The Perils of Studying Economics

By James Kwak

Patrick McGeehan at the New York Times recently wrote about a New York Fed study finding that studying economics makes you a Republican. The headline conclusion is that the more economics classes you take, the more likely you are to be a Republican. Majoring in economics or business is also more likely to make you a Republican. (See Table 2 in the original paper.) The study is based on thousands of observations of undergraduates at four large universities over three decades, so it is focused on undergraduate-level economics.

Studying economics also affects your position on several public policy issues. Of seven issues, economics courses were significantly associated with the five following positions (Table 6):

  • Tariffs are bad.
  • Trade deficits are not so bad.
  • The government should not cap oil prices in response to a supply shock.
  • Raising the minimum wage increase unemployment for low-wage workers.
  • Income distribution should not be more equal.

These are all pro-free market, anti-government intervention positions.

What I thought was particularly interesting, however, was that on some issues people who study undergraduate economics are more doctrinaire free marketers than professional economists. Table 5 compares the undergraduates responses to those of a survey of people with a Ph.D. in economics. The Ph.D. economists were more likely than economics majors to hold the textbook position on tariffs or the minimum wage. However, they were also more likely than economics majors (or, frankly, any majors) to think that income inequality should be reduced and that government spending should not be reduced, and they were somewhat less worried about federal budget deficits.

This is something I’ve mentioned in passing often. I think that basic economics, the way it is taught today, tends to give people reflexive pro-free market, anti-government positions — positions that are not held by people with a deeper exposure to economic thinking. When your understanding of government finances is based on reading the newspaper, it’s somewhat eye-opening to come to college and learn that free markets lead to maximum societal welfare and taxes impose a deadweight loss on society — the pictures are so simple and compelling. That’s why a little bit of economics makes you more likely to be a Republican.

But when you learn more about principal-agent problems, information asymmetries, and so on, you learn that those simple pictures are simplistic to the point of being misleading. That’s why Joseph Stiglitz argues in Freefall that understanding economics is crucial to understanding why free markets often lead to suboptimal outcomes. The problem isn’t knowledge per se; it’s a little bit of knowledge.

158 thoughts on “The Perils of Studying Economics

  1. James
    I’ve a modestly educated friend whose passion is to lower the tax rates on the top 1% of income earners of which I am one. I argue that we at the top ought to pay more back into the system for the privilege of having had the opportunity to earn such a handsome living.
    A more vibrant, healthy, middle class is vital to political stability…..yet, disinformation turns poor people into rich people sympathizers, while the well off continue to view these disinformed voters for what they are…suckers.

  2. The point about undergrad econ majors being more doctrinaire than grad students or PhDs is one I find very believable; it certainly fits my own experience. When I finished my BA in economics, I was a very hard-core free marketeer. After a few years of grad school, even in the very pro-free market program at UCLA, my positions had moderated quite a bit.

  3. This is SO true. I can’t even say how many times I’ve had a conversation with a (snide!) economic conservative who felt secure their views were provably superior, only to find out that basically their knowledge included only a memory of that little black dead weight loss triangle from Econ 0A (yes that’s a 0).

    One thing you don’t bring up which I think is important is that the way economics is taught is part of the problem. What’s emphasized seems to me driven largely by the irrational ideological views of the Chicago style economics that has dominated the field for 50 years.

    If everyone uses Mankiw’s book, it should be unsurprising, even though it includes a basic intro to many of the concepts that lead professional economists to not hold those falsely based right-wing opinions, that the main message students take from it and their professors is a simplistic anti-government, anti-tax message.

  4. The actual study of economics leads one to understand that Chicago style free market bleating is not science but simply religion serving corporate interests. The only economists worth reading are Veblen, Keynes and Galbraith. Unfortunately, students get no further than what is said about them by academic charlatans spouting careerist drivel.

  5. Did Churchill observe that democracy was the worst of all possible systems — except for the alterantives?

  6. nothing much new under the sun;
    investigating the literature myself a couple of year ago, I found two studies:

    1) Do Economists Make Bad Citizens? (1996)
    (Google the sources, if interested)

    From conclusions in (1)

    First, all parties concede that economics training encourages the view that people are motivated primarily by self-interest.

    Second, there is clear evidence that this view leads people to expect others to defect in social dilemmas (Marwell and Ames, 1981).

    Third, there is also clear evidence that when people expect their partners
    to defect in social dilemmas, they are overwhelmingly likely to defect themselves
    (Frank, Gilovich and Regan, 1993, p. 167).

    The logical implications of these three points appear to place a heavy burden of proof on those who insist that economics training does not inhibit cooperation.

    From conclusions in (2)

    … Comparisons with the economics graduate students is very difficult. More
    than one-third of the economists either refused to answer the question
    regarding what is fair, or gave very complex, uncodable responses. It seems, that the meaning of ‘fairness’ in this context was somewhat alien for this
    group. Those who did respond were much more likely to say that little or no
    contribution was ‘fair’. In addition, the economics graduate students were
    about half as likely as other subjects to indicate that they were ‘concerned
    with fairness’ in making their investment decision. …

    This second conclusion leads me to the suspicion, that lying about your intentions is internalized early on.

    One of the many points, which leads to my overall conclusion, that economics not a science.
    More like a ‘toolkit of pretension and obscuration’.

    My personal conclusion at that time was, that e.g. the Post-Autistic Econmics movement was a necessity, and that the current lot of economists is -mostly- more a burden than a relief to mankind.

  7. More symptoms of regulatory capture no?

    An open mind represents infinite possiblities, where a closed mind is limited to only one.

    It also needs to be understood that the ideological nature of the last 30 years has been scented with a helping of authoritarian technique. Lock step, everybody in the same bubble.

  8. Re: “This is something I’ve mentioned in passing often. I think that basic economics, the way it is taught today, tends to give people reflexive pro-free market, anti-government positions”

    That’s supposed to be Theorem 6.3 (p 94) Gerard Debreu, Theory of Value, Cowles Foundation 1959.

    However, I’m still trying to figure out what the commodity space is in Chapter 2. It seems to be time-varying. New commodities seem to be appearing all the time, such as industrial effluent disposal. I never get beyond Chapter 2.

    It’s like always being stuck in the first few lines of Genesis.

  9. You are suggesting that a deeper exposure to economic thinking leads to a more accurate perception of reality.

  10. Another point of interest is that, despite (because of?) learning some game theory, economics majors get worse results in the prisoner’s dilemma than untutored students(!)

    (Frank, Gilovich, and Regan: “Does studying economics inhibit cooperation?” Journal of Economic Perspectives, Spring, 1993)

  11. While I was checking the reference, I see that groo already posted about this study. I do not want to downplay the question of good citizenship and cooperation, but to focus on the fact that the econ majors did less well in the game. That raises questions about claims of rationality and maximizing utility.

  12. Need to control for some confounding factors. Econ undergrads are generally “pre-” investment banking, consulting, MBA, law, etc. Econ Ph.D.s are generally academics receiving a modest income working at universities.

    I suspect that has a lot more to do with the difference than exposure to the substance.

  13. Mr. Kwak concludes in re the undergraduates, whose ideology is in some respects to the right of PhD ecnonomists: “The problem isn’t knowledge per se; it’s a little bit of knowledge.” Unfortunately, this conclusion is contradicted by Mr. Kwak’s own account; for, it is precisely the PhD professors who inculcate the tyros in the dominant ideology. -K. Marx long ago denounced post-Ricardian bourgeois economics as “vulgar economy,” i.e., apologetics for the status quo (as opposed to social science). A more prescient prediction would be difficult to find. Corroboration: Reformist PhD’s such as Stiglitz and S. Johnson defend artfully the very same “free market system” that the undergraduates defend crudely. Sophistication in the dominant ideology comes with the higher degrees in same. Try again, Mr. Kwak.

  14. Disciplinary shuffle to Stats 101: the study references joining and your post says studying economics “makes” you a Republican. The data and method used here only says undergraduate econ/business students are more likely to identify as Republicans, not join the party as a result of their studies.

  15. My university (UCL) had a behavioural economics lab, and I participated in a few cooperation-vs.-selfinterest type experiments. A fully cooperative strategy would be rewarded, but if one participant took decided to maximise his own return then those who’d been more cooperative would lose out.

    My maximising strategy was to ask if anyone in the group was an economics student. If they were, even though the group discussion would be pro-cooperation, I’d know they’d take the selfish guaranteed return option and would thus adjust my strategy accordingly. If the group was all Humanities students, I’d know it was safe to be more trusting.

    (I studied social anthropology.)

  16. My wife’s Econ 1010 professor told her that the *entire* collapse of the housing market was thanks to ACORN, Fannie Mae and Freddy Mac, and Poor people exploiting unwitting banks. A week later the case against goldman came out along with the story of Magnitar. She showed the professor, and he said “huh.” and never corrected the information in class.

    I think this is more of an issue of who goes into Economics and what kind of person studys economics, rather than what is taught in economics itself. It’s a feedback loop of self-justification and rationalization for “poor-people-are-lazy” and “rich-people-deserve-everything”.

