The Economy
core-econ.org
core-econ.org
Why does the income inequality deserve the first seat? It definitely is one of the greatest(if not the greatest) issues of our generation, but must it precede foundations?
Skimming through the "Income Inequality" section did not make it better - first exercise asks "What do you think the figure would've looked like in 14th century - I imagine it's to highlight how it's "unfair" now compared to the previous history? It talks about the 90/10 ratio and the word "richest" appears 21 times in the first page alone. "richest 10%" being 11 of them.
I understand the study of economics is more about interpretation of the data and interpolation of trends based on (often seemingly ideological) school of thought, but this first look betrays a specific narrative.
My bigger concern about the first chapter is that income inequality is actually a very advanced topic. That requires a lot of technical analysis. At the very least you have to discuss the concept of power laws which income distributions fit quite well, and is exactly what I would expect without direct government intervention. Making it the first section of the first chapter, really trivializes the topic.
2) I'm sure plenty of people who do not understand power laws are able to comprehend economic concepts around inequality.
Well, sure. But wherever a power distribution pops up, there's a chance that a complex system (small-worlds network) might be hiding in the gutty works. Which means that obvious "fixes", which might occur to the novice taking the class, to even out the distribution, could well have unpleasant side-effects. Up to and including complete/utter collapse.
Now - if the final chapter were something like: "Now, here's why everything we came up with in Chapter 1 was wrong.", that might be an interesting bookend.
* Less charitable
* More likely to engage in deception for personal gain
* More likely to rate greed as 'moral'
* Will keep an average of 13% more money for themselves in a game of 'fairness'* *
https://www.psychologytoday.com/blog/give-and-take/201310/do...
* * Students were given $10 and had to make a proposal about how to divide the money with a peer. If the peer accepted, they had a deal, but if the peer declined, both sides got nothing.
It says:
We want to change the way economics is taught [...]
Students in economics all over the world were asking,
just as I had asked a few years previously: ‘Why has the
subject of economics become detached from our experience
of real life?’
[...]
we have tried an experiment in classrooms around the
world. We ask students: ‘What is the most pressing
problem that economists should address?’
If you want to write a book that starts with motivations before delving into the nuts and bolts, and you ask customers what they think is most important and they all say the same thing, it seems reasonable enough to put that first.
Starting with motivations is great.
An introduction where an expert explains why economists think economics is important would be interesting and compelling. Telling us about a topic that students think are what makes economics is important is silly. If the students are right that the topic is most important, then it will come out in the expert introduction. If they're wrong, then wouldn't the version that actually gets at what makes economics compelling and interesting be better?
Experts often tend to be focused on the details, the minutiae, and the leading edge of research.
A cooking expert (5-star chef) is not likely the right person to teach an introduction to cooking class (cooking basic foods using everyday techniques).
That said, novices often don't know how a subject impacts their lives. I was skeptical of income inequality's prominence, but by the "how does it impact me", it may not be a bad start.
What they did ask is, "what is the most pressing problem that economists should address?" If the intention, as stated, is to write a textbook that helps reduce the gap between economics as a theoretical discipline and economics as experienced in the real-world, then it absolutely makes sense to begin with what students consider to be the most pressing real-world economic issue, and use that as a springboard to explore the rest of the discipline.
In fact, starting with real world examples and applications, and gradually building towards fundamental, mathematical theories and models is the right way to teach any scientific subject. It mirrors the actual development of science, where fundamental theories are derived based on observation of the real world, and can be later disproved by new evidence. Introducing abstract and theoretical models too early not only risks confusing students, but it risks creating a situation where the models are considered intrinsically "real", and contradictory evidence is ignored. This issue has plagued economics, have taken abstract and simplified theories about markets and human behaviour and made them ideological dogma. The theories end up becoming lenses through which all evidence about the world is viewed, rather than imperfect attempts to explain the evidence.
What should we ask Computer Science students?
I can try it on a couple of hundred tomorrow and get back to you. I don't know what they will say.
"What is the most important problem (of policy, not of specific technology development) that Computer Scientists should be addressing and currently are not?"
(The parenthetical is to forestall nearly-content-free responses like "We should do more with AI!" and similar.)
Developing a very specific technology might help solve a social problem if it's applied properly and if social scientists believe that this particular technology will actually have the intended social effect and not backfire.
