Wednesday, April 16, 2008

Principles of Economics x 2

Listening to my daughter's accounts of economics classes she has visited during her college search, I was struck by the fact that there are two quite different courses one might teach under the label of "Principles of Economics," corresponding to two quite different views of what economics is.

One view of economics is that it is the study of the economy. That suggests that if you are going to take one basic course, it should tell you things about the economy--how big it is, how it is measured, what "inflation rate" and "unemployment rate" and GNP and NNP and such mean. My impression is that most principles texts and courses are designed to do that.

The other view—the one I favor—is that economics is an approach to understanding behavior. It can be used to understand inflation and unemployment but also to understand marriage and divorce, the arguments for strict liability vs negligence, interactions between parents and children or between teachers and students, why tariffs are passed and why armies run away. The applications to the economy have been worked out in somewhat more detail than most of the others, but they are not necessarily the most interesting or useful. Most students will at some point enter the long term contract called "marriage," so a way of understanding the world that helps them to understand marriage is useful. Most of them will never have to make any decision that depends on understanding how GNP is defined.

There are two arguments for designing a principles class around my view of economics. One is that it's more fun, more interesting, then learning lots of facts. The other is that it teaches you more useful things.

There are two arguments for the other approach. One is that it is what most students expect to learn in such a course, because most of them, like most other people, think of economics as the study of the economy. The other is that learning facts and definitions, while it may take just as much time and effort as learning ideas, requires less involvement and less intellectual ability. Hence such a course may be more accessible to a large number of students, most of whom are taking it not because they have any serious interest in economics but either to satisfy a distribution requirement or because they think that in their later careers, whether as executives or reformers, they will have to know the basic facts about the economy.

At one of the colleges we visited, I asked someone in the economics department about relative numbers of econ majors and students taking principles. The answer was that the latter was more than ten times the former. That fact helps make sense of why principles is likely to be taught, even by professors for whom economics is interesting, in a way that isn't.

This suggests a real conflict between the two approaches, from the standpoint of the department. An economics course taught as I would want will, I think, attract more majors to the department, since it shows economics as an interesting, flexible, useful set of ideas. But it may also result in lots of students who are not interested in being majors feeling cheated, feeling that instead of teaching them what they want to know the professor has been teaching them what he wants to teach.

The resources that a college or university provides to an academic department typically depend, at least in part, on how many students take their courses. Teaching Principles the way I want it teach may increase the number of majors, which brings in resources—money and faculty slots. It may decrease the number of non-majors taking the course, which costs the department resources.


At 6:06 PM, April 16, 2008, Blogger sierra said...

Ironic. Teaching economics more comprehensively is uneconomical.

At 6:08 PM, April 16, 2008, Anonymous Anonymous said...

This is very interesting, and I'll say it's made me look at economics courses in a way I hadn't considered before - certainly all the ones I'm familiar with are of the first type, but in my own private study I've tried to focus more on the second view.

The only other comment I'd make would be to say that I don't think economics is AN approach to studying behavior, I think it's a collection of (sometimes contradictory) approaches to studying behavior. And this might explain why the most basic courses in it are of the first type - areas where most economists would be in basic agreement, even though they might not be as interesting. Showing a statistic that says 'most people behave like X' is one thing, but a theory that says 'most people SHOULD behave like X' is something entirely different. Maybe I'm not making any sense...

At 7:47 PM, April 16, 2008, Blogger Steamboat Lion said...

Remembering back some 22 years to my first year of undergrad economics (at the Australian National University) this was the difference between macro 101 and micro 101.

Macro bored me to tears because it seemed largely descriptive. Micro changed the way I look at the world because it seemed powerfully explanatory.

At 8:53 PM, April 16, 2008, Anonymous Anonymous said...

It seems like it would be easy to have two courses, with slightly different names, like Principles of Economics, and Principles of the Economy, filling the same slot in the freshman year.

At 11:17 PM, April 16, 2008, Anonymous Anonymous said...

Sort of like students expecting a Philosophy of Religion class to be about religions...

At 8:01 AM, April 17, 2008, Anonymous Anonymous said...

At my university - as apperently in most others - the first type is predominant.
Can someone suggest a good read to explore the second one?
Thanks in advance!

At 9:09 AM, April 17, 2008, Blogger Michael F. Martin said...

"That is a different set of incentives from rising in an economic establishment where the rewards system, again, the reinforcement, comes from being a truffle hound. That's what Jacob Viner, the great economist called it: the truffle hound -- an animal so bred and trained for o­ne narrow purpose that he wasn't much good at anything else, and that is the reward system in a lot of academic departments. It is not necessarily for the good. It may be fine if you want new drugs or something. You want people stunted in a lot of different directions so they can grow in one narrow direction, but I don't think it's good teaching psychology to the masses. In fact, I think it's terrible."

From a speech Charlie Munger gave at Harvard Law School in 1995:

At 11:16 AM, April 17, 2008, Blogger David Friedman said...

Anonymous asks for "a good read to explore the second one." He might want to look at my Hidden Order. Alternatively, the textbook I rewrote to produce it is webbed at:

It's a bit more mathematical than the later book and I think a little less well done. But the price is right.

At 9:26 AM, April 18, 2008, Anonymous Anonymous said...

Both look interesting. Thanks, David!

At 12:19 PM, April 19, 2008, Blogger Andrew said...

A good intro econ course should cover both. The first economics course I took, John Taylor's intro econ class at Stanford, only went for one quarter (3 months) but gave a great introduction to both topics.

Tying together big-picture economics with personal behavioral economics is also key.

At 3:27 AM, April 22, 2008, Blogger Wladimir Kraus said...

I disagree with David in that I have come to regard the first approach to be of incomparably greater value than the second. I must confess that David's books and articles were the ones that got me interested in economics in the first place. They were the ones who helped me to understand neoclassical economics. If you want to understand the fundamentals of mainstream neoclassical economics there is no book out there better than "Price Theory: An Intermediate Text". Largely due to the quality of the book and the force of its methodological message, at some point, I was literally obsessed with finding "economic logic" everywhere. But then, and to me greatest dissatisfaction, I discovered that the analytical tools of "partial-equilibrium" microeconomics is totally useless as far as the basic questions and problems of traditional economics are concerned.

This kind of "freakonomics" may be fun, and has really become hugely popular, to discover "economic logic" in everything humans do but the really funny part in this abracadabra is that it in fact rarely gets you very far, even if your efforts are confined to a better understanding of "the marriage market" and not how the rate of profit/interest is determined or what is the value and significance of the the Say's Law.

The major reason for why it does not deliver what it is supposed to and pretends to is that as far logic and science are concerned the "human behavior" approach is really just a thinly veiled assemblage of unconnected, "partial-equilibrium" wisecracks. The approach is very flexible, to the point of being amorphous, in the sense that it does not, and cannot, offer any generally valid and integrated insights beyond the one "insight" that people tend to choose according to their self-interest, which in fact boils down to the more general insight, favored by some Austrians, that people act in a certain way because it is to their benefit to do so.

If science is about finding measurable (and predictable) regularities, which I think it is, then economics of the kind David favors simply does not qualify.

At 6:53 AM, April 22, 2008, Blogger Steve_Roberts said...

Isn't it about supply and demand in the niche 'economics for non-majors' ? If principles-based teaching is scarce in relation to demand, it will bring in resources; otherwise it will bleed them. Surely the necessary action is Marketing. Smart business majors will recognise that the data of the economy will change markedly while they work their way up to the boardroom, but the principles of choice under scarcity will not.

At 4:23 AM, May 12, 2008, Anonymous Anonymous said...

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