  17. If you are a serious student of economics, you would do yourself a grave disservice by only reading three authors (however prolific those three authors are…), especially three authors whose own intellectual prejudices do not differ considerably from one another. By taking your recommendation, you are promoting the same close minded dogmatism of which you so readily accuse those who do not hold your own beliefs.

  18. It does seem generally true that economics students are more conservative, although there may be other factors at work that influenced the students’ decision to study economics or business in the first place. The correlation between the number of econ. classes taken and the conservative views of the students may be due to students switching to, say, political science because they find the ideology behind some economic views too distasteful. At my college (and I assume many other smaller colleges), business and econ. were one major and although I really liked macroeconomics, I couldn’t stand the thought of taking classes full of dude-my-dad-owns-a-dealership types.

  19. An Aside: Several of the points the teacher would make would just be unsourced claims, and I often used Baseline Scenario as a great source for her to bring up alternate viewpoints. Every time she would bring up that these issues were not so simple, the teacher would say “You’re getting too complex for the scope of this class, let’s just move on…”

  20. The decision to go to war was made without a budget.

    Once signed, the spokesperson said it was going to be “cheap”.

    Studying “economics” without studying the costs of war is a joke.

  21. In other words, your friend is selfish and self-centered. I know someone — I won’t call him a friend — who thinks that that Social Security is the worst law ever passed. He thinks that way because he is a business owner who resents paying FICA for his employees. He thinks he is a damn genius because his business is successful. He cannot understand that luck played a large part in it, as it does for all businesses.

    Disinformation converts poor people into sympathizers for the wealthy pretty much exclusively in the USA and maybe the UK. Ben Franklin had a lot to do with that, with many people today confusing the teachings of Franklin with Jesus.

  22. Great article… I was one of those Econ students at UCL and had exactly the same experience in the lab! Having taken an (optional) ethics module in the final year with a great Prof from Oxf I was shocked that the economic mathematics we’d spent the whole 3 years study was in fact questionable.
    The very first fresher lecture for undergrad Economics should be titled: “DISCLAIMER: What we are about to teach you is not necessarily true”.
    I’m still trying to get over Econ101 and those ‘objective’ little black triangles of DWL (deadweight loss).

  23. Even without market failures, all it takes to overturn an ideological belief in the free market is an intuitive understanding of the first welfare theorem. The pareto criterion just doesn’t say very much about welfare.

  24. You have seen one in Somalia and other places where anarchy rules. Any amount of law restricts the market. People talking about free markets always forget to mention that they want certain protections built-in, like the ability to walk down their residential street in daylight without having to pay bribes to local warlords.

    If you ask someone living in a hoity-toity neighborhood as well as someone living in the nastier parts of Baltimore or Detroit “Do you live in a free country with a free market?” their answers will not coincide.

  25. If your version of events is accurate, aside from being a bigot, that professor is incompetent and should be fired. Where did this happen? Bob Jones University?

  26. I haven’t read the linked study past the title, but they are suggesting correlation, not causation, are they not?

    I would think it just as possible that future Republicans self-select for economics and business majors. The attenuation of Republican/free-market sentiment could easily come from that population choosing to take their bachelor’s/master’s degrees to lucrative jobs in the private sector, leaving the hoary academic life to the longhairs who read the Keynes assignments and enjoyed the math-y bits enough to want to fiddle with them professionally.

    I realize this is a standard response to a study like this; is there a standard refutation that applies here?

  27. I consider studying economics to be one of the primary reasons for becoming more liberal, but I fall into the graduate school group.

    First, most of this can be attributed to selection effects. Students who want to earn money, think they can do so by studying economics and business. Many students who are naturally altruistic, won’t study economics. Undergraduates who are interested in graduate economics should be in the math department.

    Second, your intro courses are crowded with bad teachers and your intermediate courses are teach foundations not policy. You need to learn about the assumptions of profit maximizing firms, competitive markets and utility maximization. It takes a really good professor to teach these as simplifying assumptions and not life lessons. I try to teach my students that “profit maximizing” is a successful description of firm behavior, not a ethical notion. I try to teach my students that “utility maximizing” is just saying that people choose what they prefer given constraints. Teaching this stuff poorly leads to students taking significant philosophical and ethical proscriptions out of a course which intended to be descriptive (and admittedly limitedly so).

    Third, economists even liberal economists are pro-market at some level. If graduate economics teaches you anything, it is that the science is not their to do a planned economy well. The idea that any past economist or ideology had things worked out perfectly, simply doesn’t translate. To mix metaphors: if you never got your hands dirty, you’re just shoveling it. Actual time working with data or theory will break your delusions of knowledge.

  28. Honestly, the problem is the professors and their completely skewed point of view. My one econ class in college left me with such a bad taste as to how anyone could believe the crap this guy was spewing (to paraphrase: “MILTON FRIEDMAN IS GOD”) that it turned me off ecomomics study for 2 decades. Now I’m ready to return for my MBA with a seriously skeptical perspective, but if you are 18-21, you might swallow a lot of that garbage wholesale.

  29. There are plenty of absurdly bad lecturers and adjuncts at community colleges and state universities. You could have earned a PhD in econometrics in 1975 and not published since 1980, and end up teaching a macro course based largely on a 70’s grad course and Fox News. There are plenty of great professors who no longer research, but are excellent teachers. Unfortunately bad teachers exist in most departments and schools.

  30. I doubt the friend is necessarily selfish and self-centered. That’s the beauty of this type of free-market ideology. It means you can promote the general good by promoting the good of those already (very) well off. And if you’re in that top 1%, it means having your cake and eating it, too.

    Also, not only does luck play a role in any successful business, but the society that person lives in is also central. This includes not only the legal system, police, roads, supply chains, etc., but also the fact that we have workers who have decent wages.

    Off the top of my head, society’s investment in workers means a more stable, law-abiding, educated, tolerant business environment. This creates savings in training, security, information access, access, transportation, etc. It creates an environment in which certain businesses can exist in the first place.

    All these come from a well-educated middle class and government investment in society. It also supplies a place for him to spend his hard-earned money, which would otherwise not be available.

  31. @Rob,

    one major error in studies like these is, to my opinion, that they tend to be too monocausal and/or not quite focused on what they are asking for.
    i.e.: are students of economics (which one? behavioral?, neoclassical? etc) more conservative (what is that?) ?

    My personal -ahem- meditations hint to several overarching abstract concepts:

    1) ‘Educated Conservatives’ tend to socialdarwinist principles
    2) ‘Educated Conservatives’ tend to cheating, because this is the broadest road to individual success
    (e.g. Bob Altemeyers ‘authoritarian leaders’)
    3) ‘Uneducated Conservatives’ tend to stick to their ingroup and defend it vehemently up to violently
    (e.g. Bob Altemeyers ‘authoritarian followers’)
    4) Both types are not really interested in coherence of their worldview.
    They tend to have a fragmented mind.
    (I.e. Unscientific or superficially so.)

    One dichotomy is (out of the evolutionary biology context):
    Do I want to be a prey or a predator? ( this is sort of a crude version of evolutionary biology and resonates in evangelical types of religion: I love my neighbor, but I vehemently oppose the other/enemy etc, –have to convert him or kill him–

    To make this not too long:
    My suspicion is, that (neoclassical) economics emphasizes these memes.

    Ofcourse the student of economics wants to be on the bright side in this socialdarwinist game, and so he chooses to be a predator, and hone his skills.

    Look at this:

    Theoretical ecology is largely founded on the principle of mass action, in which uncoordinated populations of predators and prey move in a random and well-mixed fashion across a featureless landscape. The conceptual core of this body of theory is the functional response, predicting the rate of prey consumption by individual predators as a function of predator and/or prey densities.

    This assumption is seriously violated in many ecosystems IN WHICH PREDATORS AND/OR PREY FORM SOCIAL GROUPS.

    Current research, I’m afraid, is far far away from exploring this important track, as it would deserve.

    It is mirror neurons at work in a very sophisticated way: On group level.
    Ingroup versus outgroup, with memes as transport mechanisms.

    Coherence is one of the first victims.

    Compare this to the ‘homo oeconomicus’, which is at best a grave error, at worst a deliberate lie. This seems to border on conspiracy, but is not.
    ‘Conspiracy’ is an effective method of small (in)groups to exploit (fleshly) recources.

    Any pack of wolves does it.
    Is man so much behind?
    Do’nt have to answer that one.

    So the question could be transformed to:
    What is the role of (neoclassical) economists in this game?

    Useful idiots?
    Students of predatology?
    Or what?

  32. @Anonymous at 2:52 pm

    At least You got it!

    The (very compassionate) daughter of a dear friend of mine started studying economics.

    When I asked her, and thoroughly briefed her:
    “Do You really want to be in bad company for the rest of Your life?”

    she finally gave up.

    One of my triumphs in life.
    Saving a soul.

  33. You assume that the economist takes “homo economicus” seriously or generally. Economists use these assumptions despite their philosophical baggage because they provide a tractable framework to successfully address a wide variety of economic questions.

