Too many prominent people on both the left and right do not understand basic economics, and all for many of the same reasons. Who is to blame?
The first part of my series on "Doughnut Economics"
Introduction
One thing that has long bothered me for what feels like forever is a public perception that economics is all about numbers and money, and economic growth is all that matters to economists. I even read social media posts from people with Economics degrees arguing climate change is an “obsession” of economists like former Bank of Canada Governor Mark Carney, when the primary goal — in their minds — should be economic growth. These people do not speak for economists in general, and frankly, they demonstrate their ignorance of the subject.
For example, highly-educated people like former Prime Minister Stephen Harper have argued a carbon tax is a bad policy, even economically! Same with current Alberta Premier Danielle Smith — even though she seems to have no problem with quietly raising her own provincial gasoline tax, which — unlike the federal carbon tax — does not include a rebate.
Current CPC leader Pierre Poilievre similarly talks about almost nothing except “axing the tax”, even though candidates for the Liberal Party leadership — particularly Mark Carney and Chrystia Freeland — already promised to replace the carbon tax, and even though we have more important problems being imposed on us by Donald Trump. But Poilievre’s entire non-political experience can be legitimately summed up as a Calgary Sun paperboy, so he clearly has no idea about much of anything other than fighting for its own sake.
However, the opposition to carbon taxes by Harper and Smith is especially frustrating, since Smith has an undergraduate degree in Economics from the University of Calgary, and Harper has a Master’s degree in Economics from the same institution, so they should know there is a widespread belief among economists of various political leanings that a carbon tax might be the best approach to dealing with negative effects of pollution.
One might counter they are merely politicians who pander to anti-tax voters; perhaps that is true, but intellectuals like David Suzuki are also sadly ignorant of the economic definition of “externality”; Suzuki should know better than to define it as “we don’t give a shit”. Something is seriously wrong with our profession when a very intelligent person like Suzuki does not understand — or even worse, refuses to understand — Environmental Economics is a field to which economists devote their entire careers.
As tempting as it is to dismiss Suzuki as a bleeding-heart hippie who learned economics from the Willow-o’-the-Wisp, or to more politely argue he “needs an economics refresher course”, we must admit that we economists are largely to blame; as argued by Mike Moffatt:1
It is easy to mislead the general public on what economists believe about the environment because the general public does not know what economists think about anything. It is our failure as Canadian economists for not developing a figure as well-known and respect (sic) as David Suzuki to represent us.
So it seems there is a problem with the field of Economics, in that the average — and sometimes above-average — person does not understand how we examine public policy issues; they do not understand what goes into conducting empirical analyses, and therefore prefer to let their “guts” decide what and whom they should trust when making decisions.
As already argued above, we must accept much of the blame for their guts, and as such a purpose of courses I taught as a tenured Economics professor was to explain why we teach simplistic models of perfect competition despite the fact they are not very realistic.
I will explain that point further below, as well as why we must accept much — but not all — of the responsibility for people misunderstanding basic economics. I will do so while introducing Kate Raworth’s “Doughnut Economics” approach to economic policymaking, as explained in her book Doughnut Economics: 7 Ways to Think Like a 21st Century Economist.
This is a very interesting book with some important lessons, so I want to be up-front that I am not trying to trash it. In fact, I will devote more issues of this newsletter to analyzing it in more detail.
But I will still argue that she — perhaps unintentionally — misrepresents what we teach in undergraduate Economics courses, and therefore does a great disservice to our profession. As a result, her recommendations — while having value and should not be dismissed out of hand — are not as revolutionary as she wants us to believe.
And while making these arguments, I will cite some rather old sources — not because there are not newer ones, but because I want to demonstrate these ideas have been circulating from very well-respected and influential economists long before Raworth published her book. Therefore, while I still believe she made an important contribution to economic thought and policymaking, she is being too harsh on how economists have approached our field, especially during recent decades.
