A New Way to Learn Economics
newyorker.com
newyorker.com
The first edition came out many years ago. Since then, the world has provided a few case studies on the matter. For example we've been been watching the slow-motion train wreck that is Venezuela's economy, as first Chavez and then Maduro gripped prices tighter and tighter. The horrible consequences Sowell describes have shown up inexorably, predictably, just like clockwork. It's grim to watch; but my point is that his book and other writings give a real intuition about economic fundamentals that you can see every day.
[1]: https://en.wikiquote.org/wiki/Basic_Economics_(Thomas_Sowell...
I just want to point that the world has provided a lot more case studies on the matters of Karl Marx economical bibliography.
Both aspect are interesting to learn about but none of them is neutral and they both come with a bunch a ideology. Even if the first usually hides it, pretending to be a neutral and rigorous analysis of the world. Introduction to Economic Analysis is clearly in this category.
The problem is that theses models have a predictive power approximatly the same that Aristotle Law of free fall. They describe a world that seems intuitive but is totally wrong in most cases. For instance the diminishing return hypothesis comes from Ricardo's studies of agriculture in the UK. Since then this hypothesis is almost always used when studying the law and supply and demand. The problem is : it's almost always false unless you're harvesting a natural ressource.
Teaching a model which is known to be a pretty terrible representation of reality is not a good thing because it gives a false sense of understanding, which is dangerous from a democratic point of view.
Having done exercises of rolling carts down inclines and comparing the measured velocity to predicted velocity, and having taken supply schedules and use those to predict price variation, I can say one set of calculations was more accurate than the other. (No doubt this was due to data quality.) Simple regressions of supply and demand curves have uncanny predictive power.
They are not a terrible representation of reality in the same way that rigid bodies are not a terrible representation. They are a limited representation that naturally extends itself. Don't confuse modern macroeconomic models with the terrifically-successful microeconomics early econ tends to focus on.
Do you have access to the actual data you worked with ? I personally attempted to study real world data to get an idea of the actual elasticity of basic products (gas, real estate, tobacco) and I've never found a single relevant measurement. I'd be really interested to see a real life example of this phenomenon.
Gas is refined, real estate is inscrutable and tobacco highly regulated. That makes them hard. (I don't think we have any good models for real estate.) Try thermal coal or crude oil or pork. The EIA, U.S. DoE and CME have loads of data.
A scientific theory shouldn't pretend it's «neutral»: biology isn't «neutral» since it's clearly again the religious believes of huge part of the humanity. What's makes a science true is its ability to explain and predict the real world.
The socialist view of the world doesn't even pretend to be scientific : it doesn't give any predictions. (unless you consider that Marx predicted the communist revolutions, but it looks more like a self-fulfilling prophecy than a prediction).
The classical/liberal view pretends to be a scientific point of view, despite being unable to predict anything accurately and having almost all the founding hypotheses proved wrong. Historically the reason the classical economic theory became popular was because the classical economists where against the corn laws[1] and they convinced the nascent industrial bourgeoisie that the free market would be good for them. Then the Anti-Corn Law League was born, and The Economist and the political destiny of the classical economics.
Political economy is where the value judgments and arguments about why we should implement some form or system of economics.
Economics doesn't disappear under socialism or communism. Many basic principles apply depending on what form of socialism is adopted, such as supply and demand. Socialists tend to run into problems when they decide economics is some 'tool of the bourgeoisie' when it is a tool for everyone who want to solve real problems involving the distribution of society's wealth.
Since both of them are influential in society, I think it's appropriate to address both of them. My high school biology teacher did a short session on intelligent design before proceeding with Lamarckism, Darwinism, Mendelian genetics and so on. Of course we mostly just mocked biblical literalism, which I think is not the intention of those who want intelligent design taught in schools, but we did talk about it.
A neutral POV might be Humans are computationally limited mostly independent actors who's actions are based on updatable heuristics. This much more closely matches things like asset bubbles or creation of unions, but also preference for name brands.
PS: The truth is not trying to tell a story. Suggesting the truth is biased is suggesting the world is also biased.
https://en.wikipedia.org/wiki/Economics_in_One_Lesson#Critic...
Just to be clear, I'm not an expert on any of this. I just popped in to provide a pointer I've found useful in learning about a topic when I'm not sure where to start. Similarly here, I just applied a bit of search-fu.
Here for instance: https://en.wikipedia.org/wiki/Criticism_of_capitalism
The standard view here is that the state is the guarantor of those rights via a monopoly of violence granted by the people.
The libertarian view is that the state didn't ever contractually obtain this monopoly and will use it against you i.e. via taxation or when you are/do something your state thinks you shouldn't - often among them: Being gay, black, white, Jew, Christian, Muslim, raped, communist, capitalist, rich or poor.
Venezuela's economy already went through this period in the late 80s/early 90s. The collapse of oil prices and its subsequent effect on the economy and the government's ability to maintain services is partly what led to an infuriated populace electing Chavez.
This sounds excellent.
I think "free market" is the worst-named concept ever, and has caused lasting damage since it sounds too much like "unregulated market".
Acknowledging the spectrum of properties, and how unregulated markets don't end up free in a lot of important cases from the get-go will help to fight this damage.
Think about it: if we're accepting the need for regulations, aren't we just talking about "market" rather than "free market"? The basic nature of "market" on its own already captures the idea that people are coming together and engaging in some sort of voluntary trade and competition etc.
All the good stuff we care about is present in just "market" and the "free" part is the propaganda term.
The reason these things are 'assumed' is clearly not because it builds simple models that approximate reality in any situation. There are no markets with perfect information nor competition. It does function to conceal sources of profit, though.
I'd characterize this behavior as "rational actors (economists) in a dysfunctional environment responding rationally to incentives, matching demand with a supply of politically useful economic models for wealthy special interests..."
The ultimate outcome of this is Greenspan telling us "nobody saw the financial crisis coming" because economists in policymaking circles drank their own koolaid and almost entirely assumed away the existence of private debt in their models.
Then there's the matter of where the better paid economist jobs are (think tanks like CATO, AEI, ALEC, Heritage, etc. tasked with formulating pro-corporate policy).
Is your argument that economists do not respond to incentives or that these incentives do not exist?
Probably also (iv) if you're an economist sufficiently motivated by financial incentives to change your entire worldview to suit, you go and work for a bank which pays a lot more than a state university or Koch-bros funded think tank.
So I'd struggle to see incentives being the main story behind popular economic theories
Except this isn't about who invented the false premises modern economic thought is based upon, it's about who perpetuates them and why.
>mainstream academic economics (even right-wing mainstream economics) is openly and increasingly disdainful of concepts like gold standards
I wasn't even aware the Koch brothers were pro-gold standard. It isn't mentioned here: https://en.wikipedia.org/wiki/Political_activities_of_the_Ko...
