I mostly think economics education is fine... most high school graduates in the US come out with a good basic understanding of supply/demand and labor/capital basic inputs to businesses, etc. But that doesn't mean that people are prepared to talk about economics on a daily basis, especially when it comes to politics. People confuse personal finance and budgeting with economics in general and don't know how to correctly think about the difference between legal and economic incidence of taxes like tariffs on imports.
Do I think economics in higher education needs to change? no. But the base level of economics knowledge and principles are very lacking for the everyday person, to the detriment of society at large.
surveys show that if you ask most people what happens to the price of X when the number of X available increases, people correctly understand that the price falls and vice versa. There are some things though, particularly housing, where more people think the opposite happens.
> People confuse personal finance and budgeting with economics in general and don't know how to correctly think about the difference between legal and economic incidence of taxes like tariffs on imports.
Or like treating the debt of a country in a similar fashion to household debt.
Economics - the business of creating a cover story for whatever the rich want to do. All dressed up in mathematically rigorous fictions claiming to model reality so it cannot be questioned by the hoi polloi. Never matters whether the forecast predictions ever match reality.
They serve the same role that soothsayers and captive religions used to play.
The three body problem means that we cannot predict the future of orbits of planets. Clearly astronomy is a science anyway.
Since the economy is made up of individuals who make chaotic choices, I think anyone claiming to be able to predict inflation perfectly is a charlatan. Especially since businesses and consumers react to the inflation predictions themselves which make them obsolete the moment they are published.
> The three body problem means that we cannot predict the future of orbits of planets.
Only an economist could write something so far from the truth.
Astronomers do predict how everything moves, with great precision. The 3-body problem is unsolvable IN GENERAL aka "it has no general closed-form solution, meaning there is no equation that always solves it"
However, all specific REAL cases are solvable, each with their own equations, not by substituting in one general equation. I could say a lot more about it but I know economists only pretend to understand math and I'd be wasting my time.
Besides, the contemporary economists specialize in gaslighting shamanism, an example of which is bringing up the 3-body problem into a discussion of the absolute impotence of academia economics compared to "we can do everything" technology fields.
Thus its easy to imagine inflation not being predictable, especially since the prediction is invalidated when it itself is released since people change their behavior chaotically in response.
When economics will be able to give meaningful forecasts just 5 weeks in advance that would be a very massive step forward though.
> since the prediction is invalidated when it itself is released since people change their behavior chaotically in response.
That's exactly the problem the study of all dynamic systems face, including the n-body problem you mentioned above! Yet with proper models you can get very good approximation as you acknowledge yourself.
Let me put it like this: The stock market has a big impact on inflation, since it changes the value of people savings and thus how much they spend. It is impossible to predict what the stock market will do. If you think it is predictable, please go ahead and lose all your money trying to do so.
Since the stock market is not predictable, alongside many other things in our economy, and there is inherent error in the economic data collected since we only spend so much on surveys and continuously revise the data as new information arrives, and since we aren't running an authoritarian state that big brothers our citizens, expecting perfect inflation predictions is unrealistic.
> It is impossible to predict what the stock market will do. If you think it is predictable, please go ahead and lose all your money trying to do so.,
Those with insider information beg to differ. The stock portfolios of most in Congress beat Joe Average's by far, and these are people who only get little hints, no more.
> and since we aren't running an authoritarian state that big brothers our citizens,
However, our citizens are big bordered by private entities, and that results in a government blindsided by them.
> The stock market has a big impact on inflation, since it changes the value of people savings and thus how much they spend.
That's backwards. Fed policies target inflation and the stock market is totally obsessed with them, they drive the market. That is, inflation expectations have a big impact on the stock market via the Fed.
Claiming that inflation isn't predictable is a claim that the Fed mandates are fake and all these meetings, market interventions and rate changes are all for naught.
In fact, the Fed can control inflation... if they really wanted, if there were no conflicts of interest and if there was no political pressure from the government, war funding, etc.
Funny how every debate about economics ends up with people dropping a variation of “go beat the stock market if you think you are clever”. It's not an argument, it's just a bad faith shot. Neither you or I can predict the hydrodynamic behavior of gas in a jet engine, but it doesn't mean it isn't doable with the right modeling tools, as all the jets flying above your head right now prove.
