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November 10, 2006

Neoclassical Indoctrination

I'm glad to see the terrific Mark Thoma take notice of my friend Chris Hayes' article chronicling his observations from an introductory economics course at U of Chicago. I'm actually writing this from Hyde Park, center of the U of Chicago conspiracy, where wandering around pass under flapping posters from the Ayn Rand Institute blaring "A GREEDY CAPITALIST IS A POOR MAN'S BEST FRIEND."

It's a fun place. Hayes' article is about how economics is taught here, given that the school hosts the most famed economics department in the nation. There's a nonpartisan, empiricist aesthetic that offers the theories a sense of certainty they don't possess. I've known many kids to enter Econ 101 and come out merrily explaining why the minimum wage is a travesty, only to get through a few upper-division courses and turn on a dime. But since the vast majority of folks who take any economics will only take it once, the vastly simplified, misleadingly clean concepts of the introductory courses, offered with an assuredness the theories' don't deserve, stands. And thus a market worship, driven by the belief that theoretical efficiency has been proven to translate into actual equity, permeates.

It's massively destructive, not least because it's not true -- not even in economics, where the elegant models of the lower levels give way to all manner of caveats and market failures up the ladder. My friend sat in on a grad level course yesterday. The topic? Externalities. Only grad students, apparently, can be trusted to hear that the world isn't quite so simple as Econ 101 predicts. As for the rest of us? Too dangerous. It's a pedagogical decision with a heavy ideological effect, and it deserves more examination than it's received. Chris's article is a crisply written, deeply necessary response. Your must-read of the day.

Update: It is worth noting, as Tim puts in comments, that the profiled economics instructor explicitly mentions possible tradeoffs between efficiency and equity. The point of the piece, however, is that the posture of chin-stroking evenhandedness is purposefully deployed in service of an ideology that entirely eschews such considerations. And the megapoint of the article, as pointed out above, isn't that economics as a discipline ignores these concerns, it's that the superficial brush with the discipline tends to downplay them, overemphasize the virtues of the market, and thus turn out unwitting ideologues.

November 10, 2006 in Economics | Permalink


Well, read it last night I think. Thoma is a treasure, many long articles that I would never have bothered to read with a click-thru.

Industrial Revolution Past and Future...another recent link from Thoma, a paean to free trade/NC-econ from Nobeldude Robert Lucas.
Describes the accelerating logorhythmic nature of development.

I am pretty nearly a free trade absolutist, but don't really think we have a decent grip on what globalisation is gonna do to the race. That, to me, is a good thing cause if we knew the reactionary elements would get in its way. My Marxism works quite well with the Chicago school, for given its way I think it may only be a few generations before the program of the Manifesto becomes reality.

No nations, no cultures, no religions, no sexism, racism, no marriage, no politics, no war, and then no property.

Posted by: bob mcmanus | Nov 10, 2006 1:06:22 PM

Umm, quick questrion. Do you actually read the things that you recommend we should?


'And thus a market worship, driven by the belief that theoretical efficiency has been proven to translate into actual equity, permeates.'

The lecturer at UChicago from the article:

'“We’re trying to balance these things out,” Sanderson continues. “What’s efficient? What’s fair? Often they are in tension.”'

Now I agree that I am assuming that 'fair' and 'equity' are given roughly the same meaning ....

But in what way is someone stating that efficiency and fairness are often in tension the same as someone stating that efficiency translates into equity?

If we turn this around to my favourite argument around here, that of the minimum wage and the EITC: in comments here and in writings elsewhere, I've been very careful to frame my critique of a raise in the monimum wage as being because of its inefficiency: the EITC is a cheaper (ie, more efficient) way of getting the desired goal: which is a matter of fairness or equity which you amongst others think that the naked market doesn't provide.

The two things are indeed very different, efficiency and equity: the best economics describes how you can reach your desired goal (and equity can be one of them) with the greatest efficiency.

But back to the matter at hand: in what way is someone stating that efficiency and equity are in tension someone stating that the former leads naturally to the latter, as you state?

