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ECON 101 Remains Fundamental

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Here’s a letter to a high-school economics teacher in California:

Mr. Conner Crabtree

Mr. Crabtree:

Thanks for your e-mail.

Not only am I familiar with Prof. James Kwak’s criticisms of ECON 101 [2], I’ve addressed some of his criticisms in print.  (See here [3] and here [4].)

Prof. Kwak makes much noise trumpeting a banal truth that no economist denies – namely, that ECON 101 abstracts from many real-world complexities.  But Prof. Kwak incorrectly concludes from this truth that the insights and perspective supplied by ECON 101 do not therefore apply reliably to the real world.  Yet they typically do so apply.  Almost none of the problems with real-world economic policies reflect a failure to take account of the often-still-debated and always highly contingent nuances featured in ECON 999.  Instead, these problems overwhelmingly reflect a failure to take account of the firmly established and robust truths featured in ECON 101.  (Prof. Kwak, by the way, seems to be just as innocent of ECON 999 as he is of ECON 101.)

Were Physics 101 to have a critic analogous to Prof. Kwak, that critic would conclude that, because Physics 101 abstracts from many real-world nuances featured in advanced physics courses, it is mistaken to infer from Physics 101 that your jumping naked from atop the Empire State Building will result in your smashing into the ground at a deadly velocity.  Of course, to accept such a conclusion – for all the trivial validity of the point that Physics 101 is ‘merely’ introductory – would be foolish.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

….

Because almost all economic misunderstanding by the public (and by politicians) is rooted in the failure to grasp the basic truths of ECON 101, informing the general public of these basic truths remains of the utmost importance.  For example, support for minimum wages is not rooted in the public’s conclusion that the market for low-skilled labor is monopsonized.  Instead, support for minimum wages is rooted in the public’s simple failure to understand that wage rates are not arbitrarily dictated to workers by employers, and that the number of margins on which labor contracts can be adjusted are much larger than is commonly supposed.  So when good economists discuss minimum wages with the public, the appropriate level is ECON 101.

Likewise, support for protectionism does not spring from the public’s grasp of the theory of optimal tariffs, from its belief in the applicability of the Stolper-Samuelson theorem, or from its acceptance of the theoretical possibility that the nations’s wealth can be enhanced if government uses strategic trade policies.  Instead, support for protectionist policies springs chiefly from the simplistic belief that the destruction of jobs by imports reduces domestic employment on net, and that foreigners’ lower wage rates gives foreigners the ability, with trade, to generally ‘outcompete’ domestic firms and workers.  So when good economists discuss international trade with the public, the appropriate level is ECON 101.

To put the point a bit differently, ECON 101 instills the good habit of looking past stage 1, which is the stage at which most non-economists stop their investigations of economic consequences.  ECON 101 prompts those who grasp it to look also to stages 2, 3, and 4.  More-advanced economics courses – all the way to ECON 999 – teach that in theory there is also the possibility of stages 5, 6, 7, …. n.  Awareness of these theoretical possibilities is, of course, useful.  But awareness of stages 5, 6, 7, … n is either meaningless or, worse, practically dangerous without also an awareness of stages 2, 3, and 4.  And nearly all economic ignorance in the real world is simple unawareness of stages 2, 3, and 4.  (It’s also mistaken to conclude – as Kwak concludes – that awareness of stages 5, 6, 7, …. n regularly nullifies policy conclusions drawn from awareness of stages 1 through 4.)

I add that there are two typically overlooked vices of many of those who master ECON 999.  One such vice is that many who master ECON 999 never learn to distinguish mere theoretical possibilities from practical probabilities.  A second vice is that many who master ECON 999 have a view of the political and governmental process that is no more advanced or realistic than is the view had by high-school sophomores.  For all of their boasting of their scientific creds regarding economic theory, ECON 999 masters are too often childishly naive – that is, wholly unscientific – about the nature of politics and government.

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