Robin Wells on Mankiw and the Future of Economics Education

We Are Greg Mankiw… or Not?
by ROBIN WELLS

On Nov. 2^nd, a group of students in Harvard University Ec10, the introductory economics class taught by Greg Mankiw, staged a walk-out. In an open letter, the students lambasted Greg’s course and his textbook for “espous[ing] a specific – and limited – view of economics that we believe perpetuates problematic and inefficient systems of economic inequality in our society today…..There is no justification for presenting Adam Smith’s economic theories as more fundamental or basic than, for example, Keynesian theory.” 

I am sure that many of us who have taught introductory economics or who have written an intro economics textbook (a much smaller subset, and I fall into both) felt a pang of sympathy for Greg when we heard about the walk-out.  If you have ever faced a large lecture hall of restive intro econ students, or coped with a voluble student with an ax to grind, you can feel some solidarity: we are Greg Mankiw too. 

But just how far should that sympathy extend?  Is Mankiw simply the target of fuzzy-minded youth who are more intent on making a statement than engaging in reasoned inquiry? Or, is Mankiw – and much of the profession, for that matter – getting a needed reality check about the need to re-orient the way we teach economics? 

First, let me say what this essay is not.  It is not an attempt to promote my textbook over Mankiw’s nor an exercise in partisan jousting.  I don’t find a walk-out a useful way to communicate displeasure with an instructor – better to invite him or her to a friendly debate with opposing views. This essay is not a critique of Mankiw’s teaching approach: I was not there to witness it, and every instructor will differ in political preferences and emphasis.  And neither will this essay advocate a root-and-branch re-think of how to teach introductory economics for both pedagogical and practical reasons.  I consider standard microeconomics to be an invaluable introduction to how to reason about the allocation of scarce resources.  Moreover, most intro econ instructors are stretched far too thin to contemplate a wholesale revision of their courses.   

But what I will say is this: something is shifting out there, and we ignore it at our peril. It would be very easy to dismiss the student walk-out as an exercise in intellectual laziness and grandstanding.  (After all, as many have pointed out, Keynesian models can’t be taught until second semester of Harvard Ec10.)  But perceptive instructors know that sometimes a stupid question is more than a stupid question.  And a really perceptive instructor will take a seemingly stupid question and turn it into the insightful question that the student should have asked. 

Right now the general public views the economics profession with a large measure of distrust and in some cases outright contempt. Students are entering the worst job market in well over a generation, without much prospect of improvement.  Many of them have seen their parents’ lives turned upside down by financial troubles.  They face being members of the first generation in American history with a lower standard of living than their parents.  Income inequality has reached levels not seen since the Gilded Age.  There are over 4 million long-term unemployed.

In this environment, instructors who lecture on the superiority of free markets without acknowledging the dysfunction in the wider economy are at risk of appearing out of touch and exacerbating antipathy towards economics.

But how does an instructor do this in an introductory economics?  I think it’s largely a matter of shifting our perspective to let go of the certainties that were part of our economic training and admit to the painful economic uncertainties that many Americans now inhabit.  Here are four ways to help bring that shift to the classroom:

Provide Context.   Compared to past years, instructors need to acknowledge the limits of free markets earlier in their courses. Students should understand the difference between the conceptual importance of free markets and their real world limitations. Explain that much of the current economic distress arises from markets that don’t behave competitively — the labor and financial markets.

Build Trust.  Trust is built when the instructor compensates for the one-sided nature of the relationship by treating students’ viewpoints with respect.  And this is where the art of the perceptive instructor is most likely to be needed.  For example, to the microeconomics student who protests that Keynes and Adam Smith should be given equal time, respond that the issue boils down to why some economists believe that the labor market doesn’t always clear while others believe that its does.  Then take a few minutes to discuss each side of the debate.   Yet, also make clear that valuable class time won’t be wasted on debating viewpoints that are contradicted by the data.

Address Distributional Issues.  The dramatic rise in U.S. income inequality compels us as instructors to address it.  While international trade and educational differences have clearly contributed to some of the rise, it’s clear that they are only partial explanations: they can’t explain the explosion of income gain at the top 1% of the income distribution, and particularly at the top 0.1%.  We shouldn’t extol the benefits of markets while ignoring today’s highly skewed distribution of the benefits.  While there is no single definitive explanation, there are many factors that are feasible topics in class: moral hazard and the setting of CEO compensation, the decline of countervailing forces such as unions and higher marginal tax rates at the top end, deregulation, asset bubbles and the financialization of the U.S. economy.  And then discuss: to what extent is the level of income inequality a legitimate policy target?