Also, your claim that the stock market has a big influence on inflation is unsubstantiated.
Finally, you're fighting a strawman when talking about “perfect” inflation prediction or limited precision in data: nobody is asking for a .1% precision in inflation forecasts (though most economics seem to have a problem understanding the concept of significant figures and keep producing numbers with a ridiculous amount of details relative to the underlying error in the data), but the fact that nobody can predict a surge in inflation before it starts poses serious questions on the usefulness of the models. And don't tell me it was the stock market …
Re predicting inflation in particular: we are in a global system with tons of factors which are themselves unpredictable. That doesn't mean that key factors like money supply don't have an impact! We don't know what global policymakers will decide and we don't know whether a pandemic is about to break. The global powers spent a fuck-ton and inflation followed, that's about as predictable as it gets. What isn't predictable is how and when that subsides.
Milei's policies curbed hyper-inflation in Argentina. Is that because he's a wizard? Is that because it's impossible to predict that drastically reducing deficit spending would reel in inflation? And if it's so fucking obvious that it would, what's the significance of denying those data points be scientific? They're either valid or not.
The theories that last e.g. supply-and-demand have lasted because they work. Guess what 20th century experiments didn't work?
Notwithstanding that "science" isn't about forecasting, this is a Social Science, which shares the same pitfalls as Sociology and even Nutrition in most cases. What you have to work with is large datasets and logic, not observing and measuring material properties. Obviously that doesn't mean useful information can't be gleaned, nor that the scientific method isn't applied to research.
Ideas that we take for granted as a given now, like supply and demand, were not always. Data reflects it's a highly predictable effect. It's a moot point whether you want to call it science or not: data quality and interpretation matters.
Your use of science here is just a thought-terminating cliche meant to say "nooooooo don't pay attention to the facts!"
There were predictions in the 2010s where some folks said QE wouldn't be a big deal, but others were giving dire warnings:
> We believe the Federal Reserve’s large-scale asset purchase plan (so-called “quantitative easing”) should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.
The real difficulty in economics is predicting what humans will do: Feynman once joked "Imagine how much harder physics would be if electrons had feelings"—or free will . Well, that's just the situation that economists are in.
For your inflation example, we know of causes such as demand-pull, cost-push, and expectations:
The difficulty is not in the predictions, but in accepting accurate ones from accurate models and living life and making policy based on them. Some folks simply do not wish to "accept" them, or wish to ignore them to pursue their own interests.
Climate change models are not inaccurate because people reject their accuracy and smother the findings.
This is absurd. An opinion column in the NYT does not constitute an authoritative reference on the matter.
Try some Milton Friedman [0] on for size:
Now the first step towards understanding the cause of inflation is to
recognize that it is always and everywhere a monetary phenomenon. It's
always and everywhere a result of too much money - of a more rapid
increase in the quantity of money than in output. [...] inflation in the
United States is made in Washington and nowhere else. [...] We have
evidence for the United States for over a hundred years; for Great Britain,
for two hundred years; for Sweden, for two hundred years. There has never
in history been an inflation that was not accompanied by an extremely rapid
increase in the quantity of money. There has never in history been an
extremely rapid increase in the quantity of money without an inflation.
Or otherwise, "inflation is a printing press phenomenon." There is very clearly a falsifiable hypothesis here: inflation increases if and only if the monetary supply increases. The induction is based on decades of empirical data, and Friedman presents a series of charts to illustrate the correlation. This, to me, sounds at least like an attempt at science - falsifiable hypothesis verified against empirical data, and clearly predicts that inflation will result if the monetary supply is increased.
We may quibble over the specifics and the numbers, just as one may quibble over what the exact percentage probability of rain is on any given day. Given that both economics and weather are chaotic systems, it is inherently difficult to make precise predictions in either domain. That does not mean that we cannot observe basic patterns and causal relationships.