A central part of their agenda it is not.
>every right-winger's favourite bogeyman Soros throwing an awful lot of money at heterodox centre-left economics
Yes, he set up a think tank with noted "leftists" like Paul Volcker and David Rockefeller.
The front page on their website right now is an article downplaying inequality. Karl Marx would be so proud.
>Probably also (iv) if you're an economist sufficiently motivated by financial incentives to change your entire worldview to suit
I doubt there are many of those. If your worldview is so divergent from the standard corporatist neoliberal worldview that pervades the profession you probably won't even go into it in the first place. I have a couple of friends who bailed for this reason at postgrad level.
Nonetheless Upton Sinclair's adage that it is difficult to get a man to understand something, when his salary depends on his not understanding it is pretty relevant...
Note that one of the most cited & praised economists in this thread (keen) for his (actually) heterodox approach was actually made redundant from his university not that long ago.
>you go and work for a bank which pays a lot more
Obviously. It's a simple jump from state university professor to a trader raking in $1 mil bonuses.
> Except this isn't about who invented the false premises modern economic thought is based upon, it's about who perpetuates them and why.
Right wing academics at predominantly state-funded academic institutions have obviously promoted a particular economic worldview for the past century and a half because they want to be made redundant, not because they believe in them? I'm not convinced everybody who doesn't agree with your views on the economy is only in it for the money, especially the most influential economists on the right who became recognised and even died long before the Kochs started spraying money around.
> I wasn't even aware the Koch brothers were pro-gold standard.
That says a lot about how effective they are at influencing economics... The Kochs fund the Mercatus Center, pretty much the only academic economics department that takes gold standards seriously. Their much-favoured CATO institute was founded by Murray Rothbard.
> The front page on their website right now is an article downplaying inequality. Karl Marx would be so proud.
The front page on their website carries articles about elite financial networks running the world, disappearing middle classes and where modern macroeconomics went wrong (and yes, an argument for spending tax dollars on poverty alleviation rather than just looking at inequality stats). Obviously this is all part of the conspiracy to promote mainstream economics and the interests of the rich. And Stiglitz and Volcker both taking funding from the same source is a clear sign that economic thinking is entirely dictated by where the money comes from.
As for Marx, it's lucky that literally no economist has ever written anything complimentary about him, although I suppose if they did it must have been for Russian funding.
> Note that one of the most cited & praised economists in this thread (keen) for his (actually) heterodox approach was actually made redundant from his university not that long ago.
Keen's version of events is that the university shut down the faculty because his neoclassical colleagues weren't popular enough and he took voluntary redundancy rather than be a professor on a business course...
> Obviously. It's a simple jump from state university professor to a trader raking in $1 mil bonuses.
Obviously state university economics departments are full of professors who would sacrifice their beliefs for fast career progression and high salaries who just couldn't find anyone else that would hire an economics grad.
I didn't say they were only in it for the money, but the marginal utility of a career as an economist is higher if you have "the right views", and, over time, people have a tendency to shape their views around what grants them money and career progression. This is pretty typical.
>That says a lot about how effective they are
No, it says that that is not part of their agenda. They have never spoken out on it. Only one of the think tanks they fund holds this view.
Their core agenda appears to revolve (among other things) around deregulation. At this, they have been very successful.
>The front page on their website carries articles about elite financial networks running the world
Yeah, elites like trashing one another. Whodathunkit?
>Obviously this is all part of the conspiracy to promote mainstream economics and the interests of the rich.
I suppose billionaires funding an elaborate game of misdirection over wealth inequality could qualify as that, yes. It's curious that you'd characterize this as the left asserting themselves.
>As for Marx, it's lucky that literally no economist has ever written anything complimentary about him
Non sequitur?
>Obviously state university economics departments are full of professors who would sacrifice their beliefs for fast career progression and high salaries
You tend to exit the profession and do something else if your beliefs are too discordant (like my friends did).
If your particularly hobby horse is writing papers about economic elites ruining the world and mainstream economics being wrong then ample funding opportunities are available even from members of the economic elite, and your book will probably sell more copies too. And you probably don't prize the opportunity for tenure at Chicago that highly unless you actually admire the school's economists anyway.
When the most influential economists of all time are Marx and Keynes, and Stiglitz, Piketty and Krugman get more public attention than most of the rest of the profession put together, it's more than a little difficult to argue that academic economic discourse is highly constrained by the class interests of billionaire rentiers.
I think it's a really bad excuse in age of computer modelling and when we have mathematical tools to deal with dynamical systems.
I mean, "rational expectations" is nothing to do with the relative simplicity of the mathematics (the models it largely replaced were worked out with pen and paper) and everything to do with the argument that economic models shouldn't rely on people making a particular type of systematic error to show a desired outcome (e.g. if policy changes required economic actors to ignore the implications of the policy change to work, they probably wouldn't actually work that well). Essentially it's the absence of an assumption about human behaviour, and there's entire classes of economic models devoted to saying "even if people on average anticipate the future and economies function perfectly smoothly, simply introducing X into the model means that you still get recessions and still get a benefit from a policy response to it", which is a more powerful argument than "if I've calibrated all these parameters and specified all these functions about all these hundreds of different types of agents' planning correctly, this policy will work", especially if you're trying to disprove arguments that the economy will sort itself out eventually.
That doesn't mean there isn't a place for complex computational models and even throwing data at ML algorithms to see what sticks, or that a general equilibrium model to predict actual changes in an economy isn't fairly unlikely yield accurate results over the long term, but they're performing an entirely different function from reasoning that X will [not] affect Y even if or only if all else is held constant or assumed to respond logically.
Same goes for Keen's models, they are dynamic and pretty simple. He even writes in his books, to paraphrase, "equilibrium is feasible" was a good excuse at the beginning of 20th century, when Marshall came up with supply/demand model, but it's not today, when we can actually analyze dynamical systems mathematically.
My memory on that is little hazy (it's been maybe 15 years ago I read about it), but as I remember this was the case about Blatt's model as well. And IIRC it's based on earlier ideas by Keynes (uncertainty is a different thing than risk).
I also recall nice idea from Paul Ormerod (but it could have been somebody else or folklore) who had an interesting model of economic agents - do either one of the 3 things:
- the thing that you always did
- the thing that others are doing
- another thing that you think might work
This also leads to an interesting class of models (different from rational expectations) and it's not making too much assumptions about humans.
Again, this shows that Blatt and Keen (and other post-keynesians) are woefully underappreciated in economics.
I've got plenty of time for the post-Keynesians but most of them (particularly in the Keen Godley/Lavoie Social Accounting Matrix style) really aren't doing more complicated mathematics so much as choosing to have models far more sensitive to specified lag structures and/or using different assumptions about human behaviour (The flip side is that Keen's hypersensitive-to-how-it's-specified banking system is better in many respects than a macro model with no banking system or credit constraints) For much of the last century the Cambridge post Keynesians distinguished themselves by doing a lot less modelling than their neoclassical counterparts.