To repeat, this is also only the beginning of my series on Doughnut Economics, as I will write more in future issues of this newsletter on the value-added of this book, as well as how economists can develop — and in some ways already are developing — policy recommendations that go beyond neoliberal economic thinking.
But before I begin, if you enjoy what I write and find it valuable, please consider a paid subscription. It will help me devote more resources into what I write so it will get even better!
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Her Model Is Not As Revolutionary As She Claims
I want to start by stressing once again that I see merit in most of Raworth’s seven ways of thinking about economics, but they are not as revolutionary as she claims. But before getting to those seven ways of thinking, I will begin by addressing some of her approaches to economic policymaking with which I wholeheartedly agree.
Interdisciplinary Approach to Economic Policymaking
I greatly appreciate Raworth’s argument that she does not want to abandon the economics she learned as a student — although she seems to contradict this argument by saying it is a “benefit” to never learn what we teach in Principles of Economics courses. I will return to this point later in this post.
She argues she just wants to improve upon it by working with university students, business leaders, academics and practitioners. In other words, she wants an inter-disciplinary approach. I completely agree with this approach to policymaking, and this is indeed what many economists already do — although we should admittedly put a greater emphasis on it.
For me personally, during my time as an economist at the Canadian Competition Bureau, I primarily worked with people who had Business, Law, and International Relations backgrounds. This was necessary given the kind of work we did there.
And currently, I am working with people who have very diverse academic and professional backgrounds, including Sociology/Anthropology, Psychology, Health Sciences, Law, Business, Social Work, Architecture, Journalism, and Engineering. The research I conduct is much more thorough and valuable given all of their input, and I have learned a lot about how to be a better economist and researcher as a result.
From my experience as a professional and academic economist, I found many other economists — going back at least to the 19th century — have the same appreciation for integrating diverse backgrounds. For example, Swann (2006, p. 20) cites John Maynard Keynes’ argument that:
…the master economist must combine skills in mathematics, history and philosophy. The master economist must be prepared to examine all aspects of man’s nature and all human institutions. He must be able to combine abstract thinking with an understanding of concrete realities. And on top of all of this, he must be a statesman. … It is not enough to combine theory, mathematics and statistics with data. The real applied economist has much more on his/her desk than that.
and Klemperer (2004, p. 5) informs us that:
[Alfred] Marshall always emphasized the importance of a deep ‘historical knowledge of any area being investigated and referred again and again to the complexity of economic problems and the naivety of simple hypotheses’. Employing ‘know it all’ consultants with narrowly focused theories instead of experienced people with a good knowledge of the wider context can sometimes lead to disaster.
Positive vs. Normative Economics
Raworth also criticizes economists for being too positive and not enough normative, and she has a point to some degree, but she still marginalizes the work done by a great many economists who put a lot of effort into both kinds of economic analysis.
To be clear on what we mean by positive vs. normative, we are indeed very concerned with explaining the world while remaining completely objective about what we find; we want to answer our questions without allowing our biases to get in the way of our analyses. Therefore, one of our roles as social scientists is to make positive (empirical) statements: statements pertaining to what is true, regardless of personal preferences.
On the other hand, normative statements are subjective statements about what should be true, based on personal beliefs, preferences, and ideologies. In this sense, our other role is policy advisors who advise governments on the best courses of action, given certain subjective goals.
In fact, as I will explain more later in this post, a big reason why Raworth’s vision is not seen in economic policies is not so much because economists do not approach them normatively, but because we have been unable to convince the politicians and other decisionmakers to adhere to this vision.
A useful rule of thumb when differentiating between a positive statement and a normative one is as follows: if you can objectively test the truth of the statement using real-world data, then it is a positive statement. Therefore, a positive statement is not necessarily a true statement, just as a normative statement is not necessarily wrong.
For example, “the moon is made of green cheese” and “the world is flat” are positive statements because we can empirically prove them wrong. But saying “the income gains from a higher minimum wage are worth more than any slight reductions in employment” is normative because it is somewhat subjective: we can provide evidence to back up our arguments one way or another, but the final answer is partly based on subjective views of the world.