    If behavioral economists, sociologists or anthropologists provided an equally tractable and successful framework with which we can model human behavior, I’d be happy to employ it. Macro economists are still trying to find ways to work game theory into tractable models. I find these sort of critiques lacking in their understanding of modern economic thinking.

  34. “You can promote the general good by promoting the good of those already (very) well off.” Trickle-down economics has been discredited; are you still living in the first eight years of the 1980s?

    Lowering “the tax rates on the top 1% of income earners” and “a well-educated middle class” have absolutely nothing to do with one another. We are seeing this today with lowered education for the middle class and historically large salaries for the top 1%.

    Lowering “the tax rates on the top 1% of income earners” and “society’s investment in workers” have absolutely nothing to do with one another. The former is the wealthy trying to keep every dollar they make and the latter is Republican-speak for an activity that does not exist.

  35. is#nt the ‘Homo oeconomicus’ deconstructed in so many ways, that it is only a small Chicago crowd which considers it a -well- useful abstraction of human behavior.

    I do’nt know if this is even the case in this olympic resort.

    …”they provide a tractable framework to successfully address a wide variety of economic question”…

    “homo economicus” is not even a useful abstraction, it is -nowadys- a PURE Lie.

    Adam Smith was right somehow in his time, but his concepr functioned only in combination with his “Theory of moral Sentiments”, which later on transformed into the ‘Protestant Ethics’ of Max Weber.

    …”tractable and successful framework”…

    You make me laugh.

    There is none.

    The western economic framework –and not only that– think of externalities– is collapsing right now, and You talk about success!?

    Economists have NO AUTHORITY whatever to model human behavior! How could they?

    My training is in Behavioral Physiology, Cybernetics and Engineering–quite diverse– and was at some time wondering what economists have to say about the world: Result: LESS than nothing!

    Sorry to say that.

  36. If your theory is correct, how do we explain the fact that the little-knowledge economics students are (presumably) taught by – and their books are written by – PhD economists?

  37. Sorry for the typing errors.

    You mention
    …modern economic thinking…

    What is that.

    I am quite familiar with Steve Keen etc.
    This is because Steve is an Engineer by Training, and therefore with his method of tackling economics I feel quite sympathetic.

    The ‘mathematics of human interaction’ is an ancient German endeavor, dating back into the 1880’s, as You probably know.

    Did You notice that it has failed then and now?

    And now (-100…0years) some Economic Geniuses pretend to have found out what the ‘mechanics’ of human valuation is?

    An You believe that?

    Think again!

  38. Ah, but the concept of opportunity cost will have been deeply inculcated into good econ students. And how does something civic, such as voting, figure into the pursuit of utility maximization? PhDs will have been deeply impressed with the elegance of neoclassical modeling, perhaps even enough to take such models too literally. A case of deformation professionelle, perhaps? And let’s not forget that Milton Freidman’s seminal work from the 1950s had become mainstream by the 1990s…

  39. Maybe it’s me, but there’s something in the pseudo-science of entry level economics that sort of resonates with the pseudo-science of “physiognomy”. It’s this desire of humans to put everything into a safe and consistent little box even if it takes an enormous amount of effort cram the divergent data together. It’s also the ability for essentially “quack” (uh, no insult intended) scientists to take a very incomplete picture and try to formulate a universal truism from it – too little data and too much thinking. This is frankly a lot like Fundamentalist religion.

    The fact that this appeals to the conservatively inclined doesn’t surprise me – if there is a characteristic (a place I can put them in a box), it’s their desire to safely stereotype the world and to draw truisms from too little data.

    Not that liberals don’t do it as well…

  40. scathew,

    this very much resonates with me.

    There is some inclination of conservative minds (the followers), who are basically frightened by the world and try to frame it as simple, which it is not.

    In Consequence, they are the last in the imaginary row to success, which they -on gut level- feel.

    It is this leader-follower syndrome, which worries me.

    The leaders spit out incoherent economic theories, the followers swallow them, and finally die.

  41. The top 1%. Who are those? How much do they make?

    This is mostly dual earner middle-class jobs (nurse, teacher, office admin, police, local govt type of jobs) families on the coasts.

    The graph at that link above shows the meaning of rich.

    This brackets those who earn $250K (about 6 times the median of $46 K median) with those who earn $1.6 million (35 times median)?

    People who effectively end up paying more than 50% in taxes (70K Fed, 20-22K state, 17 K payroll) and in childcare (10-20K). Leave alone sales taxes.

    With brackets structured like that, what you see is millionaire CEO’s and non-wage earners hiding behind the skirt of common senior professionals (wage-earners) like accountants, teachers, nurses etc. Most of these are double-earner families who effectively end up paying more than 50% in taxes (70K Fed, 20-22K state, 17 K payroll) and in childcare (10-20K)

    In practice, raising taxes on the top 1% is not taxing those who earn that 1.6 million on average. The rich pay 20% on their investment income and live on expense accounts.

    In practice, this is taxing two sets of people – double income middle-level workers, and those who are professional wage earners living in cities.

    Taxing the rich? Not at all.

    ….The average income for a tax return in this top 0.1 percent is $7.4 million, while the average amount of income tax paid is $1.6 million, indicating an average effective individual income tax rate of 21.5 percent…

    If someone can explain to me given the mathematics that the top bracket starts at 350k and so about 7 million is taxed at the highest tax rate of 35% in 2007, how an income of 7 million can end with a 20% tax rate?

    It is time educated people stop pushing this “top 1%” and “top 5%” bull. As noted, (1)there is much more disparity of incomes _within_ the top 1%, and tax rates are lower for the top end of that 1%.

    It sounds all good in sound bites – tax the rich, the top x%, but practically nothing will be changed by that policy.

    Why can’t anyone rise up and say – I want to add a 40% tax bracket above 500K (or 600K or whatever) and yet another bracket at higher income?

    Let me make a guess – because then it will pass easily. Because the million earning chumps wont be able to hide behind the skirts of 250K workers.

    That may sound ironic – but show me the stats. I have cited mine. That returns with more than 250K income are mostly of rich people, rather than double income middle-class jobs.

    Show me.

    I believe in progressive taxation. That 50% on 250K is close to my family status. Show me why I should pay more, rather than people who pay 20% taxes of 1.6 million on income of 7.5 million.

    State taxes in CA are even more regressive. Everyone above 47000 pays 9.3% – because when a family makes 43k, they are all as well off as Schwarzneger.

  42. Only if what those three hold is dogmatic, i.e; not subject to verifiable repeatable proof.
    Your argument simply states what is obvious to non-economists- economics is a branch of theology.

  43. scathew,

    I did not think it completely through, but this seems to me a VERY dangerous article.

    …”Basic economics acknowledges that whatever redeeming features a restriction may have,
    it increases the cost of production and exchange, making goods and services less affordable.” …

    Which is silly to the extreme!

    This is WSJ spin, trapping unsuspecting citizens into saying something which effectively puts a rope around their necks, effectively being a test in the like of ‘death tax’.

    VERY interesting test for doing an intermediate test, how far the dumbing down of the American mind was successful, as I, as a European see it.

    Sorry. Sorry. Sorry.

    The intensity of brainwashing You have to endure, probably will reach European shores in a short while.

  44. Free markets require free exchange and property rights. Property rights require an institutional authority that can protect those rights. That is why Somalia is not an example of a free market society. Without property rights to protect people from racketeering, and without the guarantee of free and willing exchange, you cannot have a free market system. Saucy is wrong in his assumption that any amount of law restricts the market. Actually, you cannot have a free market systems without a set of laws that guarantee to the people the right to property and the right to dispose of said property in whichever way they see fit.

    Nemo’s request is legitimate. The United States has done a poor job of being a free market example for the world. Hong Kong and Singapore are two great examples of capitalist countries, but even in those places there are some restrictions against absolutely free trade. If a country is attempting to grow its economy efficiently and sustainably, capitalism is the best model, however pure capitalism is not viable politically, regardless of the form of government within a country.

  45. What I am saying is that if you close your mind to possibilities that are outside of what you currently believe, you are no longer being scientific.

  46. yeah,

    if I get the message
    ‘Your comment is awaiting moderation’
    I get the feeling that I am on the right track.

    This is not intended to identify James or Simon with their spam-filters.

    But they- important as they are- have some explaining to do.

  47. I disagree. In Somalia as everywhere else, capital is globally mobile and labor is not, so how can there be a free market?

  48. my family is from a natural rotating cycle of economics that tended to keep populations low due to natural conditions and war. then we were invaded and we are not sure what economics can describe what some of us yearn to return to. not that we want europeans to go home but that we want to return to a period of contact and pretend disease did not shut us up. then we can merge more of our shared economic heritage. capitalism and the “free” market are only for the few and that in turn leads to extinction. so if there were a way to create an economically equitable existence here, how would we create ways of learning that will teach us a sustainable economy and take care of us all? i am most definitely NOT a (R) but not sure of (D) either.