Posted by: Tim Worstall | Nov 10, 2006 1:11:15 PM

Not all schools are like that. At UVa my professors discussed concepts like externalities, game theory, and the like early on (or maybe I just remember it that?). Also, the problem with econ in general is that it requires one to suspend disbelief- ie, that humans are rational- all we need to do is read a post by Fred or Toke to realize that ain't true. On a more serious note, there is this field, I think its called pscyho economics, where they have shown in the last few years that people are often not rational actors. If you are going to teach a basic course in economics, I think that would be the first step toward reforming the subject- to admit that rationality is only a theorectical ideal, not a factual one. That rational behavior also works at one level, and fails at another. That it maybe like the prisoners dilemma.

Posted by: akaison | Nov 10, 2006 1:25:09 PM

My friend sat in on a grad level course yesterday. The topic? Externalities. Only grad students, apparently, can be trusted to hear that the world isn't quite so simple as Econ 101 predicts.

I don't think this is a correct description of a typical Econ 101 syllabus. My sixteen-year-old son studied last year for the AP Microeconomics test, which is supposed to mimic an introductory college class in microeconomics. We used the Krugman text, and it discussed externalities. The popular Mankiw text also has a section on externalities. There were several questions on the AP test dealing with externalities and how to use Pigovian taxes or tradable credits to deal with them.

Posted by: Cardinal Fang | Nov 10, 2006 1:32:38 PM

Not surprising. A two-truths doctrine seems to be a pretty common feature of theologies in history, and marketolatry really shouldn't differ in that regard.

Posted by: Davis X. Machina | Nov 10, 2006 1:33:42 PM

Read closer, Tim. The whole article is about how that stance of faux-evenhandedness is actually used in service of an economic ideology that ignores those questions.

Posted by: Ezra | Nov 10, 2006 1:45:07 PM

"That rational behavior also works at one level, and fails at another."

Nietzsche => Veblen,Walras,Pareto,Schumpeter (Strauss,Schmitt)...don't tell anybody, tho. The ascendance of the Chicago School is gonna kill capitalism. We don't want to save it with social democracy.

Just kidding. I literally have no idea what I am talking about. Spending a lot of time on this page today.

Posted by: bob mcmanus | Nov 10, 2006 1:54:26 PM

You better have the decency to forego all of the new fake places in HO (7/10, Bar Louie) and go get drinks at Jimmy's on 55th and Woodlawn. Check out the Robie House on 58th and Woodlawn on the walk up.

Posted by: Joe | Nov 10, 2006 2:02:32 PM

The issue is more whether the kids taking Econ 101 realize that there is more out there than what it is feasible to teach in Econ 101.

After all, most students don't come away from taking Engineering Physics 101 and think that, in building bridges, it's sufficient for the government to neglect the effect of wind.

What is it about Econ 101 then that makes students think that it's appropriate to base economic policy on that level of simplification where students come out of Physics 101 know that assuming a spherical cow would be a lousy thing to do when developing science policy? Is it because it's obvious that cows in the real world are not spherical and externalities and such are not so obvious to the students? Is it because science courses do a better job of explaining "this is what we can teach you here, but surely you know that it's a simplification -- after all, you kids have heard of relativity and quantum mechanics, nu?"? ...

Posted by: DAS | Nov 10, 2006 2:02:32 PM

I can only speak from my own experience, but I went to a humble state school of middling reputation, and they trusted us with all the caveats (and with externalities) from the beginning.

At any rate, these are college students, and they should be able to think critically. I've known plenty of students fresh out of liberal arts colleges who couldn't stop quoting Noam Chomsky. Eventually, most people learn to place their knowledge in context. Much better to have people exposed to the concepts of economics and get all gung-ho about it at first, I think.

Posted by: Ryan | Nov 10, 2006 2:04:39 PM

the problem ryan is that we don't live in a world of sophistication or critical thinking. people aren't rational like that.

Posted by: akaison | Nov 10, 2006 2:09:49 PM

Not surprising. A two-truths doctrine seems to be a pretty common feature of theologies in history, and marketolatry really shouldn't differ in that regard. - Davis X. Machina

Similarly, we all know how the two-truths (or sometimes a "three truth doctrine" of P.O.V. "right", P.O.V. "left' -- which is really a centrist P.O.V. and "the truth lying somewhere in the middle") doctrine is fundamental to today's "journalistic" practice, thus obscuring alternate points of view which are more valid than either "truth" (e.g. the boiling down by the punditocracy of the national security debate as one between appeasement and war-mongering to the exclusion of any mention of "containment") ... or even allowing in a crazy point of view when it doesn't deserve consideration (this has been skewered quite effectively on TDS ... as has the other aspect of the two-truths doctrine). And this doctrine in journalism has been used effectively to push the same sorts of agendas that the two-truths doctrines in Econ 101 are de facto pushing ...