Other than that, I'd argue that computer scientists can (and likely should) have an informed opinion on various policy problems and how technology could affect them (or be affected by them), but that it's not their role, skillset or responsibility to address any policy problems; if they're tackling policy problems, then they're doing it "wearing a hat" of a citizen-activist, but not really as a practitioner of computer science - if there's an argument that they should be tackling a particular policy problem, then that's only if everyone should be tackling that policy problem, not particularly for the field of computer science and the related technologies.
My answer would be: the problem that we always do "introducing a new technology" and "thinking about the consequences of it" in the wrong order.
It's actually more engaging to start with a topical story. Venezuela's would be would be a good one. It would provide ample motivation for exploring the concepts in the rest of the text.
[1]: https://books.google.bg/books?id=ITXUAAAAMAAJ&pg=PP1&redir_e...
Descriptive facts (like inequality) are more fundamental than the predictive theoretical models derived from facts (like supply and demand).
OTOH, it's true that social sciences often reverse these, both in pedagogy and in priority (and economics may be the worst of the social sciences in this regard.)
They literally answer this in the preface, its worth giving that a read first before moving on through the book.
"We ask students: ‘What is the most pressing problem that economists should address?’ The word cloud below shows the response that students at Humboldt University gave to us on the first day of their first class in economics."
They want to change the way economics is taught, and the students they surveyed felt inequality was a more pressing problem than anything else.
(I'm less impressed with the rest of what I'm skimming through of the early chapters than I thought I might be, but not even the most value-free and purely technical approach to teaching how an economy is believed to work is free from narrative implications)
Deciding on what to start a bigger work is always a problem with things like this, so I wouldn't be too harsh on it. I believe I read that Marx spent 3 years deciding where exactly to start Capital Vol. I; in fact, he'd completed drafts for Vol. III by that time. After much consideration he started with the analysis of the commodity, not labour, not money, not alienation, not surplus value.
He commented in a foreword to the French edition that the French had a habit of wanting to get to the heart of the matter quickly - and for this he apologised.
I think your view is that of Marx's Frenchman.
> but my understanding is you start at the foundational idea then move on to the its ramifications and symptoms.
That's certainly how you do in electronics and physics. Explain transistors and logic gates before studying a CPU. We know exactly how transistor behave in some specific conditions. We know they will continue to believe that way when surrounded by millions of others, we know its failures mode, etc...
In economics, you can present the things that way, many textbooks do, but the problem is that it is a lie. You can start with micro-economics, game theory, opportunity costs, marginal costs, supply and demand. The problem is, we do not know how to get from there to macro-economics. It is deeply unsatisfying and an active field of research but it should not be presented to students as a solved problem.
The thing is, if your interest lies in inequalities, you are in the field of macro-economics, you want to take a more observational science approach like, say, astronomy. In astronomy you are looking at stars. Well, you think they are stars, they surely look like stars. You don't know exactly what is inside or how they work, but you start by classifying them into observational categories. You start to have rough models of how they may form. Your models assume a homogeneous non-rotating, perfectly spheric mass, you know these assumptions are wrong so you expect deviations and errors as you refine your model.
That's how macro-economists do: they observe correlations, try to model how they can be linked causally, propose theories, observe if these theories are vindicated (because it is hard to make a controlled experiment in macroeconomics).
So if you are interested in inequalities, start by observing it! Understand the shape it has, how it evolves, and start studying things that seem correlated to it, that it may cause or be caused by.
But that book breaks the lie that we know how to go from micro- top macro- economics. I think it is a very important step. Bring back a bit of humility and clarity to the field.
http://www.core-econ.org/the-economy/book/text/07.html#711-p...
This strikes me as a very important subject, one that I heard little about in my (limited) economics courses. Anyone know of good references to how economics treats the ability of firms to affect demand?
Nearly every company has a marketing department. Some of the largest companies on the planet make all their money from other firms' desire to influence demand.
Is there any work at the intersection of evolutionary psychology, economics, and advertising?
https://www.behavioraleconomics.com/introduction-behavioral-...
It is written by a wide range of eminent economists from world leading institutions, with the aim of instructing students.
A book created by experts in their field with a view to teaching students about the issues that concern them most is not anti intellectual.
I can only assume wrongly believe yourself to be in possession of an objective understanding of economics which disagrees with this text book (which you've read, right?).
Sorry to go so mad on this one, but it really is just a different view on economics. It ought to be welcomed.