In fact, Raworth recognizes that our life experiences and ideologies, as well as what we learn from those who come before us, can affect how we interpret and view things, whether we call it worldview, pre-analytic vision, paradigm, or framing. So it is hard to shake off these pre-conceived notions, but we must try.
And that is how I progressed throughout in my life: I memorized the lessons from my undergraduate and Master’s courses, but then my worldview changed as I grew older and understood economics more thoroughly, not only by learning from other people — economists or otherwise — but also by teaching it.
Some economists do purposely stay away from normative economics altogether, not because they do not care about people — although that might be true — but because positive economics is so much easier to quantify and does not involve subjective beliefs. But there are still many others who dive into normative economics.
“Economath”
Raworth also argues economics became too mathematical, and using graphs is much more useful. I agree with her to some degree — particularly with her preference for graphs and other diagrams which my former students can tell you I love!
I have often told people that as one studies Microeconomics and Macroeconomics at increasingly higher levels — particularly from principles to intermediate to advanced undergraduate to Master’s level and then to PhD level — we are largely learning a lot of the same material but with more math. That is a bit of an exaggeration because higher levels of these subjects add new material as well, but the math does get more intense as we progress up the ladder.
I also encountered this — sometimes excessive — reliance on math during my early days as a researcher. For example, when I was presenting papers from my PhD thesis on retail gasoline pricing at conferences, I had one discussant who told me I should use more complicated mathematical methods developed by an academic peer. When I pointed out this was not necessary, because my data was so good I could see the patterns without using complicated math and statistical/econometric methods, he told me to “just try it and see if you get the same results.” It seemed he thought using math was valuable for its own sake.
Of course, mathematics can still be a very important tool that can be helpful in certain circumstances. Indeed, Klemperer (2004, p. 22) argues “it is not true that all economic problems can be tackled using undergraduate economics alone”, and in an end note on page 29 writes “it is often only the process of thinking through the sophisticated graduate theory that puts the elementary undergraduate theory in proper perspective.”
Furthermore, long before Raworth published her book, there were good arguments made in the blogosphere regarding the appropriate uses (and misuses) of mathematics in economics, including ones by Noah Smith that inspired responses by Paul Krugman, Bryan Caplan, and another by Paul Krugman. Moreover, Miles Kimball and Noah Smith argued many people would not find mathematics nearly so difficult if they approached it with an open mind! Cathy O’Neil also has some very interesting thoughts on the subject.
But Raworth’s unnuanced implication that economists care too much about math does miff me because it trivializes what we do. I used to work with someone who seemed to get off on telling students that economics was nothing but “numbers courses”, and that visibly bothered more economists than just me; doing so discourages students who feel they cannot handle math when they might actually like these courses if they come to them with an open mind.
On that note, I had an amazing student who told me that very thing: she was scared away from economics by this other professor who told her to avoid taking these courses until absolutely necessary. Once she took the required economics courses, she enjoyed the subject very much, but by then it was too late to take more courses.
But I digress.
With respect to “economath”, I have long had a strong belief that it is more important to clearly understand the logic behind economic theories, rather than memorizing how to do the math — that is why we have computers.
In summary, my view is the point is math should be used only to make an analysis easier to complete, rather than as a goal in-and-of itself. Sadly, too many economists have an opinion that an analysis is invalid if it does not use sophisticated math, as lamented by Galbraith (as quoted by Swann, 2006, pp. 40-41) who:
…said that paying excessive attention to mathematical exercises would lead to ‘atrophy of judgement and intuition’ when in fact these were the key intellectual skills required to find real solutions to economic problems. He also felt that the use of mathematics had sometimes led to a ‘habit of mind which simply excludes the mathematically inconvenient factors from consideration’.
