Several people have asked me to weigh in on Noah Smith’s recent essay entitled “Most of What You Learn in Econ 101 Is Wrong.” In a sense I have already done so, in two posts from a few weeks ago. They are here and here.
While not written in response to Smith directly, these two blog posts of mine were indeed written in response to the argument that Smith makes, for it is an argument frequently offered by those who resist the counsel of humility that a good principles-of-microeconomics course rightly instills in its students.
I don’t now have much worthwhile to add to what I wrote a few weeks ago, save to note that not all courses in principles of economics are taught well. Many such courses are extended and rather mindless discussions of how to bend curves and how to do math that is asserted to describe economic relationships. (And many of these wrong-headed courses in economics principles do indeed teach lots of wrong notions, such as that markets require perfect information in order to work well, or that “perfect competition” would be the best kind of competition in reality if it were possible.) So, yes, most of what is taught in those kinds of intro-“economics” courses is indeed “wrong” – or, at least, irrelevant to a true understanding of economics.
But a well-taught principles course – a course taught, for example, by the likes of Deirdre McCloskey, by my colleague Walter Williams, by Dwight Lee, or by the late Armen Alchian – is one that teaches, and teaches well, at least ten vital foundational lessons: (1) the world is full of both desirable and undesirable unintended consequences – consequences that are largely invisible but that even a course in ‘mere’ principles of economics gives us great vision that enables us to “see,” (2) intentions are not results; (3) our world is unavoidably one of trade-offs and not “solutions,” (4) market-determined prices (4a) are not arbitrary, (4b) connect millions of strangers to each other in productive ways that almost none of these strangers are aware of, and (4c) cannot, save under the rarest of unrealistic circumstances, be controlled by government without causing consequences quite the opposite of those that are ostensibly desired, (5) productive and sustainable complex economic order emerges without design or intention, (6) individuals respond to incentives, (7) individuals, and not collectives, choose and act, (8) wealth is not fixed in amount (and it is not money), (9) government officials are no smarter or better-motivated than are people operating in the private sector, and (10) the economy is inconceivably more complex than someone with a poor understanding of economics realizes – so complex that the promises of social engineers are revealed to be fantastic delusions.
A good principles-of-economics course teaches us to appreciate the marvels of the spontaneous market order and, in doing so, teaches humility. Sadly, far too many advanced courses in economics teach the opposite: by their whiteboard rendering of economies as GDP-producing machines, such “advanced” courses instill the mistaken notion that economies are far simpler than they really are. It would be much closer to the truth to say that most of what you learn in Econ 800 is wrong, for in too many cases it dilutes or destroys the truths you learned in a good Econ 101 course.