  49. There is a very interesting article in the most recent Minneapolis Fed publication called “The Region” written by Narayana Kocherlakota which largely discusses some of the differences in opinion among economists on Macroeconomics. Honestly I haven’t gotten around to reading it, but I think we can trust the author of the piece to deliver and I highly recommend it to James Kwak and others when they have time. Enjoy!!!

  50. We’re waiting for Nicolas Sarkozy to come here and teach Americans a graduate class on foreign exchange. Hopefully together with an undergraduate class on monogamous relationships.

  51. Rep For Foreign Bankers Physically Restrains Huff-Post Reporter From Questioning Treasury Official

    06- 8-10 05:45 PM – Huff Post – excerpts

    “The official, Marisa Lago, an assistant secretary for international markets and development, told the assorted bankers from foreign institutions that she didn’t expect other countries to follow the Obama administration’s lead in its attempt to prevent banks from trading with their own funds or from owning hedge funds and private equity firms, speculative activities that comprise the so-called “Volcker Rules….

    After she delivered her remarks and answered assorted questions from bankers and their lawyers, reporters attempted to ask a few questions, too.

    But William Goodwin, the communications director for the Institute of International Bankers, told reporters that Lago had to rush off to another meeting.

    As two reporters trailed Lago as she walked towards the hotel’s Park Avenue doors, this reporter attempted to follow her out.

    But this reporter was physically restrained by Goodwin, who forcefully grabbed his arm, pulled him back and prevented him from exiting the hotel or asking a question of Lago, a public official.

    Lago was then whisked away ….”

    * You can’t make this stuff up!

  52. It is reasonable to say that most people who have taken and pased Econ 101 know more than those who have not.

  53. Trickle-down economics has been discredited; are you still living in the first eight years of the 1980s?

    I think he was trying to explain THEIR mindset, not his own.

    Besides, show me 1 person who cannot be reliably counted on to convince himself that that which benefits him also benefits everyone else. Self delusion doesn’t depend on ones economic philosophy.

  54. I admire you a lot and mean this in the best possible way, but I don’t know where people are taught that economic theory suggests that “free markets lead to maximum societal welfare.” In half decent economics departments, in their first economics course, students are taught that under (long list of assumption) free markets lead to Pareto efficient outcomes. In the better departments it is explained just how weak this result is.

    People who think it is better that the Nazis lost WWII even though Hitler wanted to win don’t think the first welfare theorem amounts to much (provided someone explains the meaning of “Pareto optimal”). I note that Arrow stresses that Pareto efficiency is a very very weak result and he should know.

    Also there is a set of lump sum taxes and transfers such that under (same long list of assumptions) an unconstitutional bill of attainder which imposed those taxes and transfers followed by free market interaction would maximize social welfare.

    People who don’t accept the proposal that the tax code say something like “Robert Waldmann owes $35,000 this year) have no use for the second welfare theorem.

    Also the long list includes, among other things, the assumption that there are complete markets, that for each distinguishable state of the world, there is an asset that pays one in that state and zero otherwise.

    It is known that generically (for an open and dense set of economies) the free market outcome is not Pareto efficient if markets are incomplete.

    I notice you didn’t mention incomplete markets before the etc in your list of reasons why 50 year old general equilibrium theory doesn’t tell us anything useful. I think you should have. The mathematical result (due to Geanakoplos and Polymarchakis published in the Arrow Festschrift) that complete markets are a generically necessary condition for the first welfare theorem is very very strong.

  55. A propos of nothing specific in your blog, there’s an old saying I don’t hear anymore:
    If you laid all the economists end to end they wouldn’t reach a conclusion.

    I have reached a conclusion about economists in general: they don’t serve much purpose.

  56. Mr. Kwak wrote:

    “The Perils of Studying Economics”

    “A mathematician, an accountant and an economist apply for the same job.

    The interviewer calls in the mathematician and asks “What do two plus two equal?” The mathematician replies “Four.” The interviewer asks “Four, exactly?” The mathematician looks at the interviewer incredulously and says “Yes, four, exactly.”

    Then the interviewer calls in the accountant and asks the same question “What do two plus two equal?” The accountant says “On average, four – give or take ten percent, but on average, four.”

    Then the interviewer calls in the economist and poses the same question “What do two plus two equal?” The economist gets up, locks the door, closes the shade, sits down next to the interviewer and says, “What do you want it to equal”?

  57. The context here is economic questions. Empirical economics has tackled a wide variety of economic questions successfully. One of my favorite empirical economists is Michael Keane: he has several papers in marketing and labor which use a structural estimation approach to describe economic decisions. These sort of projects are useful in predicting responses to policy changes.

    Economists do empirical analysis of human behavior in its natural environment more rigorously than any other disciple. When doing positive quantitative analysis of large groups of individuals, I have not seen better analysis. There are plenty of weird paradoxes from the lab of which most economists are aware. There has not been much success taking those paradoxes and putting them into a tractable framework to discuss relevant economic problems.

    While the global production is extremely high by historical standards despite a global recession, it is hardly a good standard of the success of economics. Would you credit Behavioral Physiology with the increase or decrease of global happiness, or engineering advances for the success/failure of the manufacturing or construction sectors?

    The best way to learn how an economist thinks is to befriend a good economist and share ideas. Perhaps it is simply the case that you don’t find economic questions interesting and economists don’t find your questions interesting. The fact that you believe you can discredit a disciple with a few papers and a handful of knowledge speaks to your own credibility.

  58. The problem with economic theory is no matter how things turn out the proponents can still claim victory.

    This is going on now with Keynesians saying that we avoided another Great Depression because of the increased government spending.

    How can this be proved?

  59. The curriculum over the past 30 yrs has been designed to promote pro ‘free market’ sentiment that favors the top at the expense of everyone else. He who pays the piper …

  60. This is an excellent article which should be insightful to the economics skeptics.

  61. Terms like “free market” in public discourse are just slogans to activate a certain type of behavior among the public. They are not meant to be precise in an academic sense, but to arouse emotion when used in a particular context such as in a campaign speech justifying egregious corporate behavior or in cutting public spending and protection.

    Rigorously speaking, use of “free market” has to qualified by specifying what is free (labor capital, etc.) and how (movement, direction, etc.).

  62. “You’re getting too complex for the scope of this class, let’s just move on…”

    Sounds like the prof just admitted unwittingly that he’s propagandizing!

  63. The first post has it, albeit indirectly. Mankiw’s text has been very influential.
    Ggordon – The very rich pay mostly long-term capital gains tax, not the rate on ordinary income. Without the lower rate on such income, much of it would never be realized (people would just keep the accrued gains without changing their form). Of course, with the lower rate, you have to worry about people shifting what should be ordinary income into long-term capital gains.
    Alternatively, we could tax accrued gains, realized or not, by marking everything to market. This means, for example, that you would have to pay income tax whenever your house appreciated (if there is no special homeowner’s tax break).
    Better tax consumption, with high rates on certain types of consumption to ensure that private costs are aligned with social costs.

  64. Mr. Kwak wrote:

    “But when you learn more about principal-agent problems, information asymmetries, and so on, you learn that those simple pictures are simplistic to the point of being misleading.”

    Madmen In Authority

    June 7, 2010, 3:33 AM – NY Times – Paul Krugman – excerpts

    “Rereading my post on the folly of the G20, it seems to me that I didn’t fully convey just how crazy the demand for fiscal austerity now now now really is.

    The key thing you need to realize is that eliminating stimulus spending, while it would inflict severe economic harm, would do almost nothing to reduce future debt problems. Here’s the IMF’s estimate of sources of the growth in debt over the next few years….

    …So how much we spend on supporting the economy in 2010 and 2011 is almost irrelevant to the fundamental budget picture. Why, then, are Very Serious People demanding immediate fiscal austerity?

    So wise policy, as defined by the G20 and like-minded others, consists of destroying economic recovery in order to satisfy hypothetical irrational demands from the markets — demands that economies suffer pointless pain to show their determination, demands that markets aren’t actually making, but which serious people, in their wisdom, believe that the markets will make one of these days.


  65. The WSJ article is devious crap, however, note it is in good company on the WSJ Opinion page.

  66. At my business school, I was lucky enough to have the core of my Economics taught to me by two Professors, one was from India and the other was from Russia, both obtained their Ph.D.s in their home countries, so I’m warped in that I was not moved to the right as a consequence of my experience.

  67. “A little learning is a dangerous thing; drink deep, or taste not the Pierian spring: there shallow draughts intoxicate the brain, and drinking largely sobers us again.”

    — Alexander Pope, An Essay on Criticism, 1709

  68. I used to read WSJ around 1985-1995, even though I hated the editorial section, because I could get things in the front page and stock section I couldn’t from other papers. It cost 75 cents from the machine then and I gladly paid it. Now the entire WSJ is crap. I can get Bloomberg or New York Times which dig much much deeper than WSJ does now.

    Rupert Murdoch wants a WSJ that rubber stamps the corporate raping of America. Murdoch’s main goal is equating Goldman Sachs, derivatives dealers, credit default swaps, and BP oil together with Grandma, the flag, baseball and apple pie. I’m not subsidizing that and the blathering of Peggy Noonan. The newspaper vending machine would have to cough up $1 and give me a voucher for 45 minutes of my life wasted.