IIRC prominent economists actively ridiculed the idea of a "Manhattan Project" a few years back. The idea was to pull in experts from mathematics, physics, biology and computer science to invigorate the field via cross-pollination like occurred with mathematics and physics in the 70s and economists did not like it.
Update: apparently it did lead to a conference, at least, and Nassim Taleb was one of the participants.
Few economists are willing to look at their own incentives or, in her words, "the economics of economics".
https://www.youtube.com/watch?v=UA1br9n5lQM&feature=youtu.be...
But we always need to remind ourselves that the spectrum exists, and that reality will not match the theory unless many conditions are met.
A bit of a trite theory is that people in the right have so internalized the misconception that they now believe it.
Freedom Markets™ is agitprop.
> groups of students demanded an overhaul in how economics was taught, with less emphasis on free-market doctrines and more emphasis on real-world problems.
> in many cases this material comes after lengthy explanations of more traditional topics: supply-and-demand curves, consumer preferences, the theory of the firm, gains from trade, and the efficiency properties of atomized, competitive markets
This is very concerning. If you don't understand things like supply and demand curves and relative advantage, you can't understand economics. There's very good reason Mankiw starts with these basics.
If the math gets thrown out for ideological reasons, then economics will become the next sociology.
But much more concerning is "1.9 Capitalism, causation and history’s hockey stick".
It starts off questioning whether capitalism actually did cause the great hockey stick. It then presents the German case study pretty fairly but then ends: "We cannot conclude from the German natural experiment that capitalism always promotes rapid economic growth while central planning is a recipe for relative stagnation."
While it's true that one case study isn't conclusive (and the absolute term "always" was used to weaken the hypothesis), the closing paragraph leaves the reader with the impression that we only have one data point so we're not that sure which approach works better.
Edit: On the other hand, it is honest about price controls. And it does actually incorporate supply and demand curves in later sections where appropriate.
But it should raise some questions about who backs the school.
It's just that capitalism, sans monopolies, and markets are a natural fit for each other. Capitalism with monopolies is the late 1800s US, which was an economic disaster for many and why we saw a rise of unions and socialist groups at the time.
I've got bad news for you buddy....
Economics has been nothing more than a pseudoscience for the past few decades, driven by political pandering.
I am not an economist, but I disagree strongly. The concept of supply and demand is a plague of economics theory, especially in the aggregate. It's a terrible idea, which should have been obsoleted years ago, and has much nicer alternatives. The basic (but not only) problem with it is that you're looking at one side of equation at a time.
There is a much nicer alternative treatment in J.M.Blatt: Dynamic Economic Systems, which uses Leontief matrices. Also, if you want to know where my criticism is coming from, read Steve Keen's Debunking Economics. And even he doesn't list all the issues with supply/demand analysis, although he hints at them in other chapters.
These are commonly called IO models in econometrics (for input-output). There are a number of successful IO models. Characterising these as "competitors" to supply-demand curve drawing is silly since they share common themes and complement each other. IO models need lots of data and underperform in situations where the market computes the table for you, i.e. where prices are clear, e.g. for commodities or liquid financial assets.
To draw supply and demand curves to just find the equilibrium also requires quite a lot of data. And if you aggregate, then it's not even clear what these curves are and what is the equilibrium.
> where the market computes the table for you
I am not sure what you mean by that. How is supply-demand model better? What it gives you in those situations?
Also, I should add: Blatt's IO model (if you want to call it that) is not an econometric (meaning statistical) one. I am not familiar with IO econometric models, so I cannot say how it is different. And it's kinda underdeveloped, too, unfortunately though understandably.
It yields better predictions with fewer inputs. For simple calculations of optimal pricing or optimal production quantities given input costs, a simple table of volume versus price beats a matrix. IO models become interesting when observing entire industries. (That is why the DoJ uses the HH metric [1], an IO-derived metric, to measure competitiveness.) But they're macroeconomic, not microeconomic, models. Macro has a worse track record than micro, which starts with simple regressions of volume and price that we call supply and demand.
These kinds of matrix models are deeply embedded into the IMF's approach, by the way. Many are critical of the IMF's over reliance on such difficult-to-intuit models.
And I have never seen an economic textbook do that, either. But they all magically jump to aggregate demand and supply, where you have millions of products. They cannot even aggregate two!
Someone mentioned physics here. So that's what you do in physics, you analyze one thing first, then two things, then millions of things in aggregate. With supply and demand model, the 2nd step is simply not done, and for a good reason - the model will fall apart (as far as I can tell) at that point.
I just did a quick calculation - based on your suggestion - with linear demand/supply curves and what I got as the aggregate price is a weird combination of the two prices. It's not any kind of (weighted) average of the two, as far I can tell. In particular, it seems to me that the aggregate price will differ if, for one of the markets, we change either demand curve or supply curve but keep their intersection at the same point. That's wildly counter-intuitive, I don't know why should aggregate price behave this way.
Maybe I am wrong, and you can make it work. If you do, write it up! It really should be in textbooks, it's embarrassing they don't discuss this case.
And this is a case of two (presumably) completely independent markets with linear curves. It gets much more hazier when you have a relationship between the two markets (for example, one is a substitute for the other).
Disclaimer: I've never even taken Econ 101, so I might completely misunderstand something. If that's the case, please downvote and tell me where I'm wrong.
Page 182 of this excerpt from Acemoglu's Economic Growth discusses aggregation and the possibility of a representative household. http://users.econ.umn.edu/~guvenen/DaronBook1.pdf
Aggregation of firms (and production functions) works quite nicely theoretically. Unfortunately, the same is not true for household / demand aggregation. The Debreu-Mantel-Sonnenschein Theorem aka. the "anything-goes" theorem gives a stark negative result. Utility functions are just too idiosyncratic to aggregate in every possible case.
However macroeconomists still do this for purposes of tractability. We know that sometimes aggregation is possible, if utility functions take certain forms. This is only one of many dimensions modern macroeconomic models are far from realistic. This is no secret to anyone.
Supply and demand curves are such an unsalvagable mess, in my opinion. Economists should just stop drawing them.
Even models regarding scales of economy don't fit any firm anywhere on the planet. Firms that produce electronics don't bother with such models and theoretically overshoot scales of economy all the time but make up for it by the fact they can sell their electronics at a price that offsets their costs (i.e. they set the price for the revenue they want, not what the market will bear).