Finally, Adopt Some Humility.  It’s true that those of us who weren’t in the business of teaching Gaussian pricing formulas for CDO’s or touting the benefits of homeownership via sub-prime mortgages aren’t directly responsible for the economic mess we’re in.  But in the eyes of many students we are culpable to the extent that we dismiss the need for some re-think of the deference accorded to free markets in how we teach economics as applied to the real world.  Again, I want to emphasize that we make the distinction between communicating the importance of free markets as an intellectual building block and the frequent mis-use of free market concepts when it comes to making real world policy choices.  Lastly, in a world of liquidity-trap macroeconomics, soaring income inequality and an exploding Eurozone, we are going to have to admit that there are areas in which the profession just doesn’t know what the right answer is.  

And remember, there is such a thing as a first-mover advantage.  So schedule a teach-in before your classroom is occupied.

via INET blog

One of the central issues here is that many economics departments are the unabashed representatives of business interests. The austerity in academia advocated by, among others, the Wall Street Journal has allowed powerful captains of industry to step in and provide much needed research funding. That largess comes with a quid pro quo, of course. Thus, economics departments begin to offer courses focused on "economic freedom," "free exchange," "morality of markets," "spontaneous order," and other such Orwellian shorthand for "you're on your own."

For those with a genuine interest in expanding students' understanding of markets, their interactions, and their failures, Dr Wells offers a sober and sane prescription. Unfortunately, at the institutions most in need of her advice, this essay is likely to be regarded as collectivist noise.

Latest Class Warrior

Step right up, Alan Reynolds!

According to Alan Reynolds in the WSJ, those drawing attention to heartbreaking income-inequality statistics should be in favor of recessions. Why might this be? Take it away, Mr Reynolds:

But here's a question: Why did the report stop at 2007? The CBO didn't say, although its report briefly acknowledged—in a footnote—that "high income taxpayers had especially large declines in adjusted gross income between 2007 and 2009."

No kidding. Once these two years are brought into the picture, the share of after-tax income of the top 1% by my estimate fell to 11.3% in 2009 from the 17.3% that the CBO reported for 2007.

The larger truth is that recessions always destroy wealth and small business incomes at the top. Perhaps those who obsess over income shares should welcome stock market crashes and deep recessions because such calamities invariably reduce "inequality." [emphasis added]

So the lesson is that rational poor people would rather go hungry, and rational middle-income earners would rather join the rational poor, so long as they can shaft the saintly Job Creators™. Just to make sure the lucky-duckies know who is really hurting right now, Mr Reynolds tells readers that, "The latest cyclical destruction of top incomes has been unusually deep and persistent..." Rumors indicating that hordes of hungry millionaires are emerging angrily from gated hilltop communities in order to establish posh gated shantytowns cannot be confirmed at this time.

In all seriousness, the households we're talking about here earn north of $150,000/year. While it is true that reductions in income and wealth are relative, and a 30% reduction in income or wealth for a millionaire is far larger in absolute terms than a 30% reduction for a household earning less than $30,000, only one of those households is likely to go hungry in that situation, however. Not to mention the reduction in consumption by poorer households has a measurably significant impact on the economy, while the corresponding reduction in saving by wealthy households has very little relative impact in a downturn.

There was once a time in this country when the well-off observed a duty to contribute a fair share to the common good, and would be ashamed to be caught in open defiance of their responsibility. It should be no surprise to learn that Alan Reynolds is a senior fellow with the Cato Institute, an organization of ill repute committed to the notion that there is no common good, and the goal of making that so.

I am a Job Creator.

Hope, Updated

[Lunchbreak]

I can't understand why this guy is so happy; he lives in a place where, if one wants to push a baby in a trolley down the road, he must wear a hardhat. Peculiar.

-photo on display inside DH Hill Library, NC State.

The Difference

That is all.

Austrians, intellectual fifth-columnists, and Friedman Uber Alles

The central flaw with the Hayekian argument seems to be that Hayek and his acolytes appear to disregard the nature of democracy. The institution is certainly imperfect in practice, but if one truly believes in democracy, then the state is the people, at least in the ideal. I think that many of those who seek to justify libertarianism with these arguments simply see themselves as above their state, and therefore above their fellows.

The Austrian school are keen to speak in absolutes when discussing their opposition. For example, in their view, the only alternative to wild-west-style free markets is communism. Their reliable argument against any sort of restraints upon the market is, 'See what happened in the Soviet Union.'

It is absurd to regard pollution controls, labor regulations, and other such corrections to externalities as the thin end of the wedge of a fully planned economy. This incapacity for nuance is endemic on the right. The true test of social and economic policy is not that it can be explained to people as if they are children. The left is by no means exempt from this criticism, but there is only one party in the states right now that relies upon faux-populist pandering as its only public position.

The fact that one of this party's chief publicity outlets, the once-respectable Wall Street Journal, has adopted a loud and vehement anti-education position should come as no surprise.

