Lawrence, KS - Events Local News Groups Contact
The Economics Textbook of the 21st Century
By Indy Media / filmsforaction.org
Jan 11, 2008
From Adbusters.org:

At the forefront of economics, major changes are happening. And many of them are changes for the better. The old economics view of the world, in which everyone acts purely in his or her own self-interest, in which free markets are the solution to almost everything, has been abandoned.

The list of economics Nobel laureates in the twenty-first century reflects these changes. It is largely made up of scholars who have worked outside the traditional Rational Economic Person, free market paradigm. The work of Daniel Kahneman and Vernon Smith deserves special mention even in this distinguished list. They created almost single-handedly the burgeoning discipline of experimental economics. Standard economics merely assumes that people act in a particular way. Kahneman and Smith actually tested how people really do behave. Many of the assumptions economists make turn out to be wrong in important ways.

But there is a problem, and a very big one at that. Most economists continue to try to shape public policy as if very little has changed and that the old view of the world remains generally valid. Got a problem with inflation? Just fix the money supply. Want to develop out of poverty? Just privatize all industries and pull down trade barriers. These answers are routinely trotted out regardless of the evidence. And the evidence is often starkly different from the theory. Look at trade: with the sole exception of the first country to industrialize, Britain, no country has developed successfully without protecting domestic industries from foreign predation.

The problem stems from the way economics is taught. For many of the very best students, a course in economics has become almost indistinguishable from a course in the math department, wholly abstracted from reality. A friend of mine has a world-wide reputation in physics. A few years ago, he got interested in economics and looked at some of the advanced textbooks and journals. I warned him. He was still appalled. The proliferation of math, with “theorems” and “lemmas” on almost every page, totally astonished him. “But I haven’t had to prove a theorem for at least 20 years. Physics is judged on how well your theory explains the real world, not on whether you can do clever math – all of us can,” he fumed.

Most students are fed not on esoteric math but on the standard textbooks. But these have, if anything, gone backwards in recent years. Aimed at the mass market of US community college students, they have dumbed down the subject to a terrifying degree.

I have in front of me the 1967 edition of Richard Lipsey’s Introduction to Positive Economics. This, along with Paul Samuelson’s textbook, was the best seller for many years. It is not aimed at geniuses, just ordinary, regular students, “designed to be read as a first book in economics.” Of its 861 pages, only 32 contain any math, and even that is of the simplest possible kind.

Yet it is full to bursting with really interesting examples of real world behavior. Yes, here is the basic model showing how in a free market, price can adjust to bring supply and demand into balance. But here, too, is an immediate counter-example, of great practical importance, discussed at length. Indeed, it has its own separate chapter. What happens if supply can’t be increased quickly, if it takes time to respond to price changes? This is true, for example for most agricultural markets – trees take time to grow, even chickens need five months before they can start to lay eggs.

Lipsey shows, simply and clearly, using only diagrams, how the free market might work very badly in this case. His chapter summary, printed in bold, states: “in the unstable case, the operation of the competitive price system itself does not tend to remove any disequilibrium; it tends rather to accentuate it.” Careful, practical study is needed on a case-by-case basis to see if a free market is likely to lead to stable or unstable behavior. The crude policy advice that markets always work is simply not given house room, even in a textbook for the ordinary first year student.

So why are the textbooks not being re-written, not just to bring back the insights of the word-rich, math-poor texts of the 1960s, but to incorporate the real advances which have been made in economics in recent decades? Until I was drawn into the textbook world, this puzzled me.

A couple of years ago, I was approached by someone from a leading academic publisher. He was, he explained, their very top man across the whole of the sciences. His remit included economics. This sounded interesting. What did he have in mind?

What the commissioning editor had in mind was very exciting. He wanted an entirely new textbook, to incorporate the really interesting advances in the subject over the past 20 years or so.

The editor, who already had a best-selling economics textbook of the standard kind in his stable, understood that at some point in the future all existing textbooks will be redundant. The new generation of textbooks will contain the economics of the twenty-first century, not that of the twentieth (or even the nineteenth!) which the present ones do.

He was anxious that one of his rivals would get there before him, and bring out an innovative textbook which would scoop the pool and be hard to dislodge from its number one slot. So he realized that his company would have to innovate and bring out a completely new textbook. Was I interested? It sounded like a dream. But like most dreams, it was too good to be true.

The editor faced a dilemma, which he articulated clearly. His problem was that the market – in this case the market for textbooks – is already occupied by the incumbents. They might ignore almost all that has gone on in economics in the past 20 years, they might be guilty of dumbing down, but they are there. And their publishers and authors use every trick to make it stay that way. For example, top textbooks routinely have over 10,000 multiple choice questions helpfully provided on a web-linked site. Teachers don’t even have to think about making up the questions, they are all provided.

So we have a situation in which products with inferior qualities – containing lots of old-fashioned economics – are preventing products which are superior from entering the market. The barriers to entry which they have erected are very hard to breach. In simple economics, this shouldn’t happen. Consumers are supposed to have perfect information, so they should choose the new rather than the old. But the real world just doesn’t work like this. Most students are now never told this, and they never get to choose – except by voting with their feet and dropping economics altogether.