Oh come on, that's ridiculous. If you think Keynesianism is "left wing economics", you've got another thing coming: Marxian economics has been excluded from the discourse such that almost every university will describe its department as neoclassical or Keynesian. And this book isn't even a Marxist one. It contains no seething critiques of the capitalist mode of production. The beginning to left wing economics is Marx, even if you don't accept his theory of value. This text is not such a beginning.
If you want an opinionated guide to capitalism, read Capital Vol. I by Karl Marx (1867)[0].
Aren't they an attempt indoctrinate students to become right wing economists?
https://keithweinereconomics.com/2013/12/28/the-theory-of-in...
http://www.economicprinciples.org/wp-content/uploads/ray_dal...
He's broadly supportive but points out that section 14.8 isn't correct.
First complaint is that online eBook without search and links for definitions seems to remove value from the book.
It seems like the authors are trying to insert current interests and advances in economics into introductory level book. Sometimes it succeeds, sometimes it fails. The goal is admirable.
I think this book might be good on the side when reading more conventional book if it had good search function, and links to terms and definitions and links in the glossary.
We should be skeptical of the claims in this document, just as we are skeptical of Marx's work.
The labor necessary to create an object needs to include all the failed attempts to create objects. If you're a determinist, risk loses meaning, and thus capital seems to serve no purpose.
But I honestly haven't thought much about whether he fully appreciates the risk-bearing role of capital and that seems like an interesting insight worth exploring. You know of any texts/places where people discuss that?
-- Adam Smith, Wealth of Nations, Book IV, Introduction
http://oll.libertyfund.org/titles/smith-an-inquiry-into-the-...
Economics is political (and much of politics is about economics), and always has been.
Unless of course you posit a specific functional form for the utility function. Then you'll just have lots of trouble fitting any data you collect.
https://mainlymacro.blogspot.co.uk/2017/09/the-core-economic...
Section 10.8 illustrates how commercial banks create money by lending.
What the blog entry you linked to talk about is government deficits, and how the textbook clash with the MMT idea of governments regulating the money supply via expenditure and taxes (effectively creating money as they buy goods and services, and destroy it via taxation).
They missed a note that money is destroyed when the capital is repaid, and it wouldn't have hurt to discuss loan defaults, but as set out, it is definitely an improvement on the old incorrect description. (Which appears to have originated as a copy and paste error from Keynes original description in the Macmillan report.)
But when a bank creates a mortgage (which is an asset to them), it has to create a corresponding liability (which is the deposit). They can't lend existing deposits out (or any fraction of them), because it would be a liability with a matching liability.
This means some surprising things - banks don't actually need any existing deposits at all to lend, and they temporarily create new deposits (which has the same status as 'real' money) when they lend. This money, as well as the debt created at the same time, both disappear as the loan is repaid in equal measure.
The way it all works is that because the banks are all transferring a lot of money between themselves, the amount of reserves (and cash, but it's mainly central bank reserves) that they actually need to make payments is only a fraction of the total volume being created and transferred. If they don't have the reserves, they can just borrow them from another bank or the central bank, or on money markets. Of course, it's handy for them for people to deposit money in their bank because it's a cheap way for the bank to get liquidity.
This isn't 'fractional reserve' by the way - that comes from the fact that banks in the US are required by the Fed to have a certain minimum amount of central bank reserves (10% of the amount of their deposits). That is just a measure to ensure they have enough liquidity though. The incorrect 'money multiplier model' comes from a misunderstanding of fractional reserve banking. Most countries don't even have a reserve requirement, instead having capital adequacy requirements.
Just wish they would drop the whole "patient and impatient agents" stuff. I fear this will be another Keynes where over time orthodox economists will find a way to warp of redefine the text into something that simply restate their old beliefs.
However, I'd like to see more assumptions to be made explicit. For example, why is money the way it is? Why is it simply a scalar, that is transferred from one person to the next? What other constructs can we come up with for money?
Anyway "why don't we have vector money" is a fairly interesting brain teaser. The way I'd think about that sort of question theoretically is: suppose we tried to actually implement a system like that. Why would people find it annoying / inefficient and go back to the way things were before?
Here's how I imagine it going. First, there would have to be an exchange rate between a_dollars and b_dollars, just like for any currency where you want to trade goods priced in one currency for different goods priced in another currency. Then, because it's inconvenient to hold a_dollars and b_dollars, people would just choose to hold onto whichever one was more convenient for them, and make exchanges when necessary. This means whole geographical areas would just use the same currency, because it's just simpler and easier to discard whichever currency is unused. At this point, we enter into the question of optimal currency areas - and basically the whole situation collapses to entire country using a single currency.