Doughnut Economy Model
Raworth’s doughnut is comprised of concentric circles:
A social foundation of wellbeing below which no one should fall; and
An ecological ceiling of planetary pressure that we should not go beyond.
Between the two circles lies a “safe and just space for all”.
In short, she wants to know what economic mindset maximizes the chances of getting inside the doughnut, i.e., to the safe space.
She identifies 12 basics within the social foundation:
Minimum income and decent work
Access to education
Access to healthcare
Sufficient food
Sufficient clean water and decent sanitation
Access to energy and clean cooking facilities
Access to networks of information and networks of social support
Decent housing
Also, she wants to achieve these basics with:
Gender equality
Social equity
Political voice
Peace and justice
I agree with all 12 of these basics in general. While they are actually the focus of many economic researchers and academics — such as those researching universal basic incomes — it is beneficial to collect them all here. But it is wrong for Raworth to infer economists do not care about these things.
I will get into each of these basics in more detail during later issues of this newsletter.
As for the ecological ceiling, it is made up of:
Climate change
Ocean acidification
Chemical pollution
Nitrogen & phosphorous loading
Freshwater withdrawals
Land conversion
Biodiversity loss
Air pollution
Ozone layer depletion
This is all beyond my expertise, but there are environmental economists who care a lot about these things and who work closely with climate scientists. I will also cover them all in more detail in future issues of this newsletter in terms of what these other experts have contributed to the debate.
Raworth’s Seven Ways to Think like a 21st Century Economist
Change the Goal
She goes straight into the argument that economists are fixated on GDP.
I wrote in great detail about the uses and misuses of GDP last Thursday, so I refer you back to that post for more on why she is misrepresenting economists in this respect. But I do want to highlight the following quote from University of Alberta professor Andrew Leach, written several years before this book was published:
David Suzuki often talks about the Economics 101 course he took which ignored externalities. That certainly didn’t match with my recollection – the second half of my microeconomics 101 course was all about market failures due to monopoly, incomplete information, public goods, or environmental pollution.
If you look at Greg Mankiw’s Principles of Economics, likely the most widely used introductory text, you don’t even get to discussions of GDP until page 491 in the Sixth Edition. Externalities are covered over 200 pages earlier, on page 195. When you get to talking about GDP, there is a muti-page section which begins, “GDP is not, however, a perfect measure of wellbeing…” The section goes on to discuss things such as the value of leisure, the costs of pollution, the value of home production, etc.
On the environment, Mankiw writes that, “another thing that GDP excludes is the quality of the environment. Imagine that the government eliminated all environmental regulations. Firms could then produce goods and services without considering the pollution they create, and GDP might rise. Yet, well-being would most likely fall. The deterioration in the quality of air and water would more than offset the gains from greater production.”
Gee, that almost sounds like something David Suzuki would write himself.
It is also important to recognize the following: if economists really do care only about growth, and we do think long term — which does not seem to be in dispute — then of course we care about the environment! After all, only focusing on short-term growth rates will reduce long term growth as the world dies!
Contrary to popular belief, we do not only care about money. In fact, most of my work — which tends to be microeconomic in focus — has little to do with money. It is often about human behaviour and strategic interaction.
But what Raworth wants instead of GDP is more original: she advocates for the goal of everyone obtaining their human rights within the means of the “life-giving planet”. She wants to create economies — local to global — that help all humanity be inside the Doughnut’s “safe and just space”.
See the Big Picture
She goes right for the Circular Flow diagram, arguing economists focus too much on the diagram at the expense of other important things like the environment. See my post from last Thursday to see why people like Raworth and Suzuki do not seem to understand the point of this diagram.
She wants to instead draw the economy anew, embedding it within society and nature, and powered by the sun. She wants new narratives about the power of the market, the partnership of the state, the core role of the household, and the creativity of the commons. I will go further into this step in future issues of this newsletter.
Nurture Human Nature
Once again, Raworth seems to argue that economists tend to believe only in the most extreme views of the world, this time with the assumption of perfect rationality: she argues it is in opposition to not only nature, but also to interdependence, and to being social. She also claims it means we are precluding approximation, and that we assume people are independent of living world.
