This essay was written for
edited by Jack Reardon.
No discipline has ever experienced systemic failure on the scale that economics has today. Its fall from grace has been two-dimensional. One, economists oversaw, directly and through the prevalence of their ideas, the structuring of the global economy that has now collapsed. Two, except for a few outcasts, economists failed to see, even before the general public saw, the coming of the biggest economic meltdown of all time. Never has a profession betrayed the trust of society so acutely, never has one been in such desperate need of a fundamental remake.
As an epistemological event, the 2008 meltdown of the global financial system ranks with the observation of the 1919 solar eclipse. If professional practice in economics resembled, even in the slightest, that in the natural sciences, then in the wake of today’s global disaster economists would be falling over each other to proclaim the falsity of their theories, the inadequacy of their methods and the urgent need for new ones.
It is now evident to nearly everyone except economists, and increasingly even to many of us, that our collective failure to see the calamity before it occurred and the fact that the system that collapsed had been tailored to fit mainstream teachings means that we, the textbooks we use, and the courses that we teach harbour fundamental misconceptions about the way economies, most especially their markets, function. And in economics nothing is more important than teaching, because, as Galbraith senior once observed, economics is primarily a teaching profession. This makes economics pedagogy a natural starting point for both an analysis of how economics went so horribly wrong and how it might be made less a facilitator of human disaster in the future. Gregory Mankiw’s Principles of Economics, in its five versions, has internationally been the dominant basic text for more than a decade. Also its author, as chairman of President Bush’s Council of Economic Advisers from 2003 to 2005, was directly involved in the engineering of the disaster. So Mankiw’s textbook seems an ideal place to look for clues as to how both the economics profession and the public which it educates became so ignorant, misinformed and unobservant of how economies work in the real world.
Because we are dealing with a systemic failure, in what follows I am concerned not with specific issues covered by the Mankiw’s text. Instead I want to consider its general approach to understanding economic phenomena and, no less important, how the author treats the position of trust that he enjoys vis-à-vis the student.
A defining characteristic of traditional or orthodox economics is that it subscribes to a Neo-Platonist theory of truth, i.e., it holds its basic tenets or propositions from which it then deduces everything else, to be self-evident. This quaint epistemological doctrine was notably enunciated for economists by Lionel Robbins in his 1932 An Essay on the Nature and Significance of Economic Science. He wrote:
. . . the propositions of Economics are on all fours with the propositions of all other sciences. As we have seen, these propositions are deduction from simple assumptions reflecting very elementary facts of general experience. [p. 104]
In Economics, as we have seen, the ultimate constituents of our fundamental generalisations are known to us by immediate acquaintance. In the natural sciences they are known only inferentially. There is much less reason to doubt the counterpart in reality of the assumption of individual preferences than that of the assumption of the electron. [p.105]
To a real scientist, of course, economics’ Neo-Platonism is anathema. For example the eminent physicist JP Bouchaud [2008, 9. 291] recently commented:
To me, the crucial difference between physical sciences and economics or financial mathematics is rather the relative role of concepts, equations and empirical data. Classical economics [meaning today’s mainstream] is built on very strong assumptions that quickly become axioms: the rationality of economic agents, the invisible hand and market efficiency, etc. An economist once told me, to my bewilderment: These concepts are so strong that they supersede any empirical observation.”
This doctrine, which alone radically separates economics from the scientific tradition, shapes Mankiw’s textbook from cover to cover. As one would expect, it performs heroics at the book’s beginning. With a real science its basic principles, rather than being its beginning, are its highest achievement. But on the second page under the heading HOW PEOPLE MAKE DECISIONS, Mankiw unveils his “four principles of individual decision making”. At no point does he allude to how his basic principles were discovered. No names, no dates and no processes of discovery are mentioned. Instead he seeks, by appeal to folksy stories to persuade the student to accept them on faith. Only a confirmed Neo-Platonist or a snake oil salesman would think to begin an epistemological exercise that way.
A major device which Mankiw and other textbook writers use in persuading the student to accept on faith their principles is to subtly yet forcibly bring emotionality into their presentation. Mainstream or neoclassical economics, especially in the last fifty years, has made a point of raising its flag over snow-white abstract nouns such as “rationality”, “choice”, “freedom”, “equity” and “efficiency”, whose meanings change with the wind and are bottom-heavy with emotion and so float like icebergs through public discussion. Textbook writers like Mankiw use these words of the general culture -- and it would be naive to think that they do so accidentally -- to emotionalise their presentations and to bully their mostly teenage readers. For example, consider how Mankiw when presenting his putative four principles of how people make decisions introduces “efficiency”, “equity” and “rationality”. Set off in a wide empty margin and opposite where the text says that society faces a trade-off “between efficiency and equity“ one finds:
the property of society getting the most it can from scarce resources
the property of distributing economic prosperity fairly among the members of society
At best two students in a hundred will notice that these “definitions” are gems of question begging: “the most” of what and “fairly” meaning what? Nothing of substance has been broached. What is happening is that the student is being taught to use these words as placeholders, so that gradually and almost imperceptibly they can be filled with neoclassical meaning as the student progresses through the text, lectures, quizzes and exams of the course. All this will be done without a single mention, let alone discussion, of ethical lenses other than Utilitarianism through which one might view economic reality. The students will not even be told that they are being introduced into an ethical system of thought. That could derail the indoctrination process, because students, even nineteen-year-olds, have assorted views on what is fair and have different conceptions of what it means for a society to get the most out of its resources, and some would not knowingly give up their views without a fight.