If a restaurant lowers the price for a given quality of food, will it increase demand for its services? Probably
If a restaurant provides discounted prices for items during certain low demand hours (happy hour), will it be able to increase demand for its services? Probably
If other restaurants decrease prices during low demand hours, will it decrease demand for its services? Probably
> they set the price for the revenue they want, not what the market will bear
If the price they set for the revenue they want is not what the market will bear, then they lose money. Done long enough, they go bankrupt.
Am I arguing that this is always 100% perfectly true? No. Is it true more often than not that it can be demonstrated with evidence? Yes.
If your restaurant decided to drop the prices on their meals to $1, without changing anything else, would demand increase or decrease? I've worked in a restaurant too, but even if I hadn't I could give you an answer.
You provided no evidence to refute any of them except to make a weak claim of authority based on having worked in a restaurant. These are simple models that make predictions about real world outcomes that can be tested. That is, using observation we can prove or disprove hypotheses that I've mentioned. Provide evidence or move on.
> But it treats perfectly competitive markets as special cases rather than the norm
In the context of this article's verbiage, I learned Economics the "old way" and at no point was I under any illusion that Perfect Competition was "the norm" or even common. I seem to recall phrases akin to, "There is no such thing as a Perfectly Competitive market," oft-repeated.
Similar to how physics starts with perfectly elastic point-masses in vacuum on a friction-less plane.
It's a horrible place... and as far as most people make it in physics. Econ 101 may only be able to teach very simple models before most people also wander away to learn something else, but they are still useful models, and I still think people come away from discussions of how irrational humans are and how simplified economic models are and all these other things and think that the basics of Supply and Demand have therefore been disproved and I can go off and socially engineer without having to worry about them... but they haven't. The edges of the Law of Supply and Demand may fractal off into ever-more complicated corner cases as you approach their edges, most of which happen in the real world, but the core idea is still valid and you're still naked in the face of the real world's complexity if you think they aren't relevant, just as, for all the immense simplification, Physics 101 is still relevant to the real world even if it's the only physics you ever take.
But if 95% of the students aren't going to study long enough to make it to the exceptions, and 95% of the real world are "exceptional" markets than maybe we should rethink how we teach it.
If you assume what used to be called “the standard social science model” centered on rational choice theory is, if not a actually right, a reasonable approximation for common conditions akin to Newtonian mechanics, sure.
OTOH, if, as seems to be increasingly common (across the social sciences), you see it more akin to Aristotelean mechanics that coincidentally looks like some real phenomenon but gets the mechanism wrong for the general outline of how things behave, then, no.
Rather the advantage of the traditional approach to economics isn't that competitive markets are simpler but that the axiomatic framework which is built on them can be generalized in a mathematically rigorous way to describe most kinds of uncompetitive markets. In order to provide real intellectual (rather than political) competition a different way of teaching economics would need to start with axioms of uncompetitive markets and deform them to also describe competitive markets. That doesn't seem to be happening in this book, however.
I think it's true by the Anna Karenina principle; there are many ways for a market to be uncompetitive.
I happen to have sympathies with first-principles, but I've learned over time as a teacher that it can be quite flawed. I've grown to embrace statistical learning: show lots of complex real-world cases until the aggregate makes the statistically-significant patterns common to all the cases clear to the students. That's often actually superior to the abstract fiction of first-principles.
The problem is with game theory - the limit of optimal strategies for some games is not always the same as the optimal strategy for the limit game. This breaks the ability to approximate.
So, for example, you cannot make conclusion from a game with infinite number of actors ("free market") to a game with finite number of actors.
You can use freshman economics to predict the average oil price in a given year, from tables of quantities supplied and demanded. Where one finds deviation, e.g. when OPEC was founded, meaningful new information arrived.
Most markets don't follow freshman economics which is why there is lots of interest in developing better models. But we don't start physics with CFD.
Not sure if I completely understand what you want to do, but if I do, this is not drawing supply/demand curves, this is just predicting the prices based on history of supply and demand. The supply/demand curves (that is, the model) is what I am criticizing.
But I am not clear if this is what parent wants to do.
That's what the damn curves are! Even calling them curves is misleading. Freshman economics looks at linear systems. You take data, draw a regression and then predict a price.
Supply and demand isn't voodoo. Early economics courses are inaccurate because they start with linear models a general population of freshmen without strong mathematics training can grasp.
No, they are not. The curves are drawn at a given point in time, what you're doing here is recording supply/demand over time. You would have to assume in addition that the curves didn't change over the time period so you could say this data are the demand/supply curves.
Supply tables show producer activity at a point in time. Linear models don't model elasticity or endogeneity. Taking activity across a period in time is perfectly fine for this kind of a model.
By the way, we discovered and characterized elasticity and endogeneity by measuring deviations from said linear model. In some cases, the deviations were predictable. That expanded the box of situations in which the model was broadly useful.
Of course the introductory model isn't useful in most cases. But it (a) can be empirically validated in a predictable set of markets and (b) naturally extends itself to cover more ground, e.g. non-linear, endogenous and failure effects.
> You would have to assume in addition that the curves didn't change over the time period so you could say this data are the demand/supply curves
This is a fine assumption for a bare-bones model. If someone wants to shrink the box of uncertainty around their predictions they can learn more finance and economics.
TL; DR these models work well enough that people who understand them, and their limitations, will be able to make better predictions than those who don't.
It's been a while but I'm pretty sure our high school physics classes started with weights accelerating (or not) down an inclined plane - i.e. we actually started with actual trolleys pulling paper tape through ticker timers...
It's not because friction or wind resistance aren't commonly present in real life. Of course they are. It's because they're tougher to calculate and often require estimation. You'd be missing the point if you assumed these calculations are meaningless because you're not including those factors. They're just ways the answer could change in real life applications that need to be kept in mind.
And just like they don't footnote every physics example with "[1] In the real world, friction and wind resistance exist and will affect the end result," they don't do it in economics, either. This is kind of an understanding of the basics of the concepts.
We don't think they're meaningless, just that the calculated results won't 100% predict the actual movement of physical bodies in the real world. Friction and wind resistance are well-understood, and a reasonable model can have its predictions altered to suit the local conditions.
The perfectly competitive market doesn't have these well-understood complications. If you have a prediction of a block sliding down a ramp, you could easily give a range for expected error due to the effects of friction and wind resistance (using known, measured values taken of commonly-seen materials & conditions). You could even take the modelled prediction, go out in the field, plug in the local conditions, and get an accurate result!
Right, and the same applies with economics. I'm not claiming human behavior (relative to economics) is comparable scientifically to friction--just that it's a compounding factor that doesn't keep us from meaningfully studying the subject.
My second paragraph tries to make the case that, with economics, the real-world conditions which are ignored in order to simplify the calculations are not nearly as well understood, nor measurable, or adjustable for as friction and air resistance. Plus, they do not have as linear a response as friction/air resistance.
