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What Is Our Children Learning? Part 6: The End.

Welcome back to our exploration of the principles of economics in N. Gregory Mankiw’s Principles of Economics. We’ve been going for a while; start from the beginning here.

And we’re done with the principles themselves. Finally! All we have to do is sum up. If you’ve been reading so far, you won’t be surprised that summing up will take a while.

Let’s start by listing Mankiw’s principles that are neither wrong or misleading (defining “misleading” as “Mankiw gets the explanatory text wrong”). In other words, let’s take out the principles that are not actually principles. We’re left with:

  • The cost of something is what you give up to get it.
  • Trade can make everyone better off.

Ooh, fascinating.

And there are also sins of omission. Here are some “principles” that are at least as valid as anything in Mankiw’s list but that don’t appear there (or anywhere in his book, as far as I can tell from skimming it very very fast). These are off the top of my head:

  • A dollar does more good — that is, it buys more utility — in the hands of a poor person than a rich person; the difference may well outweigh the harm done in taking it from the rich person.
  • Cutting taxes on the rich does not in itself spark employment or economic activity.
  • Wall Street is full of dangerous idiots who need to be watched every minute.
  • Since 1940, the military budget has been arguably the single biggest fact in the American economy, and any textbook that barely mentions it [seriously, I can't even find it in the index] is describing something other than the actual economy.
  • The economy is not Newtonian physics, and thinking about it in terms of abstract principles can do more harm than good.
  • “We can have democracy, or we can have wealth concentrated in the hands of a few, but we cannot have both.” — Louis Brandeis
  • Good economists try to learn about the complexity of the real world, while the bad ones pat themselves on the back for understanding abstract principles (and then they may not even understand them better than anyone else).
  • Every economic system, no matter how unjust or inefficient, will produce people who try to justify it, people like N. Gregory Mankiw.

Of course, one can argue against every one of these, and against each of my takedowns of Mankiw’s principles. But that’s the point — Mankiw pretends that he’s presenting principles — settled facts — when he just plain ain’t. It’s really not too much to say that between Mankiw’s errors and omissions, a person who reads his principles will actually understand less about the real economy than before she cracked the book at all. And if you think that’s mere rhetoric, why, Mankiw agrees with me, although he doesn’t realize it. Check out:

The broken windows fallacy fallacy 

There’s a sidebar in this chapter, “Why you should study economics.” Here Mankiw is quoting Robert McTeer Jr., former head of the Dallas Fed. McTeer’s example of why you should learn economics is the “broken windows fallacy” — the idea that if you, say, break a baker’s window, the baker will have to spend money to have it repaired, money that will then be re-spent, and so on, so breaking windows is good for the economy.

McTeer explains this is a fallacy because the baker would have spent that money on something else instead. He may buy a new window, but not a new suit. Economists understand that, ordinary mortals don’t, and that’s why we should learn economics.

But while McTeer’s logic might be more or less true if we were living in a textbook free market, things change when we’re dealing with the modern economy. If you went out and broke all the windows at an Apple store, Apple would spend money to repair them. Would it take that money away from other spending — spending that we know Apple finds useful, because why else would it be spending it — or from the $159 billion in cash that it literally doesn’t know what to do with, cash it’s just sitting on?

Or think about Christmas sales. If the broken window fallacy were actually a fallacy, then we (or at least the economists among us) would mourn when retailers reported good Christmas sales, because it would mean we were spending money on trivial gifts rather than on investment or useful items. But we understand that good Christmas spending means sales and jobs that wouldn’t just magically show up in another part of the economy. Because duh.

That is, we understand it unless we’ve read Mankiw’s textbook, which replaces our correct understanding with error. I’m not cherrypicking — Mankiw chose this as the very best example of why you should learn economics from him. It’s actually horrifying when you think about it.

Oh, and once again we’ve got a political statement posing as a neutral one. I could go into how this vision of the economy leads, by inexorable logic, to the idea that rich people are wealth creators, but I’ll spare you. Trust me, it does.

Now you may answer that I’m just arguing from logic (what Apple should do), which makes me no better than Mankiw and McTeer. Where’s the evidence?

My evidence is the long depression we’re in right freaking now. Thing is, if you believe that the broken windows fallacy is actually a fallacy, it follows that a long depression isn’t possible (because money is always spent for something, creating jobs), and therefore policy designed to create jobs is misguided. I wish I was reading between the lines here, but McTeer actually says exactly that, and Mankiw quotes him:

The broken window fallacy is perpetuated in many forms. Whenever job creation or retention is the primary objective I call it the job-counting fallacy. Economics majors understand the non-intuitive reality that real progress comes from job destruction [because it frees people up to do other things]. . . . We will occasionally hit a soft spot when we have a mismatch of supply and demand in the labor market. But that is temporary.

Granted, my edition of Mankiw’s text dates from 2008, but the 2011 edition (judging from the Amazon preview) hasn’t changed, even as a) even in 2010, when Mankiw would have turned in his manuscript, this depression was clearly something worse than a soft spot resulting from a temporary mismatch of workers and jobs, and b) the countries that followed economic orthodoxy and waited for the magic of the market to solve everything are, by and large, the ones that have suffered the most.