Posted by: DAS | Nov 10, 2006 2:10:38 PM

Generalization time. Given any doctrine that says the moral questions are secondary or someone else's department, adherents will become amoral. The only way to preserve a moral perspective is to embed it at the outset.

Posted by: Bruce Baugh | Nov 10, 2006 2:52:20 PM

Yeah, the externality crack was unneeded. Econ 101 at Cal back in the '80s sure taught them. I think our lecturer was even a Marxist, of the reformed and math-philic variety. Not all Econ departments look like Chicago's. I grant, that along with a seminar my first year were the last Berkeley Econ courses I took. A math guy, I absolutely believed the economist joke theorem that all odd numbers are, stating simply, "all right, assume all odd numbers are prime."

In re Nietzsche, Veblen, Walras, Pareto, Schumpeter, Strauss and Schmitt, the appropriate attitudes are no, yes, sorta, yes, sorta, no and no, espectively.

Ugh, Nietzsche. I think syphilis may actually have improved his writing.

Posted by: wcw | Nov 10, 2006 3:28:31 PM

I don't know about the new "fake places" to get drinks that Joe mentions above, but in my recollection there have long been at least five properly denominated "bars" in Hyde Park: Jimmy's Woodlawn Tap, Cyral's House of Tiki, The Cove, The Thunderbird and (charitably) the U of C Pub. Either Hayes is worse than me at counting bars or better than me at counting bookstores (either is plausible), but on that basis I can't get to 5:2.

Posted by: Phil Throckmorton | Nov 10, 2006 3:41:06 PM


The problem with the silly Randians (as well as many others, of course) is that the people who really screw the poor are not capitalists per se (who really do create jobs), but rather landowners.

As Dan Sullivan, author of "Are you a Real Libertarian, or a ROYAL Libertarian?", put it:

Ayn Rand comes sooo close!

Ayn Rand made arguments against perpetual intellectual property that are remarkably similar to arguments against perpetual landed property. She also saw the distinction between land and capital in terms of common vs. private property, but fell back into confusion at other times. She rightly chastised the Encyclopaedia Brittanica's definition of capitalism for confusing land and capital, which she quoted as follows:

Fundamental to any system called capitalist are the relations between private owners of nonpersonal means of production (land, mines, industrial plants, etc., collectively known as capital) [emphasis Rand's]

Then she quoted a John Galt speech in Atlas Shrugged in which Galt stated sarcastically, "A factory is a `natural resource', like a tree, a rock or a mud puddle."

By Jove, I think she's...

But are the heroes of Atlas Shrugged real capitalists? The inventor John Galt is, and perhaps Hank Rearden of Rearden Metals is, too, although one wonders where he got his ore and fuel. But Taggart Railways enjoys extremely valuable right-of-way privileges from the state. (Once land is parceled out, it is virtually impossible to build a railroad without either land value tax or eminent domain.)

Then there is Francisco D'Anconia, who owned the world's richest copper deposits, and who took delight in blowing up his mines and driving the price of copper through the roof_something that would not work nearly as well for a capitalist as for a resource monopolist, as there is no way competitors can make copper ore that doesn't already exist, and, buried or not, D'Anconia's copper ore still belonged to him.

Posted by: liberal | Nov 10, 2006 4:12:41 PM

I'm in the opposite situation as an instructor. I teach an environmental economics course for both environmental science and econ majors. The bottom 10% of my instructor ratings are always from economics majors complaining that dealing with externalities and market failures isn't a real economics course becuase they haven't seen the topics before.

Posted by: CalDem | Nov 10, 2006 4:15:33 PM

Interesting point from Cal Dem.
The only economics course I ever took back in the day was environmental economics (biology major)-IIRC, it pretty much was all about externalities and market failure. Heh.