> it's a compounding factor that doesn't keep us from meaningfully studying the subject
I disagree, it makes the study of the perfect market completely unusable for predicting real-world behaviour.
Indeed--and it does a good job. The question is whether there is usefulness in the science despite this.
> I disagree, it makes the study of the perfect market completely unusable for predicting real-world behaviour.
Indeed, just like nobody uses frictionless calculations for predicting real-world behavior. We can simultaneously acknowledge unknowns in a science without discounting it entirely.
To boil it down: the unknowns (which are ignored to simplify calculations) in physic models and known; in economic models they are unknown.
And, to put it another way: given a mass with momentum m which you want the change to m’, a simple physics model will tell you what acceleration to apply & would get you pretty close once you accounted for friction. Given an inflation rate and a target, no simple economic model would predict what policies to set with more accuracy than guessing.
These economic models are useless for predicting real-world outcomes; they are pedagogic tools only.
Social sciences are full of unknowns, too, but that doesn't mean they have no applications in the real world. Economics are no different.
You sounds like you think I agree with you when you don't explain your position & say we agree. Saying 'economics is the same as <new subject>' is not a compelling argument without some justification behind it.
> That doesn't mean a lack of certainty in some facets make economics not valuable.
I'm specifically talking about the perfect free market model. I've always been talking about it. I put it to you that: this model is useless, and not comparable to the equivalent simple models in physics.
> Economics are no different.
They are different: it involves predicting the behaviour of a population of humans who are making high-level decision which affect their or others lives.
This whole thread is an example of the opposite, though, where people are claiming that without "friction" being explicit in every calculation, studying "physics" is not valuable.
Too much time is spent being confused about how oligopolies form to consider that these are never identical market players, and the balance of production inequalities between these competitors may itself define the oligopoly.
[1] https://www.amazon.com/Economics-One-Lesson-Shortest-Underst...
[1] https://www.amazon.com/Basic-Economics-Thomas-Sowell/dp/0465...
In the book there are no mention to feeling or poverty, missery or people suffering, but surprising there is an emotional strong empathy for the "forgotten men" that he defines in other terms as the people who pay a lot of taxes.
In this lesson economic is defined as a mean to maximize production, no wonder that manking problems are let outside of the equation. Applying his dry logic drug dealers must be perfect economic agents.
The author try to backup his position with one axiom: We must take into consideration all the possible consequences of any economic policy, but he knows that we need to be aware of all those possible consequences. The word education doesn't appear in this lesson, this lesson is lacking any reference to how create values to make a better society and world, how to live in peace. We need to educate people to make then aware of future implications of economics, but the implications are not only for overall production but for our wellbeing. This is not a lesson to make a better world, is a lesson to forget about mankind, the men are out of the equation. The only victims of any economic policy are the "forgotten man" that is the rich suffering paying taxes.
Edited a lot.
[1] http://www.independent.org/publications/books/summary.asp?id...
(They don't really use the scientific method or much empirical work. This is why he used the word derive.)
Mises elaborates the differences and applicability of methods between and character of inquiry in the natural and social sciences in his book Epistemological Problems of Economics. The section “Qualitative and Quantitative Analysis in Economics”[0] contains:
Mathematics has a significance in the natural sciences altogether different from what it has in sociology and economics. This is because physics is able to discover empirically constant relationships, which it describes in its equations.[89] The scientific technology based on physics is thereby rendered capable of solving given problems with quantitative definiteness. The engineer is able to calculate how a bridge must be constructed in order to bear a given load. These constant relationships cannot be demonstrated in economics. The quantity theory of money, for example, shows that, ceteris paribus, an increase in the quantity of money leads to a decrease in the purchasing power of the monetary unit, but the doubling of the quantity of money does not bring about a fifty percent decline in its purchasing power. The relationship between the quantity of money and its purchasing power is not constant. it is a mistake to think that, from statistical investigations concerning the relationship of the supply of and the demand for definite commodities, quantitative conclusions can be drawn that would be applicable to the future configuration of this relationship. Whatever can be established in this way has only historical significance, whereas the ascertainment of the specific gravity of different substances, for example, has universal validity.[90]
[89] Cairnes, The Character and Logical Method of Political Economy, pp. 118 ff.; Eulenburg, “Sind historische Gesetze möglich?” Hauptprobleme der Soziologie (Munich, 1923), I, 43.
[90] Therefore, it would also be a mistake to attempt to attack the statement in the text by referring to the fact that the natural sciences borrowed the statistical method from sociology and now seek to make it serve their own purposes.
[0]: https://mises.org/library/epistemological-problems-economics...
The methodological individualism of Mises begins with a human being in a state of dissatisfaction seeking to reduce or remove it. From this starting point with the supposition that the individual acts, that is, performs some deed with time, monetary, physical, emotional, relationship, or other available means with the purpose of achieving the desired state, Mises derives an entire system of qualitative economic laws that follow logically from this base axiom:
The starting point of our reasoning is not behavior, but action, or, as it is redundantly designated, rational action. Human action is conscious behavior on the part of a human being. Conceptually it can be sharply and clearly distinguished from unconscious activity, even though in some cases it is perhaps not easy to determine whether given behavior is to be assigned to one or the other category.
As thinking and acting men, we grasp the concept of action. In grasping this concept we simultaneously grasp the closely correlated concepts of value, wealth, exchange, price, and cost. They are all necessarily implied in the concept of action, and together with them the concepts of valuing, scale of value and importance, scarcity and abundance, advantage and disadvantage, success, profit, and loss. The logical unfolding of all these concepts and categories in systematic derivation from the fundamental category of action and the demonstration of the necessary relations among them constitutes the first task of our science. The part that deals with the elementary theory of value and price serves as the starting point in its exposition. There can be no doubt whatever concerning the aprioristic character of these disciplines.
[1]: https://mises.org/library/epistemological-problems-economics...
Unlike other approaches that proceed from homogeneous aggregates, struggles between classes, numerical relationships, simple models, or historical determinism, Austrian economics proceeds from a simple axiom whose consequences are developed rigorously.
To the proof "The Fed always makes everybody worse off, so we should use the gold standard"
1. Because you can't afford food? Or because the harvest failed or was stolen?
2. Because you're infected by a disease that can't be treated?
3. Because an army invaded your city/town and killed all able-bodied men and sold everyone else into slavery?
4. Because a natural disaster occurred - a hurricane/earthquake/tsunami and you no longer have a roof above your head?
You show an appalling ignorance of history if you don't know that for all of recorded human history, death was always around the corner, even if you were one of the few people who were wealthy. Today the vast majority of humans simply do not have to worry about death _all the time_, like humans always have.
All of the problems you mentioned are totally legitimate and we should be using all of our resources in solving these problems. But please don't imply that quality of life isn't better than it was 100 years ago for most people.
