Saturday 10 November 2012

History of Economics Playground

What should every non-econ student know about economics?

When they told me I was expected to teach “Introduction à l'économie” this year, I thought, OK, this is straight. Every economist knows how to do that. If not, he will be wisened up after swallowing 50 pounds of Mankiw/Stiglitz-Walsh textbooks, where he will learn everything about how economics has evolved, from the science of how wealth is produced to the science of rational choice under scarcity. A science in which agents face arbitrage, respond to incentives, gain from exchange, and therefore enter relationships that are usually coordinated through markets (although under certain conditions, state intervention is needed to correct market imperfections). If there is still time left, the economist will introduce notions of collective arbitrage between inflation and unemployment, determinants of long-term growth, etc. In the French undergraduate curiculum, principles of economics is taught along introductory micro, introductory macro, a course on contemporary economic issues, one on economic history, and, (but that was in the good old times), one on the history of economics. By the end of the first year, students will thus hopefully master preferences, marginal cost, the prisoner's dilemma and moral hazard, and also CDOs, CDSs and public debts. They will know how the unemployment and growth rates have evolved over the past century, and how notions of scarcity, rationality and modeling emerged in the late XIXth and Xxth century (kiddin', that was in the good old times). And they will have a serious background in stats and math to talk about all this.
Then, I realized that my 17 hours of lectures and 10 hours of seminars (supplemented by another 10 hours given by a colleague) of “introduction à l'économie” would be it. The following year, students would have 15 hours of lectures on economic policy, and, if my proposal was accepted, a 15 hours introduction to urban economics or to social economy, depending on their specialization. If they then went on to a Bachelor Degree in urban studies or social work, the focus would be on management and methods taken from sociology, ethnology, and geography. No more economics. Two thirds of them had never taken an econ course in high school. They would be going through my sequence, and that was all. A lifetime economic knowledge in 50 hours, 70 if I was lucky.

I began to sense that, with due respect to Ricardo, the cloth vs wine story might not do. Nor would the iphone vs Gstar jeans (spoiled kid version of comparative advantage). Maybe not even the whole comparative advantage thing graphically illustrated. For what was the point of teaching them basic concepts such as equilibrium, imperfect competition, strategies, and so on, if they were never going to build on them later ? What was the point of explaining why drug dealers live with their moms or why brides buy dresses while grooms rent tuxs, if they were not even equipped to decide whether they should buy or rent a house, or whether they should choose to study one more year? My doubts reflected the polysemy of the word “économie” in French (meaning both economics and the economy) and the economic cobweb I was caught in: time is a scare resource, make choices. I was thus left pondering these questions:
-what is the basic economic literacy everyone should have? Should it be a knowledge of the economy (what are the current measures of growth and welfare, what caused the financial crisis and what of its consequences), or a basic knowledge of how economists understand individual and collective behaviors?
-is the purpose of this economic sequence only to turn our students into informed citizens? Prospective employers, private and often public, don't care whether my students master economic concepts (except cost-benefit analysis, which is fundamental to several management courses). They expect recruits to make a budget, to draft a building permit application, to survey populations' needs, to understand what functions such and such building serve in the community, to establish a planning or devise a protocol to assess the quality of home care services. What basic economic knowledge could complement such professional skills? Of course, economists have a lot to say about geography, territories, business location, agglomeration, transports, cooperative agreements. Such ideas are usually introduced after they master the "principles," the yardstick. If there's no time for both, is it possible to bypass the yarstick and go straight to imperfect economics?
But there was a more fundamental issue. Never before had I taught to undergrads whose curiculum was not essentially focused on MODELING reality. As I write this, I realize I'm unfair.  In their first months training, they learn how to read and design a map. They summon Gant and Ishikawa to model their management decisions. Yet, the social sciences and descriptive stats courses are designed to prepare them to go on the field, to survey a population, to assemble data and to draw descriptive conclusions in a monograph. In this process, no model is used to make sense of observed behaviors. Or the models used are some I don't yet recognize as such. It's thus difficult to see how an economist can contribute to such curiculum. 

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