(1) a tendency to make the distinction between voluntary and coercive action clear in formulating many basic economic categories, principles, and arguments;
(2) an appreciation that knowledge is not merely information, but also interpretation and judgment, and as such is highly particular to the individual and the moment; it is essential for humans to err, in the sense that they kick themselves for having interpreted or judged badly;
(3) a sense that economics must be relevant and serve social purposes, and that such service necessarily entails heavy engagement with non-economists, notably laypeople and policy-makers;
(4) a sensibility that economic reality is incredibly complex, inspiring the eschewal of efforts to paint a picture of the economy or how it "really" works;
(5) a sober, non-romantic view of government—since economic reality is scarcely knowable, we should be wary of those who pretend to manipulate it beneficially;
(6) a presumption in favor of liberty, not the status quo.

I find this list unsatisfying. For example, I think most of what Klein calls "normal" economists would share (3), and I am not clear what (4) means.

Here is how I would describe myself as different from normal economists:

1. I think that it is more important to tell a plausible story than to tell a mathematically representable story. For example, in my book on health care, I describe three narratives of why health insurance has become so difficult to afford: a narrative based on "premium medicine" and "insulation"; a narrative based on price gouging; and a narrative based on adverse selection in health insurance. I give some basic facts that favor the first narrative.

2. I think that the process of economic growth over time is more important than efficiency or income distribution at any given point in time.

3. I think that it is extremely important to take what Klein calls a "sober, non-romantic view of government." In my view, if you watch the evening news, you will see two types of advertisements. The "commercials" offered by private firms, pushing their cars or pills or what have you; and the content of the program, which pushes "crises" that government must "solve."

The question of how to teach economics, given my minority perspective, is difficult. Perhaps what I owe students is the "normal" viewpoint, with my own suppressed.

Klein himself favors teaching multiple points of view. That is not as easy as it sounds. But I do recall my favorite professor, Bernie Saffran, recommending students read Bowles and Gintis (who at the time were Marxist economists) with the same enthusiasm that he gave when recommending Milton Friedman.

In conclusion, I think it would be better for freshman economics textbooks to include various points of view than to tend toward homogenization. However, my guess is that a textbook that covers normal economics, libertarian economics, socialist economics, and other points of view would be much harder to write and to use in the classroom than the standard text.

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CATEGORIES: Economic Education

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Randomscrub writes:

Speaking of textbooks... I'm working on a paper for a class chasing down the "is economics a science" meme, and I was wondering if you had any recommendations for a good book on the history of economics? I'm trying to use Kuhn and the concepts of "normal science" and "scientific revolution" to look at the history of economics, which, fittingly enough, seems at least superficially related to the "normal economics" theme above.

Timothy writes:

You might try The Worldly Philosophers by Robert Heilbroner.

Heather writes:

Having taken the intro classes in economics, I can say that while it might be more interesting to some students to do this, the majority already find economics difficult with just the basics, so unless the desire is to "weed out" those individuals, this might be something that would be more appropriate in higher level courses, or in a course specifically aimed at alternative economic theory.

Hi, Randomscrub.

Fascinating class! These references might be more historical than your class is interested in, but here are some readable discussions of the question of "is economics a science?" that are available online. In historical order of publication:
1. in John Stuart Mill's Principles (see Ashley's Introduction for a summary);
2. in Chapter 2 of Economic Harmonies by Bastiat (starting around paragraph 16);
3. in Cairnes, The Character and Logical Method of Political Economy
4. in Jevons, The Theory of Political Economy;
6. in "The History of Political Economy" in Lalor's Cyclopaedia;
7. in the Preface and Book I, Chapter I, of Marshall's Principles
8. in Viner's "Some Problems of Logical Method in Political Economy"

The development of economics as a science both as a matter of mathematical modeling and as testable hypotheses (though not via controlled experiments) was explored by Adam Smith and even previous writers. The French physiocrat Quesnay depicted an economy as a flow analogous to human circulation--an attempt to systematize economics and perhaps to compare it to the most experimentally "scientific" of fields available in Quesnay's day--medicine.

conchis writes:

Normal economics is prejudiced against free markets? Wow.

Will writes:

#2 is critically important, and I am not sure why more "normal" economists fail to embrace it.