Mankiw deploys a different tactic, bullying, with his introduction of “rational”:
PRINCIPLE #3: Rational People Think at the Margin [p. 6]
Mankiw explains that by thinking at the margin he means “by comparing marginal costs and marginal benefits”. Why is this bullying? The student, as the author must know, will not read that as meaning “We are going to define ‘rational people’ as those people who think at the margin.” The student will read it not as a definition but as a statement of fact. Most likely the student will not even know that rationality is a normative concept. Nor is the student apt to have any general views to offer in opposition. But what students will have, especially the nineteen-year-olds, is a compelling desire to be regarded both by themselves and by others, most especially by their teacher, as “rational”, whatever the word means. I don’t mind telling anyone that I don’t think at the margin, but the student, and rightly so, will fear the consequences of putting him or herself forward as “irrational”.
Even if “rationality” is taken in the narrow sense of referring to the adjustment of means to ends, it does not begin to escape its status as a normative concept because different people, depending on the forms of ethics to which they subscribe, will have different notions about what one’s ends are or should be. Unfortunately, among economists the obvious needs to be emphasized: not everyone is a Utilitarian. Not everyone believes that the maximization of individual “utility”, whatever that might be, is or should be the goal of human and hence economic life. “Economists have no right to select one ethics as the ‘correct one’ for purposes of economic analysis.” [Söderbaum, 2004, p. 162] But they do, and in doing so go about as far away from the scientific as it is possible to go.
If economics textbook authors placed education ahead of indoctrination, the epistemological role of their theory ahead of its ideological one, how might they proceed? Hugh Stretton’s Economics: A New Introduction  shows how it can be done. For example, look at how he introduces “efficiency”.
If you measure efficiency by more than one criterion, you have to decide how much weight to give to each of the criteria. The facts can’t do that for you. It takes a value judgment, and that value judgment will be built into your measure of efficiency.
Earlier, you read this: ‘Common sense says it is efficient to get a given output from the least input.’ But what does ‘least input’ mean? Does it mean least raw materials? Least work? Least expenditure? You have to decide. [p. 48]
A little further on, after addressing non-dogmatically the vexed questions “Efficient at what?” and “Efficient for whom?”, Stretton tells the student:
Most tests of efficiency require some value judgments. They can be made into objective tests by precise specifications: output of what per input of what. But that merely shifts the conflicts of interest and the necessary value judgments from the conduct of the test to the choice and design of the test.
This principle applies to judgments of many other things besides efficiency. [p.49]
These passages characterize the approach throughout Stretton’s book and which could and should be the approach of every economics textbook: no attempt to mislead, intimidate or bamboozle the student, no dishonesty by omitting known crucial facts, no misusing the educator’s position of trust as an opportunity to indoctrinate, no reluctance to encourage the student to observe from more than one perspective economic issues pivotal to democracies, in short, no inhibitions about trying to educate in the deepest possible sense.
Mankiw continues to present his “TEN
PRINCIPLES OF ECONOMICS” in the style of a sales pitch. In the space of a
page and a half he invokes “the invisible hand“ eleven times and speaks of its “magic”, [p. 9-10] Then having presumably sold without
offering evidence his “Ten Principles” to the student, Mankiw
proceeds to paint “THE ECONOMIST AS SCIENTIST”. He is quite right in assuming that the
student will not notice his previous chapter’s display of Neo-Platonism nor
know that it is anti-science. Mankiw sets about building in the student’s mind an
association between economists like himself and real scientists. For this he is only willing to associate
himself with the most prestigious of scientists: physicists, biologists, and
astronomers. He hopes to acquire some of their persona by in the space of a
few pages repeating over and over a few key words: “physics” four times,
“physicist(s)” seven, “biology” five and “biologist” twice”. He especially favours combinations like
“physics, biology, and economics”.
But even this is not elite enough for Mankiw’s
tastes. In the first three paragraphs of
this section he mentions
Of course this affectation has a long history in the discipline. It goes back much further than Robbins, and all the way to Walras and Jevons. But perhaps its most humorous example is due to the inventor of the textbook prototype of which Mankiw is now grandmaster. The science historian Yves Gingras  relates the notorious incident at the award ceremonies for the 1970 Bank of Sweden Prize as follows:
Paul Samuelson (1970 winner) wrote about his ‘Nobel coronation’ – not his ‘Bank of Sweden Coronation’ – and filled his talk with references to Einstein (4 times) Bohr (2 times) and eight other winners of the (real) physics Nobel prize (not to mention, of course, Newton) plus a few other names as if he were part of this family.