Income Inequality

I'm a bit late to the game on this one. About a year late, in fact. In short, this series is a staggering achievement. Timothy Noah is an example of the rare journalist blessed with both a deep and penetrating intellect and a gift for interpreting complex topics for his readers with remarkable clarity. General praise aside, the intention of this series was to 'understand income inequality, the most profound change in American society in [a] lifetime.' 

Mr Noah examined race, gender, government policy, emerging technology, immigration, politics, education, international trade, and the decline of organized labor in the search for causes of what Paul Krugman has called 'The Great Divergence,' namely, the startling social stratification along lines of income and wealth in the United States since roughly 1979. The fact is that the wealthiest one percent control nearly a quarter of the nation's income, half-again as much as they did in 1915. It is undeniable (by all but the most unrepentantly regressive) that this division stifles growth by unduly inhibiting full participation in the economy by vast swaths of the population.

Without revealing Mr Noah's conclusions, I will opine that they are only partly satisfying. It is only reasonable that easy answers to this problem are elusive. I was keen to know Mr Noah's views on what would constitute an acceptable division of income and wealth in a civilized and modern society. While he acknowledged that 'historically much mischief has been accomplished by addressing this question too precisely,' he largely left the determination of the answer to the creativity of the reader.

That I find this last issue so vexing is, perhaps, an indictment of my own creative capacity. Those of us who accept that The Great Divergence has been harmful both to those upon whom it has been inflicted, and to the economic growth of the nation collectively must recognize that to merely reverse the stratification would not suffice. We must know toward what goal we are striving.

The United States of Inequality, by Timothy Noah

Song For 'Centrist' Democrats

Jump to start of lyrics.

The Unshakable Confidence Of Those With Fancy Hair

from Ezra Klein:

Big government shrinks recessions:
My colleague Philip Rucker had a great piece today on Mitt Romney and Rick Perry’s lack of specifics on job creation. The closest thing you get to a plan from either of them is a general commitment to shrink government. “The right answer for America is to get government smaller,” Romney put it in a speech.

Many if not most experts would object to that prescription in the short-term. As Congressional Budget Office head Doug Elmendorf has said, cutting spending during a recovery tends to hurt growth. But it’s also not a long-term prescription. In fact, there’s a substantial body of economic research suggesting that if countries with bigger government actually do better at weathering recessions.
Jordi Galí, a Spanish economist, kicked off this line of research in 1994 with a paper finding that Organization for Economic Cooperation and Development countries where government spending is a larger share of the economy, such as the Netherlands and Sweden, experience less “output volatility” (that is, the size of swings in GDP growth) than ones with lower levels of spending, like Japan and Portugal.
Antonio Fatás and Ilian Milov replicated Galí’s findings in 2001, as did Daehaeng Kim and Chul-In Lee in 2007. The findings are not uncontroversial, especially given that they contradict popular “real business cycle” models of the economy. And while many studies find a straightforward linear relationship, others, as Xavier Debrun, Jean Pisani-Ferry, and André Sapir note in this literature review on the subject, suggest there could be a tipping point at which bigger government makes the economy more, not less volatile. But overall, the evidence indicates that bigger government makes for less sharp economic swings, including smaller recessions.
Of course, a stable economy isn’t everything. Most economists believe that sufficiently big government can slow down growth, though obviously the composition of spending matters tremendously. Slower growth with lower volatility may or may not be a good trade, depending on your preferences. But all else being equal, the data suggest that bigger government leads to less severe recessions. So playing up smaller government as a way to fight downturns doesn’t make a whole lot of sense.

In other words, if government employees are laid off, jobs are lost.

It is deeply appalling that those on the right cannot grasp this.

Report From The Road

I'm here in Asheville, NC, where the indicators of the Lesser Depression are myriad. Countless are the disused commercial spaces and empty houses scattered around the winding streets. These stand starkly in contrast to the sheer bloody beauty of the place. Many boutique shops seem to be thriving, but it is impossible to miss that many shops are closed early, Sunday afternoon notwithstanding. Clearly this was once a much more industrial place, as so many vacant places of business display not only the signage of the most recent occupant, frequently a bar or restaurant, but also the arcane built-in signage of tenants long passed. The effect is something like recessionary tree rings. One wouldn't learn of the current slowdown from speaking with the citizenry, however. Rather, people I've spoken with here are exceedingly friendly and upbeat. As regards the Lesser Depression, they seem to be damning it all to hell with positivity. A refreshing shift from Durhamite norms.

Welcome

This site is a forum for the discussion of economic and political issues. I am an economics student at North Carolina State University. I appreciate any commentary and constructive criticism, and look forward to discussing economics and politics with you. Many thanks for reading!