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What Is Our Children Learning? Part 1.

So a while back I posted about how economics education as it’s usually done can manage to be dull, misleading, and (covertly) political, all at the same time. Which is, after all, why I wrote Economix, which is not (I hope) dull or misleading, and is overtly political.

But there’s always someone who will say that any given criticism of the field, or part of the field, is unfair, that economists don’t really believe X or Y, that you’re taking something out of context or looking at the wrong source, and so on. And sometimes they’re right.

So I thought I’d look at N. Gregory Mankiw’s Principles of Economics. Mankiw (a Harvard professor) is the 29th most cited economist. If there’s a mainstream in economics, Mankiw is in it. His textbook is one of the most popular out there, and judging a field by its textbooks is at least as legitimate as judging it by its scholarly journals.

And we don’t even have to look at the whole book; Mankiw has thoughtfully provided us with with ten principles right at the beginning. This must be the very distillation of what Mankiw–and thus, a large part of the economics profession–thinks is important. Here’s Mankiw saying so:

The study of economics has many facets, but it is unified by several central ideas. In this chapter, we look at Ten Principles of Economics. . . . The ten principles are introduced here to give you an overview of what economics is all about.

Let’s take a look. This is going to be long, so I’ll split it into several posts.

Principle 1: People face trade-offs

This is a good, common-sense rule of thumb–every transaction, for instance, is a tradeoff between giving up our money and not getting the thing we want. But elevating it to a principle is a mistake. In another post I point out that we can sometimes find situations where there’s no tradeoff if we think more carefully. (Buying swirly lightbulbs is a tradeoff between higher up-front costs and lower electric bills, but those bulbs also pump less heat into your apartment. If you buy the swirly lightbulbs and a cheaper air conditioner than you otherwise would have, there’s no tradeoff–you get lower up-front costs and lower bills down the line). We generally don’t think like this, but that’s no reason to ignore the fact that there’s good reason to try.

Again, though, that’s okay as a rule of thumb. But Mankiw doesn’t just state principles; he gives explanatory text for each one. And in the explanatory text for the very first principle, he starts to get into real trouble.

All he’s trying to do is give examples of tradeoffs, and he gives a couple of good ones. But then he says that there’s a tradeoff between a clean environment and a high level of income. According to him, environmental laws increase the cost of producing goods and services, which means more expensive goods and services. (He also thinks that this means lower wages, but that’s silly–a plant that has to hire people to clean up its mess is paying more wages and driving the general wage level up.)

So is there a tradeoff? Sometimes, yes. But remember, waste isn’t just bad for the environment, waste is inefficiency. Reducing inefficiency can reduce waste and costs. For instance, have you noticed that soda bottle tops are smaller than they used to be? That means cheaper bottles (leaving us with more resources for other things) and less waste—when we throw the empty bottle into the nearest dolphin’s eye the dolphin is less hurt. Where’s the downside?

And what about using old fryer grease to power cars? That turns the waste into a resource, meaning less oil extraction, less global warming, and smaller fatbergs.

And in the real world, when nasty old government has twirled its moustache and forced innocent businesses to clean up their own messes, the results have been far better, and far cheaper, than expected–often just the unexpected benefits have outweighed the cost, which is pure gain for society. For instance (according to Barbara Freese’s book Coal):

One economic study found that the Acid Rain program’s improvement of visibility—a benefit barely considered when the law was passed—is alone worth the substantial cost of pollution controls, quite apart from the many environmental and other health benefits.

For that matter, there’s pretty good evidence that getting lead out of gasoline in the 1970s was a big cause of the reduction in crime in the 1990s (as the 1970s babies approached their high-crime years and just didn’t commit crimes, surprising everyone). If that’s even a little true, the purely economic benefits dwarf the costs so much it’s not funny. Literally not funny.

It’s hard to avoid the conclusion that there is not always a tradeoff between a high level of income and environmental protection.

Speaking of efficiency, Mankiw also says that society faces a tradeoff between efficiency and equality. If you take that as a principle, then the most unequal economy is also the most efficient.

That sounds wrong, and it doesn’t sound any less wrong when Mankiw tries to explain it:

When the government redistributes income from the rich to the poor, it reduces the reward for working hard; as a result, people work less and produce fewer goods and services. In other words, when the government tries to cut the economic pie into more equal slices, the pie gets smaller.

This is of course true, in economies where equality is so extreme as to interfere with efficiency. So this is essential information for Mankiw’s many North Korean readers. But in other economies, like–to pull an example out of the air–ours, this doesn’t apply. My evidence is not some smug logic but the real world: Our economic performance, measured by annual real increase in GDP,  has not improved as inequality shot up starting in the 1980s. It’s fallen off. It’s not 1-to-1; our economic performance has been falling off since the 1950s, while inequality only started increasing later. But still, where’s the evidence that more inequality is more efficient?

In fact, there’s pretty good evidence that the level of inequality we have is a drag on the economy.

And here’s something interesting: the two examples above are highly political statements posing as neutral, technocratic ones.

So this “principle” doesn’t tell us anything we don’t know, but still manages to be both wrong and political.

Grade: F.

Suggested replacement principle: “People don’t always face trade-offs.” That covers the fact that usually we do, for readers who have been lobotomized, and for the rest of us it’s at least a bit startling and gets us thinking in terms of finding win-win situations.

Phew.

Onward to part 2, here!

1 comment to What Is Our Children Learning? Part 1.

  • This is great stuff. I follow Mankiw primarily to know what the latest BS is. Fine skewering job. I decided to study Economics after I retired a couple of years ago (I was an astrophysicist, then a software developer/manager for 40 years). I figured the math to model would be fairly simple. Problem is, it’s so damn political that, even if you could model everything exactly, the people like Mankiw would still be saying things like “increasing the money supply creates inflation” 6 years after the Fed tripled the money supply and NO INFLATION OCCURRED. All just politics, high $$$ paid for supporting conservative views. Discouraging.

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