Sometimes the story is so good that you forget it’s just a story.
This is a known problem in teaching economics. Some types of student will be so seduced by the pristine logic of supply and demand that they are sucked into the story and forget the world (pdf).
Tomorrow is day 1 of Econ 101, and I’m still reflecting on how to balance two poles. One: I think that supply and demand analysis works. What I mean is that we can often get a huge increase in understanding of many big, difficult policy questions with a “simple” supply and demand analysis. Just this past week, we have epi-pens and soda taxes.
Two: the seductiveness and usefulness of supply and demand backs us in to a corner. Its very usefulness means that it risks being taken too seriously, its analogy to reality taken too literally. Its logic and its biases risk being taken as the last word in policy debates.
I don’t think I’m merely doing some abstract hand-wringing here. The Mankiw Principles of Economics textbook—which I am not using, nor do I anticipate ever using—explicitly equates “welfare economics” with utilitarian surplus-maximizing in the supply and demand framework. Here’s a direct quote:
The price that balances the supply and demand for turkeys, is, in a particular sense, the best one because it maximizes the total welfare of turkey consumers and turkey producers. No consumer or producer of turkeys aims to achieve this goal, but their joint action directed by market prices moves them toward a welfare-maximizing outcome, as if led by an invisible hand.
This casually erases centuries of moral philosophy in the textbook of thousands of first-year economics students. I take, shall we say, a dim view of this editorial choice. Past or current users of this textbook will surely agree that this type of language and focus is typical and not a cherry-picked example.
This goes beyond just leading our students to water. This is dunking them in ideology.
So what am I going to do differently?
- Welfare, welfare, welfare: theories of ethics must appear early and often to disambiguate “surplus-maximizing” from “right”. I’m planning to use chapter 1 of Sandel’s Justice book to introduce this.
- Teach externality theory alongside supply and demand, not later, so as to show that even if we want to stick to “surplus-maximizing”, the question of what that means is not settled.
- Interrogate the methodolology of supply and demand: price arrives in the model from outside. One price yields “equilibrium”. What are some (various) real-world analogies for the model’s prices?
- Find a way to formally introduce the ideas of general equilibrium theory to undercut the vacuum of Econ 101-style supply and demand.
I believe in the methodology of economics; I believe in the ambiguities of social justice. They belong together. Tomorrow I set out on the long toad to find an inclusive and interdisciplinary Econ 101. Wish me luck!