More broadly, I dislike this form of modern journalism because I would rather read the source directly instead of having someone pre-digest the ideas for me which are thereafter coprophagically consumed. People read the headline, which is an oversimplification of an article which itself already oversimplifies, misrepresents, or misunderstands the source material, and all they repeat are the clickbait titles without bothering to look into the actual details.
I in fact looked up the book referenced in the opinion piece, and the reality of what the book asserts is far more nuanced than what the article quotes, to the point where I consider it a deliberate misrepresentation of the material:
[...] we have no compelling theory of inflation dynamics
that would allow us to understand the Phillips
correlation — or the historical shifts in the Phillips
curve — on anything like a deep level,” he writes.
What is surreptitiously omitted is the next sentence:
What this means is that we also have no good way to
explain the two most important changes to the inflation
process that have taken place over the past fifty years;
namely, the near-constancy of inflation’s stochastic
trend after the mid-1990s, and the reduced sensitivity
of price inflation to real activity.
... which is a far more technical claim than the article would have you believe. This sleight of hand is repeated again:
The fact that “we simply don’t know what caused the U.S.
economy to transition into an inflation regime” like the
one of 2021 and 2022 [...]
...which leaves out an important qualification from the full sentence:
What all this implies is that we simply don’t know what
caused the US economy to transition into an inflation
regime where inflation became a mean-reverting process
and the price Phillips curve flattened.
This kind of mis-representative op-ed journalism is exactly what brings mainstream media and the progressive cathedral into disrepute. Rudd is not even talking about 2021 and 2022 in the preceding passages, he is talking about inflation expectations in the late 20th century and flattening of the Philips curve in the 90s.
This is not a collage, where you cut out passages from magazines and books and paste them together onto bristol board for artistic effect or political messaging. As a technical discipline the surrounding context and the integrity of the entire idea, as a whole, are important too.
Econ 102 taught me most markets are not perfectly competitive and how to measure monopolistic control over markets. That and how to measure value each country gets from trading goods based on specialization.
This is conspiratorial anti science rhetoric, any econ student will tell you isn’t the case.
- libertarianism derives from a fringe branch of economics (the Austrian school) which is an heterodoxy.
- but mainstream economics, the classical branch then the neoclassical synthesis, is nonetheless heavily ideological (markets being seen as inherently good, even though they are often imperfect in the real world). And when you have a clique going as far as making their own apocryphal “Nobel prize” in order to promote their views and establish scientific credibility to political leaders, calling it “propaganda” is not entirely unwarranted.
Ugh, paradigmatic. We've seen these same criticisms leveled against Mathematics. It makes no more sense here either.
Fringe activist asks "why does this not focus on fringe heterodox notions and topics completely irrelevant to the subject?" If you already know the answer, don't ask.
Even for STEM they ask to corrupt the pursuit of truth and scientific rigor in service of a worldview.
The effectiveness and pragmatism of economic theory aside -
It's interesting to observe that highly opinionated topics (such as economics) tend to follow a "team sports" pattern. More than day to day utility, people argue passionately for their "home team". It becomes a point of pride and identity.
Of further note is the role of education - generally considered a form of training to improve your personal wellbeing - yet it has a secondary function. It can convince you to "change teams."
rethinkeconomics.org says:
> The problem we face is the total dominance of one way of teaching, which promotes the marketisation of society, leading to increased inequality, injustice and significant harm to the natural world.
A cohesive society is one with "team support" parity between the people and government. It begs the question - what happens when society reverses parity?
Articles like this pop up a lot, and not just here. I took economics. On one hand, I did find my education to be very high quality, relevant, gave me a good understanding of the economy and all the principles are sound.
The problem with economics is that people and politicians either don't listen or want specific outcomes that aren't good for the economy as a whole.
Voters will always vote for handouts, not for a robust and sustainable economy for everyone. Rich people will always vote for things that increase inequality, because they're the beneficiaries. Homeowners will always vote to simply increase the value of their assets, after they bought them of course. And so on...
The only place anyone listens to economists is in banks and hedge funds. But then you're probably not creating the change that led you to consider economics in the first place...
I only agree with the “will always vote” statements here if asterisked with “in aggregate, given the current socioeconomic incentive structures”
Maybe this is pedantic hair-splitting, but cultures and material conditions change… even human nature can change on long enough time scales. Maybe Humans will evolve into Bonobos.
