Harvard starts its own PAECON against Mankiw

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Several correspondents have just told me that some of Greg Mankiw’s students at Harvard are staging a walkout from his first year class. They’ve written an open letter to Mankiw to explain why:

An Open Letter to Greg Mankiw

I applaud them for this move. Mankiw’s various economics texts are among the most simplistic of the many neoclassical textbooks that parade this flawed paradigm as a flawless jewel of human reasoning. I’m delighted that his students have taken the rebellion against this paradigm to one of its key promulgators.

I did likewise forty years ago–against far less well-known advocates of neoclassicism. At the time, I probably knew as much as these students do today of the enormous literature that establishes how fallacious neoclassical theory is, and which of course neoclassical texts like Mankiw’s completely ignore.

These students will undoubtedly be told that they have misunderstood and misjudged both the theory and Mankiw’s course–which I was also told when I revolted against Simkin’s economics at Sydney University back in 1972. They are certainly lacking knowledge of the literature–and they rightly attribute this to the “education” they are receiving in Mankiw’s course:

A legitimate academic study of economics must include a critical discussion of both the benefits and flaws of different economic simplifying models. As your class does not include primary sources and rarely features articles from academic journals, we have very little access to alternative approaches to economics.

Already, another student has published a rebuke to these rebels along the lines that they don’t appreciate the depth and wisdom in the subject:

In Defense of Ec 10

The following extract from this defence is worth highlighting–for the sake of the argument being made by the rebels. The author observes that much of the course follows Mankiw’s text, in which there is a summary of ten main points of neoclassical wisdom:

Sections largely follow The Principles of Economics by N. Gregory Mankiw, and to reconstruct what students learn at these class meetings, I dug out my notes from freshman year. Here are the supposedly biased takeaway points that Mankiw’s propaganda machine pounds home in section:

  • Trade and specialization of labor can make society better off.
  • Demand curves slope downward and supply curves slope upward (usually).
  • Sometimes, things happen that make demand curves and supply curves shift.
  • Comparative statics can be a useful way of thinking about how changes in some variables will affect changes in other variables.
  • Some goods are elastic–more volatile to changes in quantity consumed for a given price change–and some goods are inelastic.
  • Taxes, subsidies, price floors, and price ceilings can change equilibrium outcomes, and sometimes this causes deadweight loss.
  • Tariffs and quotas often cause a loss in total social surplus.
  • Externalities cause free-market outcomes to be different from socially optimal outcomes.
  • Public goods are neither excludable nor rival.

I won’t indulge in a root-and-branch critique of the entire list, but there are just a few that are provably false:

“Demand curves slope downward”

There is a convoluted procedure used to prove that individual demand curves slope downwards, but it has been proven, in what are known as the Sonnenschein-Mantel-Debreu conditions, that a market demand curve can have any (polynomial) shape at all. Here’s an extract from the Handbook of Mathematical Economics on that one:

First, when preferences are homothetic and the distribution of income (value of wealth) is independent of prices, then the market demand function (market excess demand function) has all the properties of a consumer demand function . . .

Second, with general (in particular non-homothetic) preferences, even if the distribution of income is fixed, market demand functions need not satisfy in any way the classical restrictions which characterize consumer demand functions…

The importance of the above results is clear: strong restrictions are needed in order to justify the hypothesis that a market demand function has the characteristics of a consumer demand function. Only in special cases can an economy be expected to act as an ‘idealized consumer’. The utility hypothesis tells us nothing about market demand unless it is augmented by additional requirements. (Shafer, W. & Sonnenschein, H., (1982). ‘Market demand and excess demand functions’, in K.J. Arrow, and M. D. Intriligator (eds), Handbook of Mathematical Economics (Vol. II), North-Holland, Amsterdam, pp. 671-693)

“supply curves slope upward (usually)”

This has been empirically disproven by so many researchers that it’s simply an insult to intelligence that economists continue peddling this. The last one to empirically falsify this propostion–unintentionally I might add!–was Alan Blinder:

The overwhelmingly bad news here (for economic theory) is that, apparently, only 11 percent of GDP is produced under conditions of rising marginal cost

Firms report having very high fixed costs-roughly 40 percent of total costs on average. And many more companies state that they have falling, rather than rising, marginal cost curves. While there are reasons to wonder whether respondents interpreted these questions about costs correctly, their answers paint an image of the cost structure of the typical firm that is very different from the one immortalized in textbooks.” (105) (Blinder, A. S. (1998). Asking about prices: a new approach to understanding price stickiness. New York, Russell Sage Foundation., pp. 102, 105; emphases added)

“Comparative statics can be a useful way of thinking about how changes in some variables will affect changes in other variables”

Comparative statics assumes that the economy is normally in equilibrium, and will return to it after a disturbance. That is utterly ignorant of the wisdom now accumulated in the area known as complex systems, in which the norm is for most dynamics systems to be in a state of permanent disequilibrium.