  69. James, I am certain that what you say is correct. However, I believe that the greatest failure amongst those who study economics seriously is the failure to understand the two ideas: 1) Ceterus peribus (all things being equal, which they are not, and 2) the “two-handed” economist. In case number one, it is key to understand that economics is a social science in reality, and not an actual science. It falls into the same bag as sociology and psychology, and anthropology, and, is in fact subject to the effects created within those fields. There is no “all things being equal” ever. I would simply note that few serious economists are willing to make predictions about economic futures. Most PhD’s understand the vicissitudes of their chosen profession enough to know that their predictions, especially on a macroeconomic level, even given good and reliable data, are just educated guesses. In reality, crystal ball gazers may be almost as accurate in their ability to see into the future. Then their is the two-handed economist. As one of my revered econ professors once said of the macro business, who hasn’t heard an economist in any speech or lecture say on many occasions “on the other hand.”

    Given our present economic and political climate, few serious economists are also optimists, but then that is because most data would indicate global economic weakness combined with global social malaise. Whom amongst us could feel differently. I see the study of economics as useful, but only as one of a much larger tool set. I have real admiration for those who chose it as a profession, although I also believe that they must be a little nuts, since there is nearly constant war within the profession, and continuous criticism from without. This is one profession which enchanted me, but then I got sane.

  70. There are other ways to learn about topics than strictly higher education – for instance this blog (and Brad Delong’s, and Paul Krugman’s, and Greg Mankiw’s, and Mark Thoma’s, and Max Keiser’s, and Calculated Risk, and Naked Capitalism, and Wiki-Pedia, and and so on, and so on)…

    What I was more referring to is someone who took Econ 101 like 10 years ago, but implies you can’t know what you’re talking about because you didn’t…

  71. Mine were from India providing me the fundamentals; invaluable were subsequent elective histories of econ for context.

    Qualitative conclusions drawn from quantitative analysis seems to be how academic economists veer away from reality and toward dogma; ivory tower syndrome. Wall Street economists are hired to time the market, period. Economics ain’t rocket science… it’s harder.

    As for political leanings: this is probably a function of decades long Chicago School bunkum. A similar study done in the 1960s might have found to the left because of Galbraith and Samuelson.

  72. Economists espouse free markets as the best and fairest but strangely they do not seem to know how to create them. Witness electricity deregulation where on the west coast private utilites(and enron) turned into thieves – and this was a surprise to economists.

  73. My psychologist husband suggests the converse is true: that more intelligent (and therefore more progressive – according to a recent study reported in “The American Psychologist”) people go on for Ph.D.’s….

  74. Mr. Kwak is making a wider point than free trade ideology..

    “However, they were also more likely than economics majors (or, frankly, any majors) to think that income inequality should be reduced and that government spending should not be reduced, and they were somewhat less worried about federal budget deficits”

    There is a limited amount of knowledge professors can impart in undergrad business and economic classes -they have to start somewhere.

    I had exactly the same free market/right wing ideology when I graduated 25 years ago with a business degree. Life experience and a study of politics and sociology – and reading sites like Baselinescenario – since that time has gradually changed my political outlook 180 degrees.

  75. From Europe – studying economics did turn my anarco-socialist me into more of a liberal (in the European sense).

    I remember my university director was a randian, we had the Mankiw book and were encouraged to read Bjorn Lomborg. The director was eventually ousted by the university shareholders because he was way too extreme.

    For me, it was a long and painful process of conversion, and for a while I held fairly extreme ideas myself, just to revert to a more moderate conservatism once I started reading some applications of transaction-cost economics.

    At the time of my struggle I really perceived economics as pure propaganda and my co-students as drones. And I really really really hated Mankiw.

    I cannot say it was all bad though. Coping with the intellectual challenge and having to come up with a compromise was a great experience. Putting up with such intellectual peer-pressure really made me stronger.

  76. My work is not done? Basel-ine proprietors, please post a note at the top of the site that explains how economists are propogandists and/or highly educated flacks. Please explain how all the money that goes into funding economists’ careers and speaking engangements and conferences, etc., influences what they teach and write. Please explain how NBER and CEPR (with some NSF thrown in too) have been snowing the western world for almost one hundred years. Please explain how “Baseline” is a play on words.

  77. I think it is shameful that such a nonsensical article was published in the WSJ. I would expect to see it in the Sun in the UK but I would think Murdoch would be more careful with a better educated WSJ readership.

    As many Brit readers will agree- via the Sun – and to a lesser degree The Times – Rupert Murdoch may more responsible for the free-market, libertarian policies first heralded by Thatcher in ’79 than any single individual in the UK. He has backed every winning PM since then (I am sure he would have preferred the Cons over Blair – but he never backs a loser).

    Very scary…and son James..and Roger Ailes…jeesh.

  78. The Perils of Studying Economics;

    not enough history incorporated into the econ courses. And thereby not having a clue where one stands, comes from and most likely will descend to.

    ‘Honoré de Balzac had a more historically realistic view when he wrote in Le Père Goriot that behind every family fortune is a long forgotten crime – one “that has never been found out, because it was properly executed.”4 Not necessarily forgotten, to be sure. Europe’s aristocracy proudly achieved its landed estates by military conquest, and Gustavus Myers’ History of the Great American Fortunes traced how most family fortunes were quite visibly and notoriously carved out of the public domain. Novelists and historians seem to understand this much more readily than economists, whose blind spot usually leaves credit and debt – and privatized economic rent – out of their narrative of how fortunes are obtained in today’s world.’ (Page 10)

    Click to access Progress1096_APR2010_final.pdf

  79. Probably the other way around. Let’s try it another way: Deeper exposure to reality leads to a more accurate understanding of (the limitations of) economic thinking in the real world.

  80. No doubt you can detail these intellectual prejudices to your own satisfaction, but the vital contribution of Veblen, Keynes and Galbraith was to establish that conventional economics was errant nonsense, that financial and market power inevitably overwhelm theoretical benefits of “free markets”, that fundamental political values demand visible hands guided by law and principle. I would think the last decade of market idiocy would so convince any thinking person not blinded by class interest, but perhaps you require another explosion or two. Chances are you will get them.

  81. As an engineer I’m hardly surprised by the outcome of the study. Throughout my university years one thing was made clear to me: we’re always discussing models, i.e. abstractions of reality. The higher you go up the education ladder the more accurate (and complex) your models become and the closer to reality you get. Take for example the study of mechanical vibrations. You can find an overview of the subject in the wikipedia entry:

    I’m not American so I don’t know what you’re taught in school but my guess is that the simple, single degree of freedom newtonian model is included in high school physics books (probably more, but it depends on how deep into differential equations you go in math). You probably understand at this point that you’re not able to design your own car suspension system yet.

    If you continue to study the issue (e.g. in a physics or engineering major) you’ll learn about multiple degree of freedom systems, resonance, non-harmonic forces and so on while at the same time you master the mathematical tools you need for your analysis. Your models are much more complex now and so is your understanding of the world (that’s how an antenna picks up radio signals, awesome!) but are you ready to design the next suspension system for Ferarri yet? Not really.

    Let’s move on to post-graduate studies. Here you’ll learn about problems with hundends of degrees of freedom, computational models and numerical analysis methods (e.g. finite elements) used to approximate solutions to real world problems. Even now you only have a deep understanding of a tiny slice of real world engineering problems – and you know it. Even if you are able to design a complex suspension system you probably wouldn’t know where to start with an internal combustion engine.

    So why don’t economics students understand the limitations of their models and how simplistic they really are – even if they offer a good baseline understanding? One answer may be that economics is not an exact science (like physics) so it’s hypotheses are not readily testable in the real world. This creates the epistemological problem James describes that many probably don’t understand: how much do I really know? how close am I to the “truth”? An engineer can build a prototype and find out, an economist can at best look at historical data and try to make observations – often a very subjective process, especially if one wants to make it so. Many don’t even bother to go that far.

    Another answer may be that economics is a very political subject, with economic theories used as ideological tools (often with the finesse of a cudgel) by people with strong illogical beliefs and / or ulterior motives (do you really know if senator x who professes belief in free market capitalism isn’t just saying so because he’s hadsomely rewarded by people who benefit by the current state of affairs?). Add to this the fact that economics are continuously discussed by laymen, journalists and people with very shaky educations in the subject who collectively add a great deal of noise to the discussion and the fact that barely educated undergraduates believe they know more than they really do becomes perfectly understandable: if all those idiots who don’t know the first thing about economics have opinions, mine is obviously better – simplistic or not.

    All in all I think James nails it.

  82. What’s with these economic mathematical models? It seems like a lot of time and effort just to fail miserably.

  83. Thanks James this is very helpful to a person not an economist of any stripe. I may have misunderstood your comments but take it that you are disclosing that you are a closet Republican? Are you counselling to be wary of economists or the unwashed?

    Ah, it is indeed refreshing to now understand this magical art – I think.