What you are saying is understating the problem. Today's debt-based national economics allows people alive today to gain benefits while placing the resultant costs/restrictions on the people who are not yet born (or are currently children).
Debt-based economics is one of the biggest subversion of democracy. Decisions are being made for people who can't vote.
This comment is one of the things I refer to in my top-level comment. People have just enough of an education in economics and an understanding of personal finance and budgeting to be dangerous. They conflate economics with federal budget politics, have a one-sided and incomplete view of what debt is (especially US national debt), and then build a whole model of a system called "debt-based economics" which is based on political observations instead of fundamental economic understanding.
The problem isn't the concept of debt. The problem is people vote for the own interests ie. handouts and kicking the can down the road to the next generation. You can have debt in a society without accumulating more in perpetuity. Debt is a money multiplier and fine, never paying it off is the issue.
Indeed, debt is simply a tool that can be used in the good or bad ways. I think we agree that this tool is sometimes used poorly in general by countries, often because voters/politicians don't listen to prescriptions by economists.
What I am saying is that poor use of this tool leads to not only economic problems, but it is fundamentally at odds with democracy. If you vote to take on large debts that the future generation have to "pay" [1], you have taken away their democratic right, in a way that is distinct from other economic tools.
The current generation can vote to have low taxes or high taxes, but that doesn't have much impact (modulo infrastructure maintenance) on future generations ability to exercise their democratic rights.
Debt is unique in this regard.
[1] Pay in quotes because future generations might pay directly via taxes, or indirectly via higher inflation or by working hard to make gdp larger etc.
Debt is money is debt. You can't separate the two. What is "debt" at the state level of a sovereign state is just book debt, which is to say, numbers that balance the money creation. The real crime is paying interest on that "debt".
Chile has the largest GDP per capita in South America among countries with more than 5 million people and is widely regarded as the healthiest South American economy. What point do you think you're making?
As long as economics education continues to teach anything about the marginal cost of production just because David Ricardo thought he was clever with his lumberjack analogy two centuries ago, it's fair to say it's not fit for the 21th century.
Marginal thinking is useful on the demand side (that's what the marginal revolution was about). But it makes absolutely zero sense on the supply side: for pretty much every business, upfront costs dwarf marginal cost of production. Think of most businesses: the salaries are negotiated in advance, you must order stuff to your suppliers before you can sell them and all the CapEx is spent before you can use the productive capital. The cost of producing one more item with what you already have paid (inputs+workers+capital) is pretty much zero.
What makes sense if working on average costs, and that's why it's the metric that is being used by every real companies out there.
But then you can't show the nice graphic showing supply and demand curves nicely crossing each other at the equilibrium price anymore…
Economists should have ditched Ricardo's view of the supply side long ago like they did for the demand side (labor theory of value was crap and was rightly abandoned).
Standard theories of production clearly distinguish between fixed and variable costs. Moreover, it is well understood that this distinction depends on the time horizon, with more costs being variable for longer horizons.
Moreover, concepts like economics of scale (with low marginal costs of producing an additional unit, as you state as an example) are well understood for certain products in certain circumstances.
The distinction between and relevance of average and marginal costs is taught in undergraduate classes.
Whether or not you can draw a nice diagram of supply and demand is pretty irrelevant for professional economists and our understanding of markets, their dynamics, and equilibria.
How economics is practiced has nothing to do with how it it taught though, which is the topic here.
> The distinction between and relevance of average and marginal costs is taught in undergraduate classes.
Yes, and what's being taught is exactly the problem. Marginal cost is a red herring.
> Moreover, concepts like economics of scale (with low marginal costs of producing an additional unit, as you state as an example) are well understood for certain products in certain circumstances.
This kind of sentences is a good summary of what's wrong with teaching the concept of marginal cost: it assumes that economies of scale is a phenomenon limited to “certain circumstances”, when in reality it affects 90%+ of the economic activities and it shapes pretty much everything around us.
Thinking about marginal costs leads to missing the crucial point of any business, no matter its size or market: breaking even.