By the way, I was working from an old text because the 2014 edition (which has no preview on Amazon) has a list price north of $360. Mankiw can charge such prices because each generation of students is forced to buy the newest version, whether or not anything has changed from the previous edition (remember how we’ve seen lines that were clearly from 1991 or so and never updated).

And hey, that’s an example of another principle: the people who preach the discipline of free-market competition can preach it fervently because they don’t have to fear being subjected to it themselves, whether they’re corporate bureaucrats, politicians, “thinkers” in the warm embrace of the conservative idea factory, or tenured professors like Mankiw with guaranteed buyers for their overpriced texts.

Now: I don’t believe that Mankiw is stupid. And that’s the problem. He didn’t write this textbook from scratch after a lobotomy; he learned its worldview in his Econ 101 class, reading a textbook written by someone who learned it from a previous text, all the way back to David Ricardo’s Principles of Political Economy and Taxation in 1817Once he learned that framework, he fit everything he learned afterward into it. This is called motivated reasoning, and it has nothing to do with intelligence. In fact, Mankiw’s brainpower probably makes it easier for him to be wrong: smart people are good at finding justifications for conclusions they came to for nonsmart reasons. Think of a brilliant theologian, subtly defending propositions that are ridiculous when you state them plainly (big man in the sky rules the universe but also cares deeply whether your peepee goes into someone else’s poohole).

Mankiw even gives a good description of the scientific method, how economists should use it (by looking at the “natural experiments” of history), and how they should use assumptions and models (with full understanding that they do not describe the real world; as Mankiw says of plastic models of the body, they’re useful simplifications but “no one would mistake one of them for a real person” ). He can write this and somehow just not see that he ignores the real world, and mistakes his models and assumptions for it, all the damn time.

And now Mankiw is teaching this mental framework to a new generation, who will spend the rest of their lives finding ever-more-clever ways to ignore its flaws. Or they’ll drop out of the field in disgust, which serves the same purpose; either way, the institution of economics goes on as before and nobody is forced to think hard about the rottenness at its core.

What’s the solution?

Well, in an ideal world every econ 101 class would use Economix instead of a textbook like Mankiw’s. (In fact, that’s pretty much the beginning and end of my definition of an ideal world.) But realistically, schools didn’t hike tuitions to today’s ridiculous levels in order to teach from comics that anyone can just read, so what we need is better textbooks.

And there are better textbooks out there. Samuelson and Nordhaus avoids some of Mankiw’s mistakes (although it’s not nearly as good as the first edition, published all the way back in 1948). And I haven’t read Krugman, but no doubt he’s better too (he doesn’t believe that broken-window drivel, for one). James Galbraith, son of the great John Kenneth, has a textbook as well, and I’m sure that it’s pretty decent.

So if your class is forced to buy Mankiw instead of a better text, complain. If nothing else, you’ll bring the political bias in your econ department out into the open.

It’s also worth complaining to authors and publishers. There are worse textbooks out there as well (I selected Mankiw because he’s typical, not because he’s an particularly mendacious), and complaining does have an effect. Econ professors are, as might be expected, generally not the most rugged of personalities. Mankiw, for instance, in his first edition famously called the Reagan advisors who said cutting taxes on the rich would bring in more revenue (they really said this, and Reagan really believed, it, or pretended to) “charlatans and cranks.” It was a fair and accurate description, but he removed it when a couple of people complained.

And Samuelson and Nordhaus isn’t as good as Samuelson’s first edition from 1948 because conservative complaints in the 50s or 60s (I can’t find my source dammit) induced him to change it from liberal-leaning to center-conservative.

Point being, if publishers start to see the shittiest textbooks — the ones that present the conservative worldview as settled fact — selling less and causing complaints, they’ll fall over themselves to produce better ones. It’s hard to change an institution, especially one so ossified as the economics profession, but this is the way to start.

Finally, although I don’t generally plug products, I’d like to put in a word for Peter Dorman’s Macroeconomics: A Fresh Start and Microeconomics, A Fresh Start. I’ve only read excerpts, but what I’ve seen is impressive: they emphasize history, they teach the models but also their limitations, and they’re just plain well written. Dornan really does seem to have tried to start from scratch and to reject what doesn’t make sense anymore (or never did).

They’re also, together, less than half the cost of Mankiw’s textbook.

A better product, for less money. If Mankiw’s Principles of Economics was right — if the economy really was a free market, ruled by competition — nobody would buy it.

1 comment to What Is Our Children Learning? Part 6: The End.

  • Ken Watson

    I would just like to say that this “What Is Our Children Learning?” segment is very informative and excellently written. I’m not an Econ guy, but I’ve argued before that we can’t assume the same things that we have always assumed about the state of the world given how much it has changed and continues to change (mostly due to technology). This is a fresh perspective that everybody should try to understand. But that’s the problem of which you write: most people will not.

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