  84. “These are all pro-free market, anti-government intervention positions. What I thought was particularly interesting, however, was that on some issues people who study undergraduate economics are more doctrinaire free marketers than professional economists.”

    I also think that people who haven’t really studied economics think “free market economy” just means “market based economy” as vs one centrally organized and controlled by Teh Party, ie “socialism” or “communism,” leading to a political lock on all economic activity.

    This they associate the with Teh Left and so every single thing a D-Party President does to intervene in the economy–irregardless of what it is–becomes “socialism.”

    Consequently, there’s no room for discussion because when they hear something anti-“free market” they hear something completely different from what may be intended.

    They don’t, for example, recognize how much influence Teh Govmint had on the US economy of the golden era 1950s, promoting a certain kind of “(free) market economy.”

    And, to be fair, most people who blither on and on against “teh free market” are not at all explicit about what they mean.

    On a related note, outside of small business owners, I don’t think most “conservative” leaning people are really anti-regulation. They are anti-taxes.

    Although, the acrimonious culture war focus of both political parties over the past 40 years, I can see why conservatives do not really want liberals dictating things like hiring policy, and I guess that’s regulation, too.

    In other words, I kind of agree with Dean Baker that even using the term “free market” is counterproductive because it blocks understanding more than it promotes it.

    And, really, there are no economies, there are only political-economies. Period.

  85. Scathew,
    I think I share some of your concerns having been exposed many years ago to Economics 101 but saw the light. I thought the subject was not so much Fundamentalist Religion which seeks to grapple with philosophical absolutes and is like seeking to understand electro-magnetism and relation to gravity (I’ll leave you to opine the result)! My opinion at the time was successful economists must have an alchemist’s view of the universe complete with models to explain transmutation. Too bad I missed the model which turns straw into gold. However it seems Wall St. bankers got the model right and it works!

  86. The headline conclusion is that the more economics classes you take, the more likely you are to be a Republican.

    Did they control for the fact that students aren’t randomly assigned to classes?

    In any case, I think the problem is that Econ 101 is not taught with proper awareness of the limitations of Econ 101 approaches. When Physics 101 studies something that resembles a real-world problem, everyone knows how unrealistic the simplifying assumptions are — when you assume a spherical chicken of uniform density moving on a frictionless surface, no one expects the results to generalize to actual chickens. But when Econ 101 assumes a perfectly informed, perfectly rational consumer/investor/etc., some students apparently miss the point that *that’s not a real consumer/investor/etc.*

  87. The top 1% obtain cheap labor from the back of middle America, but hardley any of the income and goods really trickles down, wait thats sounds like modren day slavery to me……hmmmm Rockerfellas, JP Morgan,

  88. Isn’t this confusing correlation with causation? Isn’t it more reasonable that people with conservative opinions tend to study business and economics (and then go into business), while those who go on to pursue doctorates in economics, like most academics in the social sciences, tend to have more liberal opinions?

  89. Maybe I had good Econ Profs. — one wrote my International Economics book — but I would have to say in some ways the data is a bit wrong. Most of the students I took lower econ classes with were Republicans to start with. I know this as I was Chair of the College Republicans (I have since felt my party has left me as I tend to be a centrist who feels issues need to be weighed with the times, situation and whether they are really personal in nature.)

    It is my belief that people tend to hear what they want to hear and take what they want from a class.

    If one was to survey profs. in general, I believe you would find they tend to be liberal as they tend to be those who like to help/teach others — and fix things. Those who go into the work place tend to be interested in doing as well or better then their parents. This puts them in a conservative mindset to begin with — doing better then their parents. Few are able to take higher education as pure enlightenment — they use it only for a career, which is what a local college or two year degree should be used for. Again, it is the fault of the University System that stresses careers and NOT a Liberal Arts Education with classes in scientific thought and methods.

  90. Re: @ Anonymous____May the “God’s of Laughter” bless the truthsayers – you made my day. “Laughter,oh laughter…where would our broken lives be without ones convalescent coherence too unshackle tragedy with such impulsive, and innocent detente”

  91. ‘The history of economic thought was taught as a core course when I attended graduate school in the early 1960’s. It has been replaced by mathematical economics, trivialized by being based on conceptually questionable, ideologically based statistical categories. My most imaginative students at the New School where I taught in New York City dropped out of the discipline and went into sociology or something else. They wanted to study economics to discover how the world operated, but were disappointed to find that this is no longer what the discipline is about.’

    (Page 10)

    Click to access Progress1096_APR2010_final.pdf

  92. ‘The situation is worse for those students who stayed in the field and sought academic positions. Promotion is conditional upon publication in “vetted” journals. The key publications are controlled censorially by an intellectual inquisition that blocks any critique of pro-financial free market ideology. It is telling that one of the first acts of the Chicago Boys in Chile after the military junta overthrew the Allende government in 1973, for example, was to close down every economics department in the nation outside of the Catholic University, which was a University of Chicago monetarist stronghold. The junta then closed down every social science department, and fired, exiled or murdered critics of its ideology in the terrorist Project Condor program waged throughout Latin America and spread to political assassination in the United States itself.

    What the Chicago Boys recognized is that free
    market ideology requires totalitarian control of the school and university system, totalitarian control of the press, and control of the police where intellectual resistance survives against the idea that economic planning should become much more centralized – but moved out of the hands of government into those of the bankers and other financial institutions. Free market ideology ends up as political Doublethink in countering any freedom of thought. Its remarkable success in the United States and elsewhere thus has been achieved largely by excluding the history of economic thought – and of economic history – from the economics curriculum.’

    (Page 11)

    Click to access Progress1096_APR2010_final.pdf

  93. The study raises at least two questions.

    1. The first I’d agree with — that a little knowledge can lead to an oversimplified view of these economic questions.

    2. The second centers around the correlation vs. causation question. My sense is that an econ degree probably doesn’t “cause” a person to vote Republican anymore than a Journalism degree causes a person to have more Democratic leanings. The selection of major likely reflects attitudes that the major itself tends to reinforce. e.g. this is more an issue of correlation than causation. People who pursue an econ degrees are probably more likely to vote Republican in the first place. I’m too lazy to read the study, but it would be interesting to see what political attitudes are when a person first selects the major and later when the person graduates with the degree. To get a more robust picture it would be worthwhile to look at political attitudes across a range of different majors when those majors are first selected, and then to gauge political attitudes at the time of the completion of the degree. My guess is that the causation element is probably less significant than just a raw correlation.

  94. John Cassidy’s “How Market’s Fail” provides a great review of utopian economics as preached in the hollowed (sic) halls through the 80s 90s and forward. The results of the Fed’s study are such a logical conclusion that there must be a tautalogy here.

  95. Economist Robert H. Frank (not to be confused with Congressman Barney Frank or historian/social commentator Thomas Frank) has a gentle, yet, telling criticism of economics education in his book, “The Economic Naturalist’s Field Guide,” which is a compilation of newspaper columns previously published (almost all of which appeared the New York Times). There are three articles on this topic with additional commentary.

    He illustrates this sad state of affairs with a study and an example. Consider the notion of opportunity cost – pretty central to economic analysis, right? At the 2005 meeting of the American Economic Association, researchers Paul Ferraro and Laura Taylor posed this question to almost 200 professional economists: “You won a free ticket to see an Eric Clapton concert (which ticket can’t be resold). Bob Dylan is performing on the same night in the same city and is your next-best alternative activity. Tickets to see Dylan cost $40 (equivalent seats). On any given day, you would be willing to pay up to $50 to see Dylan perform. Assume there are no other costs of seeing either performer. Based on this information, what is the opportunity cost of seeing Eric Clapton? (a) $0, (b) $10, (c) $40 or (d) $50. The correct answer is $10 (Dylan value – Dylan cost). Only 21.6% of the surveyed economists answered correctly.

    Frank also cites a study in which these researchers posed this question to college students. Among those who had never taken a course in economics, 17.2% answered correctly (not bad, compared to the economists’ performance). But, among those students who had taken a course in economics, only 7.4% answered it correctly. The subtitle of their paper is, “dismal performance from the dismal science.”

    To the broader point, economics is complex and sophisticated and ideology is simple and primitive. The Alexander Pope passage quoted above is apt.