In a busy season at work more people work overtime, which is a very simple a marginal cost that increases with production.
If we have a sudden surge in production, suppliers can get us goods much faster than usual but only if we pay more, another marginal cost, no?
If there is not marginal cost, then there is never decreasing economies of scale, which is blatantly wrong if you've ever seen the HR of a company get less efficient as it grows
I get that the marginal cost to copying a piece of software is a few cents of electricity, but for sure in the real world there are plenty of marginal costs.
> In a busy season at work more people work overtime, which is a very simple a marginal cost that increases with production.
It's not a marginal cost, it's yet another incremental upfront cost: you usually pay your employees to stay an hour more, you don't pay them some amount of money depending on how many things have been sold over the said hour.
The last, emphasized part, is the key: the fundamental realization of the marginal revolution is that value isn't created when something is manufactured (which was Ricardo's labor theory of value) but when someone found it useful enough to buy it (that's marginal theory of value).
> If we have a sudden surge in production, suppliers can get us goods much faster than usual but only if we pay more, another marginal cost, no?
Marginal cost is about how supply volume, not speed, incurs costs, so it's irrelevant. Most of the time suppliers give you a discount the more stuff you buy at once by the way.
> If there is not marginal cost, then there is never decreasing economies of scale,
I don't know how you get to such a conclusion, if average cost goes up, there you go.
Yeap :-) Pointing out that 1500% reductions are mathematically impossible is incredibly divisive. I am really splitting the room between people who passed 4th grade math and people who didn't.
If someone making US economic policy with a team of PhD advisors can say this unchallenged, then maybe that's exactly why economics education isn't fit for the 21st century. We made basic arithmetic a partisan issue.
Amazing what LLMs and the power of AI can do for you! Economists take note, you are all going to be replaced by ChatGPT 5. Future POTUS, AI literacy will now be your core competency.
Entirely useless recommendations and very dubious empirical claims here. Let’s take them one at a time….
- “The climate crisis and socio-ecological issues are broadly absent from economic curricula.”
-> I don’t believe that for a second. Externalities are taught in every Econ 101 class I’ve ever heard of.
“75% of universities do not teach any ecological economics”
-> as a whole class maybe not but that doesn’t mean the material doesn’t get covered.
“ instead, when issues of ecological sustainability are taught, environmental damage is considered as something that needs to be priced into market mechanisms.”
-> which is a completely normal, standard idea among economists for good reason!
“Economics education does not address historical and contemporary power imbalances”
-> that’s not our job? Wtf - that’s not part of economics at all. Does it get covered in statistics? In history? I don’t know who’s responsible but it’s not us.
“55% of universities do not provide meaningful teaching on questions of historical slavery, colonialism, or neocolonialism at all. History and ethics are absent from these discussions.”
-> economics departments are not being held responsible for this supposed omissions but I really doubt this supposed fact is true. Does an American history class count or not ? It’s just not possible that slavery is not taught.
“Mainstream neoclassical economics dominates the economic theories taught.”
-> also a good sign as that’s the standard. We don’t teach Marxist thought anymore. That’s progress.
“Of the 480 theory modules we graded, 88.3% of them included mainstream neoclassical economic thinking focusing on rational, self-interested individuals.”
-> Show me any alternative that’s credible. Also: behavioral methods are widely taught. We are plenty criticism of our own models. That’s also Econ 101 material.
“They are almost entirely taught through quantitative technical skills.”
->. Good. Also: as opposed to…? What exactly?
“Economics is taught in isolation from other social sciences. The discipline of economics should be embedded within the social sciences, and students should be encouraged to learn across other disciplines such as politics, sociology, geography, and history, but for the most part, it remains siloed”
-> that’s true of what happens in every other department too. Leave it up to universities to set distribution requirements.
“There are two programmes that are critical, climate-conscious, and provide an economics education fit for the 21st century. SOAS and the University of Greenwich introduce students to a range of intellectual and methodological perspectives within the economics discipline. They put a learning focus on climate, power, and inequality throughout the course.”
Do I think economics in higher education needs to change? no. But the base level of economics knowledge and principles are very lacking for the everyday person, to the detriment of society at large.