> Big-mouthed delusional priests
And keep abuse to a minimum, especially when your comment is so low quality.
It's been going since 2012, has nearly 1,000 videos and is completely free.
Funny thing about the registration, passwords must be between 8 (ok) and 16 characters. Why in 2017 do we still have developers thinking that there must be an upper limit on password length? First it's bad for security, second even a one megabyte password gets stored as a few bytes hash. Are they concerned with scrypt/bcrypt performance?
Sorry to be pedantic - but having an upper limit makes sense - how many 10gb passwords would you want to store/run through a hash? 16 does seem a bit low though.
I am especially hopeful that it will cover what is normally considered an externality in economics and which I consider it's most fatal blind-spot: "technological progress"
Another book I really enjoyed was "The end of Alchemy" which took a very un-political view of the financial crisis.
We need more of these kind of books and perspectives.
The main website of The CORE Project does mention a bunch of colleges using it. This points to the fact that colleges are willing to adopt it, but not necessarily to the fact that many colleges will be willing to adopt it.
When colleges do choose to adopt it, I wonder if they'll just pick and choose material that covers more traditional curriculums as opposed to the more modern topics this book covers. If so, the mission of the project will really take a punch.
Currently, you usually take one semester of microeconomics, and another of macroeconomics. This book seems like it covers both micro and macro. But this book also seems to introduce new material on top of the things typically taught in micro and macro classes today. So then it seems like full coverage of the book wouldn't fit into two semesters.
(I intended to make this point in the original post but completely failed to, sorry.)
People will STILL call you a marxist/communist if you point out that current economics is wrong sometimes.. very wrong.
Like obvious-fucking-ly when we model chickens as "perfect spheres" in physics we know its only a model and not reality - the model is good enough for some uses, not accurate enough for others.
Point out that a "perfectly rational" consumer and "perfectly efficient" markets are models - that no market is perfect just as no ball is perfectly round.. people lose their shit.
The dogma of the day is Free market/capitalism GOOD , all other systems EVIL! Never mind understanding what precisely any of those words mean or correlating taught concepts to real world business to see how well they hold up.
To me it points to a huge failure in education really - these people were never taught the world is complex and economics is a highly simplified model that can't hope to capture everything. No model can. They were indoctrinated in a religion called economics, distinct from a science called economics.
Then they didn't learn economics. Chapter 1 in Mankiw goes into why we learn using frictionless markets of rational actors. I think Chapter 2 or 3 went into market failure.
In the same vein, many people criticize economics for seemingly being obsessed with money. It is not, they just use it as a convenient proxy for value.
Improving Economics as a discipline, making it more evidence driven and predictive, is a good thing. But sadly there will likely always be people who distort and misrepresent its theories in order to fit their own agenda. We see that in pretty much every scientific field, even ones far harder than Economics.
Agree about the politicization of other fields of science too. Maybe it is more of a political problem in econ too.. thats hard :(
Or worse in the UK where they all went to Oxford and got a PPE.
I like this question. I try to use it on myself. It gets to the core of some of our responses. I.e. we should opine with evidence when we can. But I would suggest one slight change.
> Are any academic or working economists who make these arguments in positions of power?
I'd say yes. E.g. economists working for The Heritage Foundation for example.
I believe working economists are more nuanced and critical than what filters through the medias and politicians. I've been trying to teach myself some economics. For instance, I read Mankiw's "Principles of Economics", a widely-used introductory college textbook and I find it balanced. The author tries to convey different points of view and warns the reader about the limitations of the field.
Actually, I've even found Milton Friedman in "Freedom and Capitalism" to be more critical of capitalism that I'd have expected (e.g. concerning monopolies and externalities, I read it a while ago though).
He's against government-enforced monopolies; market capture is fine by him (because surely an upstarted would disrupt the incumbent & wouldn't be subject to anti-competitive actions that kill their business).
It's a bit like why people still publish in Elsevier in spite of them being awful - it's because it's how you get on in your career. Similarly differential equations about spherical cows get you promoted.
"Respectable" is questionable, but the economists that do are invariably motivated by ideology.
Not a more correct, or better, way.
The way it is currently taught has an agenda - it basically justifies whatever happens in business as a "consequence of economics".
Paid too little? Economics. Companies exploiting your privacy? Economics. Media turning internet into junk TV? ? Economics. Whats that you want some truth in journalism? No, consumers want entertainment. Economics.
At some point we have to stop putting "economics" first and put the way we actually WANT the world to be first. We can DESIGN the market to fit our vision of the world rather than fitting our vision of the world to fit the market.
For example. People are paid too little, because there's an oversupply of workers, because women are working. If women didn't work, men would be paid enough to support the families. But now that women are working, they can't quit, because the man alone won't bring in enough income. I don't think this benefits women, or men, or children, or families, and therefore not society as a whole either.
Of course we all know that not everyone agrees about what we want the world to be, and some understanding of economics is required to affect change responsibly, but this course is clearly left-leaning.
That's why I don't see it as an empowering "new way to learn economics" but rather as "push agenda more effectively". Personally, that's the opposite of what I want.
For example, the current syllabus is very careful to downplay genetic differences amongst people. It teaches that genetic differences don't matter and we are all essentially "blank-slates". The truth is somewhere in between. But it will take years before that is generally accepted. Direct result of atrocities in WW2. Thats an example of an agenda being implemented via education and shaping your thought.
You are repeating the same theories that justify any market problem -
Paid too less? Oversupply. Do you really know that to be the cause or do you assume so because that is the only mechanism the theory of economics provides to explain low wages? Perhaps it is the only possible cause when you assume all people are rational and have full information, market is efficient etc. But look at the real world! Those assumptions don't hold, so why expect this fantasy theory to be so accurate?
As long as a company continues to produce profit, of course they can afford to distribute some of that profit in the form of wages! Its profit - where do you think it goes? So why don't they? Why can't society make them? Don't tell me oversupply is the only possible cause of low wages when a cursory inspection of human nature and greed points to so many other possible causes. That is living inside a theory. Don't confuse the theory for reality.
I think that's because of oversupply, but will consider other explanations if they're forthcoming.
You have hit the nail on the head with regard to all Political "discussion" in the USA now.
It is all black or white. You are right or wrong, yes or no. There is actually no discussion, no learning.
There is no stopping to consider the other opinion or side. Or learning about it thoroughly so as to shed more light on the situation or circumstance.
It's a shame, because it means nothing is moving forward.
I don't know if the world has ever been different .. maybe not. I think people are just too lazy to consistently reason from first principles + data without taking shortcuts. So we always end up in a tribal shouting match with 0 learning - doesn't even matter what the issue is.
"Everybody worships. The only choice we get is what to worship." - DFW
The number of times I have heard a respected economist say this can likely be counted on zero hands.