So, “Concerned students of Economics 10”, you have every reason to be concerned. Now, as the uninformed advocates of neoclassical economics try to brow-beat you into submission, dive in and learn the literature that establishes that your gut-feelings about the theory are right.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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34 Responses to Harvard starts its own PAECON against Mankiw

  1. Steve Keen says:

    At best they were now employed ex-students of Harvard, Andrew–and most had no connection with Harvard at all.

  2. Lyonwiss says:

    @ Peterjbolton November 3, 2011 at 6:39 pm

    You said: “the question begs, who will be able to teach Economics as it should be taught?”

    The textbook for Harvard’s Economics 10 defines and controls economic thinking in business and government. Change it and you will change the world.

    The important issues raised in the video @ Peterjbolton November 4, 2011 at 12:01 pm, cannot even be discussed meaningfully, semantically or conceptually, through the intellectual framework of the Harvard text.

    The student rebellion opens, ever so slightly, the door, which the vested interests will want to slam shut. Rewriting the textbook to widen the vision of economics is far more important than suggesting another wrong economic theory. (We have now only false foundations for economics, in every sense I can think of, leading to asking wrong questions.)

  3. koonyeow says:

    Title: Demand Curve Re-defined

    The students’ walkout shows that the demand curve for neo-classical economists is still downward sloping, albeit instead of sloping rightward, the curve is sloping leftward and passes through the coordinate (0,0), which means there is no demand for neo-classical economists even if their salaries are zero.

  4. peterjbolton says:

    @ Lyonwiss November 5, 2011 at 11:18 am | #

    “The student rebellion opens, ever so slightly, the door, which the vested interests will want to slam shut. ”

    Of course, this is the natural expectation from those that own the “status quo” which defines causally that which will follow in terms of the Laws and Principles of natural physics. This process has the esoteric seed, that is to say, “Will” and the specificities of “revolution” which is defined in etymology from the ancient Hebrew (Egyptian) as the Grace of the Word [of God].

    Or, what we see will be played out in full; Global revolution: “we versus they” and methinks this will be ugly as I see no intellect or reason nor understanding in the “they” and so it shall be is the “we”… au contraire.

    Man is at this time, far from yet be-coming “man-the-accomplished”.

  5. peterjbolton says:

    Gary North en Le grand cirque de la direction:

    “The Powers That Be are facing Problems That Won’t Go Away. The heart of their control is fractional reserve banking and the market for government bonds (sovereign debt). Both are under siege. Both are showing signs of unprecedented vulnerability.

    The euro summit meetings are turning into reality shows. Which team will be The Survivors? Merkel-Sarkozy? Papandreou-Berlusconi?

    Meanwhile, Estonia is the only nation in the West that is not in fiscal trouble.

    Then there is Iceland.

    Iceland, whose banks defaulted on $85 billion in 2008, completed a 33-month International Monetary Fund program in August. The Washington-based fund expects Iceland’s economy to grow faster than the average for the euro area this year and next. It costs less to insure against an Icelandic sovereign default than it does, on average, to hedge against a credit event in Europe’s single currency bloc, debt derivatives show.

    Iceland and Estonia never get invited to major European summit meetings. They are not in the G-20. There is a lesson here.”


    Ho hum

  6. peterjbolton says:

    For those of you who still believe that Gold is not Money:

    In spite of the stupidity of discussing something that is not going to happen, here are three reasons to be grateful they did.

    The proposal highlights the desperation, blatant arrogance, and sheer pig-headedness of the G20 and Eurozone finance ministers.
    The proposal shows that gold is money.
    Sooner or later, one of these asinine proposals will will cause Germany to realize the EMU is a lost cause. The sooner Germany realizes that, the better off everyone will be.

    ZeroHedge addresses the question “why will this be debated?”
    Why will it be debated? Because when at first you don’t succeed, try, try again. Germany may be crossed off the list, but here is who is next in order of appearance. Sooner or later, Europe will stumble on that one “leader” whose gold is less valuable than their political stability.



    If you think that the monkeys at the G20 solved anything, think again! ‘Mish’ is too kind! Oh, Julian Gillard is there too, talking waffle:

    The Fabians are then collected in their “heroic” demise, for the photo-shoot – not before time either.

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