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College Economics: Incomplete, But Not Taught "Backwards"

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What should students learn in their introductory economics courses? Are we, as Mike Konczal argues, "teaching economics backwards" (HT: Justin Wolfers via Twitter)? I'm sympathetic to Konczal's argument that we need to focus more of our attention on the institutions that make markets possible in the first place, but I think starting with a complex economy operating below it's potential would be a mistake. Here are a few thoughts.

1. I borrow from Peter J. Boettke and many others: there are macroeconomic questions, but there are only microeconomic answers. James Buchanan once exhorted economists to focus their attention not on optimization but on "the institutions of exchange, broadly considered." The trade is the fundamental unit of analysis in economics, and without a thorough understanding of why people trade to begin with and what the implications of those trades are, we won't be in a position to actually understand the macroeconomic questions.

2. In his criticism of Keynes, F.A. Hayek argued that before we understand how something can go wrong, we must first understand how it can go right. It's obviously worth mentioning that things aren't what they could be, but assuming involuntary unemployment as an analytical starting point begs the question. We have to first explain how those resources came to be involuntarily unemployed in the first place. Along these lines, W.H. Hutt's The Theory of Idle Resources is an excellent (and challenging) read that deserves to be taken more seriously than it is.

When I arrived at Samford, I was puzzled as to why principles of macro is the first economics course. It's also a university-wide social science elective, so I get a lot of students for whom this will be their only exposure to the economic way of thinking. In its current incarnation, we spend a lot of time talking about supply and demand, trade (including international trade analyzed using supply and demand), and the institutional foundations of economic growth before we start talking about business cycles. I do this imperfectly, but I work hard to make sure that "people respond to incentives" is applied to people who work for the government, as well. When all is said and done, students should leave my principles class with a clear understanding of how markets work, why some places are very rich while other places are very poor, and what (if anything) can be done about business cycles. I don't mind if principles of macro comes before principles of micro, but students should definitely know how competitive markets work before they're asked to consider why we have business cycles.

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CATEGORIES: Macroeconomics

COMMENTS (6 to date)
Unlearningecon writes:
The trade is the fundamental unit of analysis in economics

It is, but you seem to be confusing is and ought. Classical economists generally considered distribution central; Marx considered production central. Only the current theoretical paradigm considers exchange central, but this doesn't mean it is necessarily the most important.

but assuming involuntary unemployment as an analytical starting point begs the question.

By this logic assuming no unemployment is also "begging the question", and we have to explain "how the resources came to be employed". We have to assume something to build a model - the difference is that involuntary unemployment is an empirically observed fact.

but students should definitely know how competitive markets work before they're asked to consider why we have business cycles.

Why? You haven't told us.

Curtis Lanoue writes:

Maybe the whole micro/macro thing is not very useful to begin with? I'm guessing that's the most likely.

From a perspective merely of "what should an average person know about economics," though, I think comparative advantage and it's conclusion, we all gain through trade, is perhaps the most important insight. This is a macro issue.

Secondly, I think market externalities, social goods and costs, is the second most important concept in which to be literate as a citizen. This one, however, requires understanding a lot of concepts that come before it. But again, a macro issue.

Probably the best answer is to go back and forth between the two -- at least at a High School or Econ 101 point where students often don't get all the way through a textbook.

Stephen Karlson writes:

The best comment on macro-first came from Claudia Goldin, then an assistant professor at Wisconsin. She was teaching micro (104) in the spring to a lecture hall full of students that had taken macro (103) the previous fall. She characterized macro-first as a "bureaucratic prerequisite".

That noted, building the micro foundations (choice, exchange, opportunity cost) first offers plenty of freedom to introduce the institutions (ownership, contract) and then to think about the complexities. I'm sympathetic to those experts on the teaching of economics who suggest that most classes cover too much stuff.

Mark V Anderson writes:

I thought the first four chapters of Thomas Sowell's "Basic Economics" explained economic fundamentals better than any economic course I ever took, and he did it with no graphs at all. Considering all the college students who have taken macro and micro economics and still totally misunderstand the subject, my sense is that graphs are not the best way to get the points across.

Daublin writes:

Do you think there's a version of macro that is holding up very well? It seems odd to emphasize to freshmen a version of economics that is a combination of (a) research topics and (b) ill-founded rationals for popular government policies.

Micro, on the other hand, seems well established. It has clear axioms, theorems that result from it, and stupendous amounts of success in explaining real-world economic phenomenon. In short, it's the sort of thing you think about when you think of a good college education.

On a related note, must we call them micro and macro? Both of the issues that Curtis describes as "macro" issues are in fact covered under micro-economics. These names are quite misleading.

Ricardo Cruz writes:

This is interesting. I did my BS in computer science, and I never liked the more pratical aspects of it, like studying computer networks. But one book I really liked was titled something like "A Top-Down Approach to Computer Networks". They started explaining the high-level stuff first (like the web browser) before digging deeper and deeper into the inner guts of network technologies. I thought it was pretty interesting, from a motivational point of view, and you could more easily deprehend why the lower level stuff is as it is. It is entirely possible that explaining the economy top-to-bottom is actually easier to understand, even if it not as elegant as starting from the beggining so to speak ...

Sorry if it is off-topic. The post reminded me of that book, hope this is helpful somehow. :)

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