  96. An interesting James Kwak piece taking to task the New York Fed study on the perils of studying economics. However, his argument that graduate level economics makes people less neo-classical in their approach (compared to undergraduate level courses in economics programs)misses the critical point that the ethical ‘paradigm’ of utilitarianism (whether of the left [including Keynesianism, social democracy or, for that matter, Marxism] or the right [monetarism, rational choice, neo-classical/Pareto optimality, etc.]) is utterly uncontested at any level in any economics program at any university – i.e,, there is no acknowledgement in any economics programs of competing ethical models for judging societal welfare; that is to say the tradition that can be summarized by the guiding maxim ‘the greatest good for the greatest number’. For example, the very long tradition of ‘virtue ethics’ posits among its guiding purposes and ends justice, community, reciprocity and mutuality; it is a tradition that comes out of Aristotle, Augustine and Aquinas, but has its modern incarnation in the ‘communitarianism’ of people like Charles Taylor, John Macmurray and the social teachings of the Roman Catholic Church and some Protestant traditions. The economics discipline, writ large, is predicated on an ethical paradigm growing out of only one of several moral philosophical traditions, viz. the one of Jeremy Bentham, John Stuart Mill, Adam Smith, etc. — which even most of the political left has found refuge and comfort and left uncontested, albeit for different reasons than neo-classical types. I’m talking about competing ‘guiding principles’ here; I’m not arguing that advocates of ‘virtue ethics’ necessarily disagree with the ‘greatest good for the greatest number’ or that utilitarianism is always incommensurate with a virtuous society. However, different moral philosophical traditions certainly have very different approaches to evaluating the ‘goods’ of economic growth, productivity, efficiency, competitiveness, etc.. What economics is in radical need of is a thorough exposure to these competing traditions, with their different guiding moral principles and different modes for evaluating ‘goods’. F. Garth McNaughton

  97. I believe that since everyone, in one way or another, has to operate in whatever “system” is in place –

    their own personal “right to exist” (work will set you free)

    then everyone has a DUTY to do “due diligence” in PREVENTING another “explosion”

    and those who deliberately set off an explosion for PERSONAL, unearned wealth need to be CONTAINED.

    You can almost hear the mainframes whizzing along recalculating a new derivative launch

    based on the fact that additional war funding has been provided out of thin air for now

    and one-fourth of the Gulf of Mexico – in how many days? – has been murdered forever. Yes forever.

    What’s the next elite foody thing going to be? Or is there going to be a special send off to sushi – crowning of the world’s winning plutoRat when he/she swallows the last unpolluted shrimp? Winner take all?

    Yes, homo oeconomicus has “religion” – worship of self.

    And the REAL math formula that all this Rube Goldberg crap is hiding is this one:

    More misery for others =
    More money for ME ME ME


    look, they’re NUTS….keep them “institutionalized”…

  98. I’m an economist with an undergrad in engg. And I want to disagree with you there. The tractability isn’t in question. But the question is how much realism you’re willing to sacrifice for that tractability?

    Economists do do more empirical analysis of human behaviour than any other science. But since most of that analysis assumes a simplistic model of humans for reasons of tractability, they lose a lot of their validity. We aren’t comparing amount of analysis done per kg.

  99. As a French philosopher observed at the demise of a competitor’s thesis, “It was a beautiful theory which was, unfortunately, brutally murdered by a malicious gang of facts.”

    All people marry the models they subscribe to and breaking up is hard to do…

  100. Mr Kwak wrote:

    “But when you learn more about principal-agent problems, information asymmetries, and so on, you learn that those simple pictures are simplistic to the point of being misleading.”

    The Global Transmission Of European Austerity

    June 9, 2010, 4:35 AM – NY Times – Paul Krugman

    “Some thoughts on the fiscal austerity mania now sweeping Europe: is anyone thinking seriously about how this affects the rest of the world, the US included?

    We do have a framework for thinking about this issue: the Mundell-Fleming model. And according to that model (does anyone still learn this stuff?), fiscal contraction in one country under floating exchange rates is in fact contractionary for the world as a whole.

    The reason is that fiscal contraction leads to lower interest rates, which leads to currency depreciation, which improves the trade balance of the contracting country — partly offsetting the fiscal contraction, but also imposing a contraction on the rest of the world. (Rudi Dornbusch’s 1976 Brookings Paper went through all this.)

    Now, the situation is complicated by the fact that monetary policy is up against the zero lower bound. Nonetheless, something much like this transmission mechanism seems to be happening right now, with the weakness of the euro turning eurozone fiscal contraction into a global problem.

    Folks, this is getting ugly.

    And the US needs to be thinking about how to insulate itself from European masochism.”

  101. General question:

    Has anyone recently read or reread “Anti-Intellectualism in American Life” by Richard Hofstadter?

    It was written in 1962. He felt the intellect was gaining a place then. I would argue they have again taken a back seat for titles, money, and conformity. Thoughts?

  102. “A Committee, Is a cul-de-sac, down which ideas are lured, and slowly strangled.”

  103. The results are not surprising. As a finance professor, I confessed to be an ex-member of the responsible party. Undergraduate students want to have a complete theory neatly tied up and explained and the popularity of using textbook, instead of primary source articles, makes the problem worse. About 4 years ago, coincidentally the same year I was granted tenured, I began to challenge students to study opposing hypotheses and empirical findings, and used a textbook as a background reading, i.e. if they don’t understand a term or a calculation, refer to the textbook, but based class discussion on news or journal articles. It has been a lot more fun for me and the students rise up to the challenge.

    I hope the NYT article will challenge more professors to make students think, rather than to indoctrinate, whether intentionally or unintentionally.

  104. From things he has said in prior posts, I would be surprised to learn that James is an economist. The questions in the survey he cites in this post are too broad and ambiguous to deserve a response. Each requires a great deal of interpretation on the part of the responder. That is why there is such a divergence of opinion. The undergraduate majors are incapable of seeing the limits to their knowledge as it applies to the real world (kyriakos gives a good analogy for this), so they miss the nuances. For example, are tariffs bad? That is actually a political question and depends on the responses of trading partners. If tariffs discouraged currency interventions (by far the biggest source of trade distortions in the global economy today), they would be welfare improving. As another example, undergraduates understand that tariffs have a deadweight loss. They usually don’t know enough to understand that keeping a system of low existing tariffs may easily be a more efficient revenue source than raising the top income tax rate. (That is also true for many PhD economists – it depends on their field.) So James is right and kyriakos gives a good analogy, but I’m not sure the survey shows much of anything. I would, however, easily believe that more highly trained poeple in other professions lean more to the left than trained economists. The Harvard faculty is a good example.

  105. Sorry for the “what he said” response, but it seems that you are the only one that noticed this.

  106. Nemo wrote”

    “Define “free market”.

    (I need a definition because I am not sure I have ever seen one.)”

    June 9, 2010 – Economic Policty Institute

    “Nearly one-in-five Americans age 45 and older prematurely withdrew money from their retirement accounts in 2009 to pay their mortgage, utilities, health expenses, and other bills, according to a recent study from AARP. ”

    – free to liquidate their nest-eggs to keep their heads above water.

  107. One of the largest water rescue operation happened SPONTANEOUSLY in NYC harbor on 911. Everyone just got in their boats and went to lower Manhattan.

    2010 – It seems to me like the hay idea is either going to help or not do anything worse than leave hay laying around. Which is a lot better than what can be said about all that “detergent” they threw in there…

    Take a page from CRIMINALS – they ACT, then hire lawyers and PR people to rationalize for them. Right?

    It’s not as if you all want to shoot bullets into 19 years olds because of your interpretation of a blockade law…

    So just DO IT. Write up invoices for sticking them with the bill later. It could very well turn out the the GOLF COAST economy, without BP, is bigger than BP.

    Another fact – the math formula in play is all about sucking money in to itself. That’s why you can’t wait for the criminals sucking it all in before you ACT.

    Do what you all need to do WITHOUT “money”. Rationalize it later. Especially if it works :-)

    Still need permission?

    Here :-) – a hall monitor pass from Annie:

    “Please excuse Johnny from economics class so he can go clean himself up.”


  108. Hong Kong and Singapore are not countries. They are port towns in the guise of countries. Please include a real country in your analysis.

  109. We also know that plenty of college students _graduate_ (including at glitterati schools like Harvard) without being able to find _Europe_ on a map.

    It tells us a lot that anybody would place much stock in the political leanings of people based on their undergraduate education. Would we expect much in their views on matters in physics if they had studied that?

    I’m astonished by how little study in some areas is deemed sufficient to make one an expert. Economics is one, law another. Would you trust a person to perform surgery on your brain based on a two or three years of study?

    I would go further than James Kwak and say that, in addition to undergrad education in economics being misleading, the entire discipline of economics is poisoned by the vested interests of its practitioners.

  110. Usual anti-French rant.

    Interestingly, Mr. Ted K, you seem to resent the foreign exchange situation. Indeed, should the euro go down to its proper level, the economy of the USA would be devastated. I don’t like Sarkozy, and do not esteem him, but, maybe, indeed, he has some things to teach you.

    BTW, not every one obsesses about monogamy, or not. Totally irrelevant to proper thinking.

  111. Ted K:
    Are you becoming French?
    (Not that I am complaining, and I agree with your observations, and I get the WSJ, paying Murderoch himself…)

  112. First, this shows correlation, not causation, and while I agree with some of your conclusions, the largest reason behind this is that a lot of undergraduates who major in economics do so with the explicit aim of working in finance, and thus are predisposed to being Republicans already. I bet that a study of mathematical economics or math and econ double majors would show an overwhelming majority of Democrats.

    Also, are you the same James Kwak who writes those annoying emails to the Law Review?