I think it offers a good argument for why every PhD student in economics ought to take a good course in economic history and/or economic development.

Once you begin to grasp what life was like for most ordinary people, even as recently as 100 years ago, Or what life is like for most people in the third world today, it's hard to avoid the conclusion that economic growth ought to be the primary goal of policy. Shuffling money around on the table right now is just pocket change to what only a decade or two of steady growth might be able to offer to the poor and middle class.

Of course, for anyone more concerned about relative status than absolute standards of living, I guess I can understand why this doesn't seem like a persuasive argument.

jp writes:

Classes that adhere strictly to the "normal" view are dull. But classes that don't teach the "normal" view are a rip-off, unless of course they're advertised as being non-normal. IMO the best approach, at least in an introductory class, would be to spend most of the time on the "normal" view but also to provide competing views from time to time, even if they're only the competing views that the professor personally favors (being identified as such).

Also, I agree with Will.

Matt writes:

I have never seen economist cause so much confusion than in explaining the monetary system.

How could a simple system of issuing printing limited edition prints of presidents be complicated?

Nathan Smith writes:

I think "normal" economics is prejudiced both for and against free markets, in different ways. On the one hand, it tends to adopt idealized assumptions of perfect information and perfect competition, and of "rational" agents, that make the market work more smoothly than it really does. Also, although economists acknowledge the existence of market failures, too much emphasis on market failures would undermine the brilliant Econ 101 message that price equilibrates supply and demand and generates a Pareto-optimal result, and thus cuts against the interests of the entire discipline. Market failures are under-emphasized for this reason.

On the other hand, when government interventions are proposed, the government is generally assumed, in strangely simplistic fashion, to be motivated by nothing other than to maximize the utility of its subjects! The motive for this assumption is probably the same as the motive for the rational agent assumption-- analytical simplicity-- but the effect is that economists make private agents look far too bad, or at any rate amoral, and government agents look far too good.

My response to the biases of "normal" economics is something like this.

(1) Yes, there are market failures, and probably a lot more of them than you ordinarily address; externalities, in particular, are so pervasive that to recognize their extent is to become rather comprehensively skeptical of the case for the free market.

(2) BUT the usual method for prescribing "policy responses" to market failures rests on methodologically shaky ground, for why should we assume that governments are benevolent if private individuals are self-interested? This question cuts both ways. If we believe in selfish private agents, we should try to model governments that consist of selfish agents: that's the direction public choice theory takes. On the other hand, maybe we think that governments do behave, at least some of the time, in beneficent fashion. But if governments are capable of altruism, why not private individuals, or private associations?

(3) This is where I'd borrow Arnold Kling's "civil societarian" motto and recommend that economists do more research into the behavior of voluntary associations and civil society entities. As far as I can tell, these entities are still mostly "below the radar." This category may include some public entities which rely on civil society and voluntary organizations for support: thus, in suburban public schools, the government pays the teachers' salaries, but it's because parent associations participate in school governance and support school activities through volunteering that the schools perform so much better than their inner-city counterparts. Economists should figure out how to design prescriptions targeted less to governments, and more to non-coercion-based public-interest organizations.

Mark W writes:

After listening to Russ's podcasts, one could describe the Smith-Hayek identity as evolutionary economics. Pro: It fits with the idea of spontaneous ordering. Con: The term evolution can be rather incendiary...

TWV writes:

Let me see if I can get this straight: some economists who defend the market by compensating for its failures, on the theoretical level, by pointing out government failures, see a market failure in economics textbooks?

Very, very droll.

Barkley Rosser writes:

Fairly successful textbook writer David Colander has what he calls "the 15% rule." It amounts to the observation that it is professors who decide which textbooks will be used and they like to be able to use their old notes. Therefore, a successful new textbook in any sub-area of economics, or at the principles level, cannot deviate by more than 15% from whatever the existing standard is in the most widely used textbooks in that sub-area. Hence the momentum of the normal.

OTOH, Mankiw was one of the few who may have broken that rule, but in my view his Principles texts did so by simplifying and throwing out lots of material, stuff that I personally think students should be exposed to. But, they are so pathetic today we must spoon feed them a simplified pap instead of bothering them with a broader scope of issues and topics.

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