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

  • Lyon­wiss

    @ 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.)

  • koonyeow

    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.

  • @ 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”.

  • 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.”

    http://lewrockwell.com/north/north1057.html

    Ho hum

  • 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.

    end/quote

    http://globaleconomicanalysis.blogspot.com/2011/11/in-act-of-desperation-g20-asks-germany.html?

    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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