And this was exactly the editor’s dilemma. He knew that at some point the market will look completely different, that the new will eventually oust the old. But he had no way of knowing when this would be. In the meantime, any single attempt to enter the market with a new-style economics text would be likely to fail, unable to break the lock on the market which the current textbooks have.

We corresponded on this and talked. Eventually, the editor said he would go ahead on the basis that no more than ten percent of the total material could be the new economics, the other 90 percent would be the old. But I just couldn’t do it, I couldn’t be part of disseminating a wrong-headed view of the world which leads to so much bad policy advice. I didn’t blame the man. He was thoughtful and anxious to do good, but faced commercial imperatives. So the textbook of twenty-first century economics is still waiting to be written.

_Paul Ormerod is a UK-based economist and former Head of the Economic Assessment Unit of The Economist.
0.0 ·
0
Trending Today
The Top 100 Documentaries We Can Use to Change the World
Films For Action · 19,118 views today · A more beautiful, just and sustainable world is possible. Take this library and use it to inspire global change!
Obama's Hidden Role in Worsening Climate Change
Stansfield Smith · 3,503 views today · It should be a scandal that leftists-liberals paint Trump as a special threat, a war mongerer – not Obama who is the first president to be at war everyday of his eight years...
John Lennon's "Imagine," Made Into a Comic Strip
John Lennon. Art by Pablo Stanley · 2,031 views today · This is easily the best comic strip ever made.  Pabl
Today I Rise: This Beautiful Short Film Is Like a Love Poem For Your Heart and Soul
4 min · 1,131 views today · "The world is missing what I am ready to give: My Wisdom, My Sweetness, My Love and My hunger for Peace." "Where are you? Where are you, little girl with broken wings but full...
Make The Serengeti Great Again | Resource Scarcity, Demagogues and How Creativity Can Trump Hate (2017)
5 min · 620 views today · A Familiar Tale of Resource Scarcity, Demagogues, and How Creativity Can Trump Hate A quick, original, illustrated allegory that pokes at the demagogues we’ve got with an...
How Mindfulness Empowers Us
2 min · 489 views today · Many traditions speak of the opposing forces within us, vying for our attention. Native American stories speak of two wolves, the angry wolf and the loving wolf, who both live...
Deconstructing Hierarchies: On Contrived Leadership and Arbitrary Positions of Power
Colin Jenkins · 488 views today · Bosses don't grow on trees. They don't magically appear at your job. They aren't born into their roles. They are created. They are manufactured to fulfill arbitrary positions...
Baraka (1992)
97 min · 423 views today · Featuring no conventional narrative, this film presents footage of people, places and things from around the world. From chaotic cities to barren wilderness, the movie takes...
"Desert Goddess" Remembers Arizona's Glen Canyon
7 min · 333 views today · In this excerpt from the award-winning documentary DamNation, filmmakers Ben Knight and Travis Rummel interview the "desert goddess," Katie Lee. When the Glen Canyon Dam was...
Dinosaur explains Trump policies better than Trump!
8 min · 325 views today · Donald Trump is actually the corporate triceratops, Mr. Richfield, from the 90's TV show sitcom, "Dinosaurs". 
What Is a Gift Economy? - Alex Gendler
4 min · 306 views today · What if, this holiday season, instead of saying "thank you" to your aunt for her gift of a knitted sweater, the polite response expected from you was to show up at her house in...
Why It's Crucial for Women to Heal the Mother Wound
Bethany Webster · 258 views today · The issue at the core of women’s empowerment is the mother wound
Defiance in the Face of Oppression - Iranian Artist Atena Farghadani Defends the Right to Draw
Gavin Aung Than · 228 views today · Atena Farghadani is a 28-year-old Iranian artist. She was recently sentenced to 12 years and 9 months in prison for drawing a cartoon.  
The White Man in That Photo
Riccardo Gazzaniga · 217 views today · Sometimes photographs deceive. Take this one, for example. It represents John Carlos and Tommie Smith’s rebellious gesture the day they won medals for the 200 meters at the...
HUMAN (2015)
382 min · 217 views today · What is it that makes us human? Is it that we love, that we fight? That we laugh? Cry? Our curiosity? The quest for discovery?  Driven by these questions, filmmaker and artist...
Introversion Is Not a Personality Fail
Cat Elz · 206 views today · A few years ago, I got into an argument with my now mother-in-law over my supposedly “backwards” ways. My transgression? I did not attend a party of my now husband’s (then...
Bertrand Russell & Buckminster Fuller on Why We Should Work Less, and Live & Learn More
Josh Jones · 195 views today · Why must we all work long hours to earn the right to live? Why must only the wealthy have a access to leisure, aesthetic pleasure, self-actualization…? Everyone seems to have...
Here's How We're Going to End Factory Farming
2 min · 194 views today · Factory farming is a huge problem. But the solution is simple, if you'll join us. Watch this short 2 minute video to see how... Help make a kinder world possible...
Why I Think This World Should End
4 min · 187 views today · Sorry if this offends you. - Prince Ea
Trump Is a Symptom of a Sickness That Is Raging All Across The World
1 min · 179 views today · This is why we are here. And this is what we need to remember. 
Load More
What's Next
Like us on Facebook?
The Economics Textbook of the 21st Century