In econ 101, you learn, "here's the free market model, it's wrong but it's useful", and much of the rest is learning about the scenarios when it's wrong.
But plenty of people who only take econ 101 (or no econ education) think like that anyways!
The question of what the perfect market structure is is not "settled" and beyond debate. I can see plenty of cases where the market, left to itself is not the best solution for society. Healthcare is one. Doesn't mean free market is evil either. It just means it might benefit from some regulation.
I'm against stupid reductive poles like "free market/no regulation/efficient market" VS "socialism/communism". That whole axis does not make sense. The whole idea of assuming you are either (pro EVERY effect of the free market) OR (pro socialism) is a false dichotomy. Thats what I mean by dogma. I don't know where it comes from but education might help dispel that kind of black and white thinking.
Is the unaffordability of healthcare an indictment of capitalism? No? Then why would it be an indictment of all regulation? "Regulation" is not one thing - there are many many choices.
Profit-seeking incentives don't always align with societal good. When health insurance companies are not required to cover everyone, they can and DO reject very sick people because their models forecast a loss. This happened for a long time before ACA with pre-existing conditions...
Thats what happens in a completely free market - insurance only serves the already healthy and leaves the sick (who need healthcare the most!) to die or pay exorbitant amounts.
That is a direct result of a system that incentivizes profit. Thats one area it would benefit from regulation. It already does in so many other western countries where government either directly provides healthcare or ensures that insurers cover everyone at affordable prices.
If we aren't willing to examine and interfere with the free market when the most basic need of society - health is being compromised, where does it end?? The market exists to serve society, not the other way around. This has been forgotten.
Bona fide insurance is a paid transfer of risk. With your auto insurance, you pay set premiums to Progressive, say, in return for them to replace your car if it is destroyed. With homeowner insurance, you pay monthly or annual premiums in return for Allstate to accept the risk of replacing your house should it burn down, be flooded, and so on. You pay premiums to MetLife, and in return, they pay out a cash lump sum or stream of payments should you die before a certain date.
All of these pay hard-core green-visor number crunchers called actuaries whose job it is to accurately price risk. Given a certain profile, how likely are you to be involved in an auto accident, suffer a house fire, or pass away? The profit motive is strong incentive for insurers to price risks accurately: too expensive and competitors can undercut them profitably, and too cheap will mean they lose money paying out more in claims than they collect in premiums.
It turns out that risk is not uniformly distributed. From their experience with USAA, the Goodwins determined that government employees are more risk-averse than the average American, and thus was born the Government Employees Insurance Company or GEICO. Before 1974, you had to be a civil servant to get a GEICO policy. In 1974, Geico began insuring the general public but still in some cases gives discounts to government employees. This is not done out of the goodness of their hearts.
Imagine you were CEO of InsureCo responsible for keeping the lights on and paychecks flowing to your employees. You cannot (for long anyway) pay out more than you are taking in. Your premiums have to remain competitive. Clever insurers also invest their “float” (money collected in premium not yet paid out in claims) to increase profit. However, if a potential customer comes to you requesting a policy quote but who represents greater risk in terms of expected claim payouts, a straightforward mathematics exercise means you must charge that customer more in premiums to offset the greater risk InsureCo would be accepting.
“Health” “insurance” turns this all completely on its head, but that is mainly because Americans have been conditioned to have bizarre expectations unlike any other form of bona fide insurance. Pricing risk accurately runs afoul of regulations, so “health” “insurance” becomes a transfer scheme under which younger, healthier customers are overcharged to make up for regulatory requirements to undercharge older, sicker customers. We do not expect homeowner insurance to pay for new light bulbs, cutting the grass, or other routine maintenance. Car insurance does not pay for oil changes, new tires, replacement radiators, and so on. Bona fide health insurance which used to be called major medical but is now derided as “junk insurance” worked similarly in that it has a deductible where expenses below it are the insured’s responsibility. This means less risk to the insurer and thus lower premiums. With all other insurance, we recognize that attempting to take out a homeowner policy after a house has already burned down is silly at best and fraudulent at worst. That’s because it is a preëxisting condition. With the negative event having already happened, it is no longer a risk but a reality and beyond the scope of insurance.
The complexity does not end here. In America, health insurance is connected to employment. Tracing backward through the economic cause-and-effect leads to the Stabilization Act of 1942[0], signed into law by FDR. This economically wrongheaded policy capped executive pay, and to attract and retain talent, companies routed around this brain damage by offering other fringe benefits including health insurance. Over time, more and more employees wanted in on the game. It seems fine until someone has both a gap in employment and a negative health event.
[0]: https://en.wikipedia.org/wiki/Stabilization_Act_of_1942
But why are the costs of health services so expensive to begin with?
For that, and pardon the driving tour, we have the American Medical Association to thank. Being a self-interested industry group, they wanted to develop ways to increase their fees — beyond what ordinary Americans wanted to or could afford to pay. By panning price competition among physicians as “unethical” and pushing for more employer-sponsored insurance plans, the result was setting up large pools of money to be mopped up.
Large insurers are necessarily much less price sensitive than families who are paying out of pocket. This pushes prices up. Perverse medical and health insurance regulations drafted by politicians whose primary concern is re-election and who pay no price for being wrong or inflicting massive damage on industry push prices up further.
Consider that when you pay comparatively small or zero price for a service, you are not the customer: the one who pays the bill is. TV, radio, Google, and daily newspapers are essentially free. You are not the customer: the advertisers are. When you go to the doctor and pay a $20 copay, you are not the customer: your insurer is. You have no money by comparison, but your insurer has lots. You are a vector to get to the real customer.
The sad reality is the system is working exactly as it is designed, but the object is not positive health outcomes. The health care industry gets their payola, and tax policy and other regulations protect the flow of premium payments to the big insurers. Coincidentally, all of these industries contribute generously to politicians’ campaign coffers, PACs, and so on.
Call “single payer” what it is: a welfare rationing scheme. It is far better to be a valued customer than a liability. The country’s crumbling infrastructure is in the condition it’s in because it is on the public books and viewed as a liability rather than an asset. Infrastructure spending is barely enough to keep it maintained, which also conveniently serves as a hotbutton issue for political campaigns. Government schools and other public services are chronically underfunded. “Single payer” public services will work out the same way. Canada makes no secret about their waiting-time “challenges,” which they attempt to sweep under the rug by saying waits are for elective procedures only, but they do not stop to define elective.
The deplorable state of “health” “insurance” in America is a symptom of the problem. The real issue is that health care is so obscenely expensive in the first place, and that is because we the patients have been displaced from customer status. The market already provides essential and life-critical services cost effectively. Look around you: food, water, computers, clothing, shelter, etc., etc. Amazingly, they do so even at a profit. Sure, government bureaus have attached themselves to these industries in various places, but do not allow emotion or ideology to cause you to confuse the direction of economic cause-and-effect.