That is not how economists think. Behavioural economics is very important field of economics, one for which Psychologist Daniel Kahneman won the Economics Nobel Prize back in 2002, even though he never took an economics course.
Get Savvy with Systems
She wants to get away from the mechanical supply/demand equilibrium and look at it as an ever-evolving complex system. This idea certainly has merits, but it is too much to expect a first-year undergraduate student to understand something so complicated. That is why we start with the simplest models and build on them.
Design to Distribute
The Kuznets Curve curve shows developing economies must get worse before they get better in terms of inequality. Raworth instead wants to go beyond redistributing income to explore ways of redistributing wealth, particularly the wealth that lies in controlling land, enterprise, technology, knowledge, and the power to create money.
I agree, at least to some degree, but she seems to frame it as economists do not want the same thing. Furthermore, the Kuznets Curve was developed in the 1950s, and a lot of research on inequality has been conducted since then.
Create to Regenerate
She also thinks economic theory views a clean environment as a “luxury good”, and she points to the Environmental Kuznets Curve, which shows developing countries experiencing more pollution as they grow into developed countries, before showing falls in pollution.
Again, economists do not view a clean environment as a luxury. As I already argued, economists believe in carbon taxes as the best way to fight climate change, and I have never heard one say it is a luxury.
As with the regular Kuznets Curve, this is not something we accept as unavoidable. As I will show in future issues of this newsletter, there are economists who search for ways to move developing countries up the curve as fast as possible to avoid environmental harms.
So what does Raworth want instead? She argues the Environmental Kuznets Curve is based on a degenerative industrial design, so we need a regenerative one to create a circular economy and restore humans as full participants in Earth’s cyclical processes of life. I will get into this issue more in future issues of this newsletter.
Be Agnostic about Growth
This is where I have especially strong disagreements.
Raworth thinks mainstream economics views endless growth as a must, and she preaches limits of growth in line with the Club of Rome, of which she was a member.
In future issues of this newsletter, I will show why doomsday predictions by the Club of Rome — and others — demonstrated a misunderstanding of basic economic principles, and why growth can be limitless — for example, with technological advances — while still striving to maximize the wellbeing of humans. I will also show why economic growth is not contradictory to increased economic wellbeing.
Who’s to Blame for Misunderstanding Economics?
It is easy to argue the people misunderstanding it are to blame, and there is some truth to that argument, especially with influential people who are propagating myths about modern economics.
But we economists must also accept a significant portion of the blame, as argued earlier when quoting Mike Moffatt.
Why Do We Teach Principles of Economics This Way?
Undergraduate economics — especially principles courses — is meant to teach the basics on which more realistic models are based. That is true with any subject, as it is not reasonable to expect students to learn the difficult stuff from the get-go.
We also have to learn from the past so we do not repeat what they did, either bad or good, and also so we can build on their contributions. It is hard enough to get through everything in a first-year course without making things more difficult. We cannot teach complex models to undergrads because they need to learn the basics first.
How Did I Personally Teach This Stuff?
In Principles of Microeconomics courses, I taught that perfect competition is not real life, but it the ideal against which we measure the negative effects of market failures. Indeed, we cannot fully understand why market failures are bad if we do not have a benchmark against which they are measured.
And it is for that reason when I taught Public Sector Economics at the second-year level, I always taught the course in the following way:
First, I spent 1-2 lectures giving an overview of the ideal economy and economic efficiency, so students understood the benchmark against which we measure the actual economy and policies to improve it. This ideal world is one with no externalities, no under-provision of public goods, proper management of common resources, no market power, no informational problems, and no problems with income distribution or inequalities.