  113. I may have missed it, but I didn’t see anything about cause and effect in the article or the many comments: Do undergraduate economics courses make economics major more conservative and doctrinaire, or are undergraduate economics majors by nature conservative and doctrinaire people? My memories of econ majors in my college days (early 1970s) is that they were a pretty button-downed group, and very conservatively inclined.

  114. I did not mention the “free trade ideology” that you allege; I referred to the “free market system”–a.k.a. “free enterprise system,”, a.k.a. “Manchester system” (Keynes), a.k.a. capitalism, generically construed–defended by all parties distinguished by Mr. Kwak–undergraduates, PhD’s in general, reformist PhD’s in particular (Stiglitz was named by Kwak; I added S. Johnson). My referent is indeed “a wider point than free trade ideology,” but since the latter was imported solely by you, your stricture is irrelevant to my post.

  115. 06- 9-10 03:30 PM – Huff Post – excerpt

    “Right now I don’t think is the time — this very moment is not the time — to radically reduce our spending or raise our taxes because the economy is still in recovery mode and needs that support,” Bernanke testified before the House Budget Committee.

    Bernanke said ongoing deficits of that size aren’t sustainable, and called on Congress to create a plan in the “medium term” to bring deficits to a more manageable level. Economists say deficits of about 3 percent of total GDP are sustainable.

    The plan, he said, needs to have the confidence of the markets. If it has that…

    “I think we’ll be okay,” Bernanke said.”

    If things are not “okay”, and the markets lose confidence, kiss your pension plans good-bye.

  116. Priceless: How The Federal Reserve Bought The Economics Profession


    “The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found.

    One critical way the Fed exerts control on academic economists is through its relationships with the field’s gatekeepers. For instance, at the Journal of Monetary Economics, a must-publish venue for rising economists, more than half of the editorial board members are currently on the Fed payroll — and the rest have been in the past.” – excerpts

  117. I’d like to extend the conclusions.

    Were one to sort economic and/or market forecasts by political affiliation or philosophical leaning, one would find that more progressive economists and forecasters are more bullish than the more conservative (certainly so in today’s intensely partisan environment). Further, if those who make public pronouncements were encouraged (required?) to state their party of registration, or the presidential candidates they voted for in the last two elections, or even how much they had donated and to whom over the last five years, we would be better able to interpret their analyses and conclusions – and hopefully some theoretician could build a model the “neutralizes” the biases to produce a “purer” forecast.

  118. Re: @ Annie___Yes,homo oeconomicus has “religion” – worship of self…&. look, they’re NUTS….keep them “institutionalized”? This is the labor of behavioral science – a bastion of unilateral impregnated opportunist drinking the groupthink posion? BP’s rape goes unabated….http://www.gomr/ – ref. MMS Gulf of Mexico Region, “Royalty Relief Information” 4-15-2010 Nice Stuff ;^)

  119. Annie wrote:

    “and one-fourth of the Gulf of Mexico – in how many days? – has been murdered forever. Yes forever.”

    Before the tragedy in the Gulf, global commercial fish stocks were set to collapse between the years 2040-2050.

  120. Are you biased against geographically small countries? What is your definition of a real country and the grounds for that?

  121. Re: @ RickK___”Fish stocks set to collapse between the years 2040-2050″ is nonsense, period! We have fish farms, and specialty “grow” estuaries, etc.,etc., evolving every day too supplement our insatiable populations hunger, as long as the clean-water act is upheld? Please realize that the experts have known for years – the world’s crude oil reserves peak (over-reached maximum plus) oil as far back as 2003 @ ~ 86mn. bbl/day. They also – quite accurately predicted that USA crude oil production would max out in the early 70’s under 10 mn.bbl/day or roughly what the Saudis produce today. What were seeing now is China, and India pushing the demand for crude oil to unsustainable levels of more than 115 mn.bbl/day by 2030. I woundn’t even guesstimate the cost of oil?Remember this tidbit…crude oil was below $20/bbl in 2002 too as high as $147/bbl in 2008. Here’s some reality too chew on – there is no end of higher oil prices, unless the world’s economies fall off a cliff, and that ain’t gonna happen, period! Drill? Drill baby drill, the mantra cry from Wall Street, and now Washington, but the one caveat – “we (the USA) don’t have any deep-well oil drilling rigs, period” ,and don’t have any idea of exactly where to drill except the hotly debated “Artic National Wildlife Reserve” we refer to as “ANWR”. Alternatives, such as Ethanol or Oil Shale are just plain nonsense! Frustrating…isn’t it, that we as a nation have sat on our hands for “Thirty Years”? We must get this adminisration off their dupa, and away from the fence – creating a viable alternate energy program for our very countries survival. There currently is a proto-type in Massachusetts off the coast for “Wind Turbines” – also in the very early stages, a uniquly humongous proto-type in maine, off the coast regarding Wind-Turbine Power, but with a “Big Progessive Philosophical Dream Maker Agenda, Changing our Alternate Energy Future Forever”! What they are proposing/building is a floating wind-turbine farm, 20 miles off the coast of maine that could easily power the entire state – far enough off the coast not to be visable, and having the equivalent of five-nuclear power plants ~ 100 gigawatts of wind power or 10% of total US daily consumption – WoW! This project could be ready by 2020 the latest ,or even earlier if the US Gov’t gets behind it. Lastly, I’d like to mention “Natural Gas ,and it’s sister product “Propane Gas”. There are 100 years minimum supplies of this energy source that burns cleaner with less pollutants than hydro-carbons (crude oil) – it can fuel our vehicles,heat our homes – whatever, and its overly abundant in America. Finally, the only real usefullness of oil/hydro-carbons today are their by-products – other than that ,their pre-historically useless?

  122. I don’t know if this was tackled in the comments, but I would add a related point: economics, as a subject, can tell us very little (deterministically) about institutions and technology. Institutions are products of social interaction, and, b/c of Douglass North, Oliver Williamson and Elinor Ostrom we know how important they are to economic success. Technology diffusion and substitution is governed by increasing, not decreasing returns, and so doesn’t fit nicely within economic models.

    If you weren’t an expert in economics, and only took undergraduate-level classes, you might not appreciate the fact that there are things that economics simply cannot explain. Why do we write on QWERTY keyboards? Why is it that common-property regimes sometimes manage natural resources very successfully?

    It’s not _just_ that there are contradictions of free market dogma from _within_ economics; insights from other social sciences have much to add about how the world is and how it should be.

  123. I still believe in the efficacy of the foxhole test. I guess I didn’t learn economics very well after all.

  124. That reminds me of a political science professor I had many years ago (the 60s) who spent an inordinate amount of time expressing that “states rights” were actually nothing more than “states wrongs” and that the federal government was the pathway to life, liberty and the pursuit of happiness.

    That’s the first time that I remember actually being fed a load of horsefeathers by a college professor. Fortunately my high school (among whose founders were 3 Signers of the Declaration), had taught me something about federalism.

    Is there anybody else out there who feels their education, except perhaps for their major, was essentially in place by the time they matriculated to college and that at least 2 of the 4 (or more often now 5) college years were a waste of time, i.e. without any utility whatsoever?

  125. When I finished my BA in economics, I was a very hard-core free marketeer. After a few years of grad school, even in the very pro-free market program at UCLA, my positions had moderated quite a bit.

    No kidding. The real question is whether graduate study in economics made you less free market or being in the political echo chamber of the academy.

    You need to work in government for a while; some obscure agency (most are) being a cog in the machine.

    When you see how presumptuous it is to impute advance knowledge to bureaucrats; it will tend to cure your condition.

  126. It’s been said before in this comment thread, and I’ll say it again; Correlation does not equal causation.

  127. Undergraduates lean more to the right than college professors. What causal relationship should we presume would make this different within the subset of economics students and professors?
    It’s already been pointed out that the causal relationship is more likely that republicans are interested in economics rather than economics makes you republican.

    This story is a straw man unless these ideas are addressed.

  128. “…that luck played a large part in it, as it does for all businesses.”

    So, by this way of thinking, not showing up, being rude to my customers, overcharging them, ripping them off and treating them like crap is NOT the reason my business failed. It was just bad luck.

  129. It is remarkable that a majority undergraduates emerge as right-wing free-market ideologues from their economics courses, when straightforward economic models predict the stability of predator-prey-like dynamical systems that enable powerful elites to repeatedly extract income from lower classes, provided the lower classes produce at a constant rate and have sufficient wealth to reproduce.

    A simple model illustrating the basic point is described here:

  130. Several years ago, I, being a longstanding liberal Democrat, sat in some basic economic classes at UCLA.

    I was appalled. It was Republican indoctrination from day 1. Every position presented as correct supported oligarchic power. Any attempt to intervene democratically in any process was presented as wrong-headed.

  131. Luck is a necessary, but not sufficient condition for successful businesses. Your logic is flawed.

  132. Hi dana-

    First off, GFY. I’m in the top 0,5% and I’m keeping every penny. If you want to pay more, then go ahead, but do not insist that I must do so too. I do not owe anyone anything.


  133. Hi Pal-

    Singapore is an independent country – the Republic of Singapore. I’ve lived and done business there almost ten years. It’s a very fine nation.

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