For the last fifty years economics as a profession has shown exceptional talent for self-promotion. Spurred on by self-delusion, it has persuaded the media to call its Bank of Sweden Prize a “Nobel Prize” and in the main has escaped ridicule even when, like Samuelson and Mankiw, it has represented its pursuits and achievements as resembling those of Newton and Einstein. This self-exaltation has in the main enabled its anti-scientific methodology to escape outside notice, with the result that the broader intellectual community has accepted economics’ self-assessment. But this was not always the case. Four years after Robbins published his essay lauding the methods of economics, the American pragmatist philosopher John Dewey favourably reviewed a book by a zoologist and medical statistician condemning the same. Dewey, after referring to “the conceptions and methods” of economics as “obscurantist and fatally reactionary” quotes from Lancelot Hogben’s The Retreat from Reason. [Dewey, 1936] It pertains as much to our time, especially to Economics 101 and Presidential Advisors, as it did back then.
We can only conclude that economics, as studied in our universities, is the astrology of the Machine Age; it provides the same kind of intellectual relief as chess, in which success depends entirely on knowing the initial definition of moves and proeesses of checking, casting, etc. . . . In science the final arbiter is not the self-evidence of the initial statement, nor the facade of flawless logic that conceals it. A scientific law embodies a recipe for doing something, and its final validation rests in the domain of action.
And the message today from the physicist Bouchaud is much the same.
Most of all, there is a crucial need to change the mindset of those working in economics and financial engineering. They need to move away from what Richard Feynman called Cargo Cult Science: a science that follows all the apparent precepts and forms of scientific investigation, while still missing something essential. An overly formal and dogmatic education in the economic sciences and financial mathematics are part of the problem. Economic curriculums need to include more natural science. The prerequisites for more stability in the long run are the development of a more pragmatic and realistic representation of what is going on in financial markets, and to focus on data, which should always supersede perfect equations and aesthetic axioms. [Bouchaud, 2008, p. 292]
For economics the final arbiter, economic history, has spoken and this time with deafening loudness. Economists in the main may or may not hear, but most of the rest of the educated world has already. Although there is now talk of “intellectual crime”, it would be wrong to punish the guilty. But I plead that everyone, students included, do what they can to reform the teaching of economics, especially at its introductory level. If universities continued to use for nuclear engineering a textbook by an engineer who had headed a team managing a nuclear power plant that without external causes exploded causing huge devastation, there would be an enormous public outcry, including student demonstrations. There should be a similar outcry if Mankiw-type textbooks continue to be foisted on the world’s million or so young people who every year in good faith take up the study of economics. Because of human error propagated by a virulent ideology skilfully camouflaged as science, millions of American families are losing their homes, a 100 million people in the world stand to lose their jobs and a generation has been deprived of the hope it deserves. We cannot undo that, but we can greatly reduce the chances of it happening again if with all possible speed we bring into use pluralist textbooks that look at real-world economic problems from different points of view, that do not make false claims about economic knowledge, and most importantly, that seek not to indoctrinate but to educate. To these ends I offer the following list.
Eleven ways to think like a post-crash economist
1. Don’t try to pass yourself off as a kissing cousin of natural scientists.
2. Don’t speak, except to very small children, of invisible hands and magic.
3. When possible avoid the use of emotive words.
4. Remind yourself every morning that your duty as a teacher is to educate your students, not indoctrinate them.
5. Try to look at economic phenomena from different points of view and teach your students to do the same.
6. Encourage diversity of conceptual frameworks in economic research.
7. Don’t be condescending to your students.
8. Keep your eye on real-world economies rather than imaginary ones.
9. Don’t try to hide the troubled but fascinating history and contemporary diversity of economics from your students and the general public.
10. Avoid cranks and try to avoid becoming one yourself.
11. Never try to pass off ideology as objective truth.
JP Bouchaud , “Economics needs a scientific revolution”, real-world economics review, issue 48, December, p. 291.
John Dewey , “Rationality in Education”, The Social Frontier, December, Vol. lII, No. 21, pp. 71-73.
Yves Gingras , “Beautiful
Mind, Ugly Deception: The Bank of Sweden Prize in Economics Science”, Real World Economics, edited by
Gregory Mankiw , Principles of Economics, 4th edition, Thomson.
, An Essay on the Nature and
Significance of Economic Science.
Söderbaum, Peter (2004) “Economics as Ideology and the
Need for Pluralism”, A Guide to What’s Wrong with Economics, edited by
Hugh Stretton , Economics: A New Introduction,