I then spent a large proportion of the course covering different market failures, so students understood why governments can help the economy move closer to the competitive ideal. These market failures included:
Prisoner’s Dilemma: game theory studies strategic interaction and it applies to many different fields of study. The game is particularly interesting because it demonstrates why the socially optimal equilibrium is elusive in free markets. Thus, it gives policymakers a theoretical framework in which to examine how policies can be developed to encourage market participants to choose the socially optimal equilibrium.
Market power (including natural monopolies), pure public goods and common resources: most goods in an economy are allocated in markets, but free goods — such as public goods and common resources — provide a special challenge for economic analysis because:
Market forces that normally allocate resources in our economy are absent
Private markets cannot ensure “proper” production and consumption
Externalities: an externality refers to the uncompensated impact of one person’s actions on the well-being of a bystander; it causes markets to be inefficient, and therefore to not maximize total surplus. Externalities can be either positive (education) or negative (pollution).
Uncertainty and asymmetric information: if a person has more information than another one, then the first person can take advantage of their additional information at the expense of the other one. I examined this problem in three different ways:
Moral hazard: one person has both the incentive and the ability to shift costs to the other person. This problem exists after the transaction occurs.
Adverse selection: one person has both the incentive and the ability to hide their true characteristics from the other person. This problem exists before the transaction occurs.
Lemons Problem: this is an adverse selection problem. Specifically, the probability that a used car is a “lemon” is high; consumers know this to be true but it is difficult to identify lemons. Therefore, consumers will not purchase the used car unless its price is low enough to compensate them for their risk of discovering that they have a lemon. A consequence of this necessity is that high-quality cars are sold for too little, while lemons are being sold for too much.
Distributional issues: since the free-market equilibrium is unlikely to match the government’s definition of equity, it must also deal with equity issues. One such equity issue is income distribution.
I then covered drawbacks of government intervention, including:
Public choice theory: textbook treatments of market failures often convey a rather rosy view of government: with a tax here and expenditure there, the state readily corrects all market imperfections, all the while ensuring incomes are distributed in an ethically desirable way. However, voters are usually dissatisfied with government. This dissatisfaction could be due to either: (1) whining; or (2) a difficulty for even democratically-elected governments to respond appropriately to the public interest.
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In short, public choice theory applies economic principles to understanding economic decision making. Public choice models assume individuals view the government as a mechanism for maximizing their welfare.
Political Principal-Agent Problem: if you enter a contract with someone whose actions you cannot observe or evaluate, they might take advantage of you by not fulfilling their ends of the bargain. You could monitor them to make sure they are doing their job properly, but this can be expensive or even impossible. Thus, we want to figure out ways to encourage them to monitor their own actions, meaning they will not “shirk” their duties.
Finally, I delved deeper into ways governments can try to “correct” market failures, including taxes, subsidies and regulations.
Finally, mathematics was used as little as feasible in my undergrad courses because I wanted students to see the forest through the trees.
But We Clearly Do Not Explain This Reasoning Well Enough
I have been trying to remember how I viewed the world during my development as an economist. I remember being a child in the 1980s who cheered on Family Ties’ Alex P. Keaton who was a follower of Reaganomics, and given the fact my parents were right-wing, I went through my 20s believing too much in free markets.
One episode I remember is when his father said “winning is not everything” and Alex responded “It’s the only thing!” My little mind was way too influenced by TV!
Anyway, the more I learned and experienced, and the more I taught my own students, the more I understood what economics was really about. So I do understand why someone with only an undergraduate education — or less — could believe economics is all about neoliberalism, especially when influential people tell them this is true.
It might be argued by some people that this is how it is supposed to be: students who take more economics courses will eventually learn what it really means. But are we expecting too much?
Indeed, there are many students who get degrees in something other than Economics, and who just take a few undergraduate Economics classes as course requirements. So is it reasonable to expect them to figure out the truth on their own?
To be fair, I do not blame my own professors because none of them seemed to be preaching neoliberalism; my ignorance was my own fault. They were just trying to get through an extensive course curriculum in a very tight timeline.