Chapter V in particular, on the qualities of the material of money, provides a vital set of properties which apply whether you're looking at specie, fiat, or other forms of currency: utility and value, portability, indestructability, homogeneity, divisibility, stability of value, and cognisability.
https://archive.org/details/cu31924013816172
What other concepts do you have in mind?
George Reisman in "Capitalism" writes that the oil price shocks were due to Nixon placing price controls on oil. More evidence for this view is that when Reagan signed an Executive Order eliminating them, gas lines disappeared overnight and did not return.
A number of factors, including US-Saudi relations (cemented after 1973), and the on-lining of both North Sea and Alaskan North Slope oil, brought down global oil prices, which would not be responsive to just US actions. See the BP Annual Statisical Review of Energy for any recent year for a global price history of oil dating to 1859 in both real and nominal terms.
Reagan eliminated the allocation system at the stroke of a pen, and the lines vanished overnight, never to return. He also eliminated the price controls, which drastically curtailed the Cartel's influence over gas prices, which never returned, either.
The whole gas problem of the 1970's was something the US imposed on itself.
You are correct that the lines were not there continuously - but they were a recurring chronic problem, seemingly striking at random. There was also the peculiar phenomenon of lines in California with simultaneous gluts in Florida. The DoE proved to be hopelessly inept at allocating gas according to demand.
Note that we still have gas "shocks" today, like a refinery blowing up or being incapacitated by a hurricane. The result is a modest increase in prices for a few months, and no lines or shortages whatsoever.
(There were some brief lines when the hurricanes rolled ashore, but those are cases where the weather cut the supply lines rather than the government.)
Their treatments are popular, amongst a certain set. This deosn't make them accurate.
Section 1.1 of an economics textbook should not be about "Income Inequality." Any sane treatment would first provide some necessary context and theory to make a discussion of income inequality meaningful. I don't care where you are on the political spectrum, if your goal is to teach rather than indoctrinate this isn't how you start.
I hope I have not maligned everyone in economics, because there is good work...it is just that the good work is not always the most influential.
Ostrom's Law captures this beautifully: "A resource arrangement that works in practice can work in theory"
I'd like to see a book like this blended with an orthodox textbook.
All I can say is that it was pretty much exactly what I expected from the title. They describe income inequality, yes. But they fail to explain how this textbook is going to provide tools to understand it any better, or why anyone should read it. I also don't feel as if there was much in the way of ideas to be gained from it beyond the simple feel for the magnitude of the inequality. But without some theory to put it in context, that magnitude has no meaning. Some amount of inequality is likely necessary. The question is how much is too much. The article doesn't bother to ask the question, or even to hint that the textbook will provide helpful tools to answer that question.
I think it was Mark Twain who said there are three kinds of lies: lies, damned lies, and statistics. I'm sympathetic to the view that income inequality is a serious problem, but even so, after reading this article, I can't help but feeling I've been subjected to statistics, and not much else.
The whole book is packed with stuff far and wide, such as pure microeconomics for those who just need to understand demand and supply curves and to how taxes work. From what I've seen so far, it's actually very traditional economics 101 for the most part, but I've admittedly just jumped around the chapters and read only four sections.
This looks like a "populist" site. It teaches you a "lot" about income inequality but it doesn't stress on important matters.
This is totally subjective but, for me, the most important concept in the economics of the 21st century is "banks printing money out of thin air". All money, in fact, is not the same. Even though, on the small scales it looks like it is.
The site do talk about it here: http://www.core-econ.org/the-economy/book/text/10.html#108-b... But given its importance, it seems highly buried: Like, hey look there, here is how we print money. That's it.
The implication of the monetary policy is huge. It explains why our system can collapse of the mistakes of other people completely non-related to you.
I still find the Khan Academy videos on Economy the best, simplest and most informative out there on the Internet. Really worth to watch.
Really? President Gore? Alternate history perhaps?
EDIT: (Yes I know Al Gore was VP but missed the word "vice" when skimming the content, thanks for the corrections)
> Al Gore, then US vice president,
[1] https://en.wikipedia.org/wiki/Vice_Presidency_of_Al_Gore