The American health care market is so heavily regulated and tax-favored that it is a textbook failure of dirigisme, where failure is success. Liberate and liberalize one-sixth of the economy to fix the problems.
Counter examples only show that something does not work in all cases. It isn't a proof that something doesn't work in any case. Supply and demand is going to hold true in the vast majority of cases despite the existence of counter examples. In a similar vein, you can't say that an economic model is invalid in all cases because there are counter examples.
There are a ton of external factors that lead to the success or failure of a market. Culture, politics, resources, and industrialization play a huge role in shaping the market. These things are ever changing. Argue against the model, not its success or failure.
That's the whole point. Markets are decentralized brains, while Socialism advocates that a government as a central planner will be more efficient (it could be more efficient in specific cases like total war or natural disasters) and lead to Communism where we won't even need a government because society will behave as one being.
The lesson of the pencil comes to mind: https://www.youtube.com/watch?v=R5Gppi-O3a8
South America rejected Keneysian policies for what they believed were more "free market" policies. They suffered greatly, and they did not experience the massive postwar growth the Western world and the Asian Keynesian countries (Japan, Taiwan, S Korea) experienced. This was a great tragedy, because south america should have done great as they were the only corner of the world not affected by WW2. But they remained mired in poverty.
It is difficult to prove an economist right or wrong because it is difficult to run experiments in macro economics. But as much as it is possible to prove an economist right, Keynes has been proven right.
“It’s not the size of the debt but its structure,” the hucksters insist.
tl;dr Print more money.
Furthermore, you probably do not remember this, but the Clinton administration was paying back the debt and had America on a path to being debt free. But Bill Clinton, scumbag as he was, wasn't stupid. The wars he started were very short and very cheap.
The rest is very Keynesian and it shows. I'm from South America, trust me. Saying that you're a libertarian here is taken as if saying you're a fascist. Guess who they blame for our own failures? Capitalism and imperialism, of course.
Speak for yourself.
One can criticize the current system without implying socialism/communism is the way to go!! I believe the current system has many flaws and they can be reformed. All systems have flaws, and instead of throwing our hands up and saying "welp this is the best system we can do!" we can choose to shape the market when it is good for society.
The market exists to serve society, not the other way around. It is only a tool.
Later on it raises a load of objections to minimum wages which turned out to be utterly wrong.
Anyone who thinks the simplified and unrealistic models "are still useful" does not understand just how bad these approaches are.
This course seems like a step up, but honestly anything still teaching equilibrium models in 2017 should be burnt for electricity.
He's just done a two day debunking of the usual nonsense that has now found its way into literature.
[1] http://chrisauld.com/2012/12/06/steve-keen-still-butchering-...
Is Perfect Competition is an even remotely realistic approximation?
And other approaches are significantly more useful? They yield massively more predictive power? They are more tested and less theoretic? Are these other models comparable to say the difference between classical mechanics and Aristotle's view of physics, because that's what you seem to be implying.
The best approach would obviously be to test the economic theories under various system constraints instead of using a historical based approach where it is virtually impossible to control for any of the massive array of factors that influence any particular economic policy.
Most of us could care less whether Marxian, Keynesian, or Austrian Theory helps us build economic systems that maximize human flourishing and minimize suffering, but we really need to iteratively test/apply/evaluate the theories in a controlled environment if we want to make progress on a small enough time scale.
Steve Keen's own theories (well, he builds on Minsky, mostly) can predict how great moderation suddenly bursted into debt deflation, explain high empirical correlation between debt acceleration and unemployment, show that quantitative easing works better than austerity in debt deflation (and predicts that helicopter money would work even better, although nobody tested that) - this was empirically proven comparing strategies of Japan, U.S. and EU in crisis. He can also explain other things that leave most macroeconomists puzzled.
That was and is a fine approach, nothing wrong with it. I think one of the principles was "people react to incentives" or something along the line. I think about it often. I think Mankiw's book is great (I have only read the German version, which might differ in details from the US version - for example it uses examples from Germany).
How do I know I can trust this "new economics" textbook? What if it was written by communists or some other ideological group?
I also don't agree that economics did a bad job explaining the 2008 crisis. It's just that people don't want to hear certain economic truths. Also, economists disagree on some things, so it seems odd to say "economics doesn't explain x" - some economists do, others don't.
I am skeptic of anybody whose approach to criticizing modern economics is the rational actor model. Economists know that it is just a model. It is still very useful, and even if real world actors are not rational in the short term, evolution ensures that actions are rational in the long term, for the most part.
All that said, in general of course it is great to make a free economics text book available.
The way it jumps into complex topics without providing much base material, such as its immediate dive into income distributing, seems like it is more about indoctrination.
This overview of complex topics instead of foundational ideas seems more appropriate for Econ For Non Econ Majors.
I used to focus on "basics" and "first principles" and over time I've come to realize that it's better to teach all sorts of complex actual real-world music that doesn't sound like exercises. I just do a large quantity instead of perfecting a small number of pieces. Students learn the common patterns through statistical learning (and some explicit instruction about the fundamentals).
The idea that you should first be taught the principles is itself probably the MORE indoctrinating approach. It sets the assumptions in place and then gets the student to force all examples into the box created by the assumptions. Starting from complex topics can actually be better and far more neutral, letting students make sense of things without preconceptions — if it's done well.
The only principles that should be taught at the beginning are the ones that are absolutely 100% certainly true. In music, that's stuff like basic physics (strings vibrate at different speeds). Certainly we should avoid implying that any cultural and/or debatable stuff is fundamental (in music, that would be stuff like chord patterns or common scales or rhythm patterns etc). When we teach these cultural or otherwise general (but not universal) things, it's best to do so via examples and take care not to overemphasize them.
This works for language too: babies get exposed to simple sound-making exercises, some vocab building, then dumped into an environment full of complex phrases. Years later they might learn the grammar of the language and the basics of nouns and verbs.
Before the kids are taught to explicitly discuss linguistic concepts like grammar, they already have the full grammar learned in their head. Furthermore, some of what they are taught is actually wrong because it's basically invalid hypotheses that people came up with when trying to describe the grammar.
This is not to say that explicit study of grammar isn't interesting or useful. But it's not how you best learn language, and it's certainly far more biased to teach from a grammar-principles-first approach than to teach by just learning examples and letting your brain do its natural statistical learning process.
In traditional economics, the "foundational" ideas are only considered simple because they are easy to model mathematically - they make all sorts of assumptions about the world which are untrue for the sake of simplifying the math. This leads to pretty equations and nice theories, and people come away with the impression that these simple models do accurately model the world. They were made to be simple approximations.
Making the foundations real known facts and analyses of real markets rather than nice theories is going to lead to a much more accurate understanding of the world.