Then there are the workloads put on professors, some of whom really just want to do research and teach because that is a job requirement. In fact, I worked with someone like that when I was a professor: this person engaged in extensive “rent seeking”, wasting time and other resources just to avoid teaching as much as possible.
But there are other workload issues for professors who do like teaching, such as the many service requirements imposed on professors. That takes a lot of time away from preparing their lectures.
I also know from experience that unlike school teachers, college and university professors have zero formal training for being teachers. We are just expected to figure it out, and at some institutions, student evaluations really do not matter. Especially when one gets tenure, all bets are off for enforcing any kinds of minimum teaching standards, other than trying to limit bad teachers to teaching first-year courses.
So there is a Principal-Agent problem with teaching university courses of any field: students (the “principals”) cannot make professors (the “agents”) act in the principals’ best interests. This is because there are informational asymmetries: the professor knows whether or not they are doing a good job because they (hopefully) understand the course material, but the students cannot evaluate it accurately — if they could, then they would not need to take the course because they already know the material. So the professor can shirk on their duties and not be punished for it.
This is actually an example of a moral hazard problem: it arises because professors tend to have more information than students, so the professors shift the costs of their bad actions to students after the transaction — registering for the class — takes place.
It could be argued bad teachers could be punished in job performance reviews, for example when another professor comes to their class to watch them in action, but that is not necessarily sufficient because that evaluator might have incentives to side with the professor. And even so, once they have tenure, there is pretty much nothing that can be done about a bad teacher.
But regardless of how time constrained professors feel when teaching courses, we still need to do what we can to ensure students understand the simplifying assumptions made are only help them learn the material more easily and effectively.
We Also Need to Be Better “Politicians”
There were indeed times when economists were preaching free markets, particularly before the Great Depression when they thought there was little the government could do to improve the economy. Keep in mind, there was no central bank in Canada until 1935, and the U.S. Federal Reserve did not even exist until 1913.
Also keep in mind that until Keynesian economics was developed, economists thought government spending on such things as armaments were disservices which should be subtracted from national income. Governments also did not do much to try to stabilize economies before the Great Depression, so economists did not even have any “natural experiments” to analyze the effects of government intervention in the economy.
But then there was a period until the 1970s when Keynesian economics was all the rage, so economists tended to lean toward the other extreme where governments could basically always stabilize the economy in exchange for more inflation, which did not seem to be much of a problem because unions would demand higher wages to offset the negative effects of this inflation. Pretty much everyone thought the good times would never end as long as “the government” was there to keep us stable.
This was certainly not a period of neoliberalism.
But as I explained in last Thursday’s post, neoliberalism became more dominant following the stagflation experienced in the 1970s, in addition to other reasons. But that does not mean Principles of Economics courses ignored market failures, and I know this is true personally because I started studying economics in high school in 1991-92, and I also started teaching it myself in 2008 when the dominant textbook was primarily authored by Greg Mankiw.
As already shown above with a quote from Andrew Leach, the last half of a university-level Principles of Microeconomics course is all about market failures. A big part of Principles of Macroeconomics courses is also focused on how governments and central banks can stabilize economies with fiscal and monetary policies.
So it is my strong belief that although we can certainly do better jobs of stressing the importance of market failures when teaching undergraduate economics, the fact that governments tend to be more neoliberal in focus is not so much our faults. It is the faults of politicians who ultimately can veto anything we propose, and who are more concerned with getting votes than with sound economic policy — including Pierre Poilievre who accused any expert who supported carbon taxes as belonging to Justin Trudeau, and insinuated we have no “common sense”.
That is not to say there are no wacky PhD economists who do not care about the wellbeing of their citizens. Indeed, Donald Trump has a knack for finding them. But they are generally considered jokes amongst economists, such as his trade advisor Peter Navarro who was accused of inventing an expert for his books.