Posted by: ronin | Nov 10, 2006 4:25:15 PM

From my book, for which I can't find a publisher:

Selfishness is not the root of all good, as some have been conditioned to think.

The primary basis of the right-wing elites’ selfishness justification campaign is the notion that the father of modern economics, Adam Smith, proved that indulging one’s self-interest to the exclusion of all else is a good thing. The allegation is based on one sentence in Smith’s most widely read book, Wealth of Nations: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” In other words, merchants will not give us the components of our dinner unless we pay them.

But even Smith did not believe that receiving money for their wares is merchants’ only motivation. Looking at the famous sentence in the context of the paragraph in which it appears sheds some light on what Smith may have actually meant, as opposed to what he is presumed today to have meant.

[M]an has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. [Emphasis added.]

So Smith himself was aware that some force must limit self-interest, at least in business dealings. After all, as clinical psychologist Kenneth Lux pointed out in Adam Smith’s Mistake, pure self-interest should lead butchers, brewers, and bakers to cheat us if they can, to put their thumbs on the scale when weighing their contributions to our dinner, making us pay more than we actually owe them. As Lux says, “It is not self-interest that prevents someone from cheating. Self-interest only dictates that they not get caught.”

In the vast majority of our business dealings, people do not cheat us. What, then, is the correcting mechanism?

Click below to read the book proposal.

Carolyn Kay

Posted by: Carolyn Kay | Nov 10, 2006 4:28:04 PM

Now we know where Kevin Drum's blog trolls come from. Econ 101.

Posted by: sara | Nov 10, 2006 4:32:07 PM


my thought exactly. This explains so much about some of the blinkered idiocy on offer from "responsible" conservatives, even the ones that are featured at mixed sites like Obsidian Wings.

People who took Econ 101, never got past it, and never got over it.

Posted by: kid bitzer | Nov 10, 2006 4:47:59 PM

"Jimmy's Woodlawn Tap, Cyral's House of Tiki, The Cove, The Thunderbird and (charitably) the U of C Pub"

Respectively: closed but reopened with a vengeance, closed, still open, closed, and open but no liquor (only beer and wine).

In the past five years or so, yuppies have been moving to HP en masse, and "locations" of north side establishments have been following them. 7/10 nee Lucky Strike and Bar Louie are two of them. Real HP-ers and south siders (there is a difference) avoid these at all costs. Meanwhile, all the good ol' places have shut down, driving true blue patrons to Jimmy's, Bronzeville, Bridgeport or Pilsen for their $1.50 beers.

Posted by: Joe | Nov 10, 2006 5:19:07 PM

"The bottom 10% of my instructor ratings are always from economics majors complaining that dealing with externalities and market failures isn't a real economics course becuase they haven't seen the topics before."

Man, in my B-school econ, classes, those were the *interesting* bits. Maybe its a difference of emphasis. An economics student's reaction might be: "All these market imperfections make the math harder, so let's assume them away". An MBA's reaction is "Cool! Being in a competitive market sucks! Let's exploit the market imperfections and get rich!"

I do remember being in a lecture given by an IPO banker from CSFB (IIRC) who spent the time explaining how she and her colleagues tried to create a market buzz about the IPO by hyping the company, and the herd instinct of the pension fund managers. During questions, one of the other students remarked that some point violated the efficient-market hypothesis. I guess that (1) EMH is pretty frickin' big assumption for an asset that ain't being traded yet, and (2) the banker had basically explained how she tried to exploit herd instinct to fill the IPO book, didn't manage to dislodge a tentative simplification from his brain. (I hope he became a i-banker, so that my friends who did go into i-banking can earn their bonuses exploiting his inevitable mistakes.)

Posted by: Urinated State of America | Nov 10, 2006 5:42:20 PM

Sadly, Economics doesn't even do so well at the upper levels either (though this article is excellent).

Posted by: Marshall | Nov 10, 2006 5:49:08 PM

"...one of the other students remarked that some point violated the efficient-market hypothesis."

(Raises hand)

As I understand it, isn't that a bad misunderstanding of the EMH? The EMH certainly doesn't say that all or most players have good information and get to be winners, does it? I think the opposite.

Posted by: bob mcmanus | Nov 10, 2006 5:54:20 PM

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