In reality, economists generally care a great deal about the wellbeing of humans, including Nobel laureates Paul Krugman, Claudia Goldin, Abhijit Banerjee, Esther Duflo, Michael Kremer, William D. Nordhaus, Angus Deaton, Amartya Sen, and Joseph E. Stiglitz. In fact, Raworth cited Sen and Stiglitz for such work while also contradictorily — and wrongly — arguing on page 36:
We evidently want something more than growth, but our politicians cannot find the words, and economists have long declined to supply them.
Raworth also cites the G7 when criticizing economics, but remember the leaders in the G7 are politicians, not economists.
But that is not to argue economists can simply blame politicians for bad policy and wash our hands of the matter. We need to keep fighting publicly to influence voters, who will then demand politicians follow better economic policies. That includes publishing articles that are accessible to the general public, as opposed to ones in academic journals that very few people actually read. These articles can be in the mainstream media, but also on Substack or blogs.
But it needs to be stressed that we need to make sure people understand we do care about humanity, as opposed to just crunching numbers for our own thrills.
And despite all of my criticisms of Raworth, her book is valuable in helping change minds. I would just prefer she was not so slanderous of economists, because many of us want to work with people like her to achieve at least some of her goals.
Her book is not a substitute for Economics courses, but a potential complement.
But People Like Raworth and Suzuki Are Still to Blame for Being So Careless in Criticisms of Economics
On that note, she is wrong on one key point made on page 21 of her book:
The fact that you have never sat through an economics lecture may just turn out to be a distinct advantage after all: you’ve less baggage to offload, less graffiti to scrub out. Every now and then, being untutored can be an intellectual asset — and this is one of those moments.
I emphatically disagree, because you cannot argue someone if you do not truly understand their side of the story; and you cannot understand what you are arguing if you do not understand the counterarguments. We need to listen to each other and learn from one another. As explained earlier, that is how I approach my current work with my diverse set of colleagues.
Raworth’s problems with how economics is taught seems to be due to her lack of knowledge of the subject. She does have an undergraduate degree in Politics, Philosophy, and Economics from the University of Oxford and a MSc in Development Economics, but she often cites very old economics sources when criticizing the field, such as Paul Samuelson’s Economics textbook from 1948.
That is indeed the basis for all Principles of Economics textbooks that have been published since then, but no one studies it now except for historical significance. She could have cited the most recent edition of that textbook, or other popular textbooks by Mankiw or Krugman instead. In fact, if she read these newer textbooks carefully, she might realize what we teach is not so far from what she wants.
She also apparently has never taught the subject because at one point (page 31), she writes about not seeing any question of purpose in Economics courses until two years into her education when she took Development Economics, where being asked about the best way of assessing success in development “gripped and shocked” her.
She then writes it was 25 years later when she “wondered if the teaching of economics had moved on by recognising the need to start with a discussion of what it is all for”, so she sat in on the opening lecture an introductory macroeconomics course. She was disappointed to see nothing changed even though — again — it was just the first lecture in an introductory course.
Much like David Suzuki, she attended one lecture in an introductory course and then determined she knew everything she needed to know about what was being taught. Very disappointing.
Summary Remarks
I am trying very hard to be open-minded, because I admit I get defensive when I (think) people are accusing economists of being too neoliberal when that is not true.
I become this way the more I learn and teach, because it makes me realize how much people across the ideological spectrum assume they know everything about economics based on stereotypes. But again, learning more about it as a PhD student and then teaching it helped me immensely in my development as an economist and researcher, so I cannot blame Raworth entirely.
As I wrote several times above, I do see value in this book, so I will continue this series by not only showing how it can — or cannot — be applied to the Canadian economy, but also to showing how it has already been applied.
Thank you for reading to the end. If you like what you see and want to support me with a paid subscription, please do not restrain when you hit the following “subscribe” button! Regardless, I am glad you are here. I hope you have a great day!
You might be wondering why I have these old quotes ready for this blog post. It is because I saved them when they were originally published to encourage my students to read them, because I wanted them to understand that economists do believe there are more important goals than just economic growth.