Wednesday, December 04, 2013

When teaching econ, start with the parts that work

Mike Konczal caused a splash when he suggested the other day that we're teaching econ backwards:
Today, first-year undergraduate students typically start with microeconomics, or the study of individuals and individual markets. This begins with the study of abstract, decontextualized, markets, where supply and demand work perfectly, individuals exist in isolation, and they effortlessly trade with others in isolation of society, the law, and politics... 
In their second class, students begin to learn macroeconomics, or what happens when you add up all those markets... 
What if macroeconomics came first, before the study of individual markets? If were to reverse the typical curriculum, the first thing undergraduates would encounter wouldn’t be abstract theories about people optimizing, but instead the idea of involuntary unemployment and the idea that the economy could operate below its potential... 
[I]t turns out that things like institutions, regulations, income distribution, the way markets are introduced into formerly Soviet countries, and the viciousness of the business cycle and mass unemployment all actually matter.
Paul Krugman endorsed the idea.

I pretty strongly disagree with this suggestion. I think that if business cycle theory were the main purpose of economics, then it might have merit, but this is not the case.

Macroeconomics, and particularly business cycle theory (the theory of why we have recessions), is econ's glamour league. Macro is so important that we elevate it to an equal plane with micro in graduate programs - there's an "introductory micro sequence" and an equally sized "introductory macro sequence". Out there in the real world, everyone and their dog wants to know why recessions happen and how we can prevent or escape them.

But despite its glamour, macro is really only one small part of economics. In addition to the causes of recessions, economics investigates the following:

* how tax policy influences business conditions and human welfare (tax econmics)

* why workers get and lose jobs and are paid the wages they are paid (labor economics)

* why we see the patterns of international trade and capital flows that we see (international econ)

* why people make the consumption, saving, investing, and other economic decisions that they make on a day-to-day basis (decision theory, behavioral economics, experimental economics)

* how auctions work (auction theory)

* how people can optimally play various games and other competitive endeavors (game theory)

* how companies compete and get profit (industrial organization)

* why financial asset prices move the way they do, and how investors should and do behave (financial economics)

* how government should provide public goods (public finance)

* why cities and industrial clusters form and grow and decline (urban economics)

* why some poor countries get rich (development economics)

* why some rich countries experience bursts of productivity growth (growth economics)

* how to use statistics to measure all this stuff (econometrics)

...and more!

So you see, there is a LOT more to econ than business cycle theory. Sure, business cycles interact with most of these things, but the things all interact with each other. Business cycle theory has assumed a special place among the constellation of econ fields, but only because A) people get really upset about recessions, and B) business cycle theory is very contentious and controversial.

But here's the thing: Business cycle theory is contentious and controversial precisely because it doesn't work very well. Cursed with uninformative data, macroeconomists have so far failed to definitively answer the following Big Questions:

1. What causes recessions?

2. Can recessions be forecast in advance?

3. Can recessions be prevented by government policy, and if so, how?

4. Why do inflations happen?

5. Why do hyperinflations happen?

6. Why do "jobless recoveries" happen, and can they be prevented?

This doesn't mean macroeconmists have done nothing. They have catalogued a vast array of business cycle facts and features. They have identified a few policies whose effect can be predicted fairly reliably (e.g., if the Fed raises interest rates it will cause a sharp recession in the short term). They have debunked a lot of old, dangerous ideas about what the central bank should do.

But if we teach kids macro first, we will be deliberately starting them off on the stuff that doesn't really work. Notice that no other science does this. Take an intro physics class, and it starts with Newton's Laws, projectile motion, classical electrodynamics, and optics - not the deepest stuff, not the cutting edge, but the stuff that has worked really, really well for hundreds of years. The successes. Only five or six years later do you get to the string theory and the cosmology and the speculative, cutting-edge stuff.

Similarly, I think we should start kids off with the econ theories that work. What are the econ theories that work? Well, there are a lot, but here are a few:

* Supply and demand work for many, many things. If a storm destroys your orange crop, the price of oranges will go up. The invention of a popular new orange juice will cause the price of oranges to go up. And so on. Many of these are so obvious that we take them for granted - they don't use fancy math, and the fate of nations doesn't hang in the balance. But these are real successes for economics.

* Game theory works very well in some situations, such as auctions, where everyone knows the payoffs and the rules.

* Tax economics works very well when predicting the impact of certain kinds of taxes (less well for others).

* Financial economics gets a great many things right. When interest rates go up, bond prices go down. Diversification of stocks can reduce risk without reducing expected return. Etc.

* Public finance theory works when explaining many externalities. By modeling pollution as a negative externality, economists managed to create some very effective "cap and trade" systems.

* Econometrics has had a lot of successes in predicting stuff, and it's never too early to start learning the baby versions.

Actually, there are a lot more. This was just a quick short list off the top of my head.

These things are often simple. They are often un-glamorous. People don't argue about them a lot. But they have led to real improvements in humanity's ability to control our world. In other words, they are scientific successes. I think we should teach these things before we start teaching about problems that economists have been butting their heads against, like business cycles or development econ.

(And actually, we mostly do teach these things first, at least at the undergrad level. So would I keep Econ 101 the same? No, I'd emphasize empirical evidence more than we do. Just like intro physics classes make you do labs and verify the equations of projectile motion, I'd have undergrads take a look at data and do some regressions to at least get an idea of how well some of these theories match reality.)

Addendum: I also think that undergrad macro, when we do teach it, should be taught from the standpoint of "Why we don't get what's going on." Teach the Loanable Funds model, but then show how poorly it's performed. Etc.


  1. Mostly agree but you got to put growth and development in there somewhere. Remember optimization is not just MB, and not just MC, but MB=MC. All the micro stuff, because it's well worked out has low cost. But some of the benefits are small too (lots of second order effects). The growth and development stuff may still have lots of unanswered questions, so the cost is high. But unlike business cycle macro we KNOW that the marginal benefit of improvement in understanding is simply huge.

  2. Why do inflations happen?

    Uh, I think Friedman got this one. Large increases in the money supply. Of course there are other things that can cause inflation, but Friedman showed that it's pretty much always money.

    1. No way dude, printing money causes deflation, not inflation. Haven't you read Steve Williamson?

    2. Yes, when you swap liquid securities for that illiquid crap called cash, people have no idea what to do it, so they lower the prices for their goods. Because.

    3. Phil, inflation is a change in prices, or, inversely, in the value of money. The supply of money is precisely one half of the the equilibrating force. What of the demand for money? Are all price changes always the result of of movements of only supply or only demand?

  3. Just like intro physics classes make you do labs and verify the equations of projectile motion

    We did that in high school. I don't remember ever doing any first year physics labs but in my second year physics lab we did things like the Millikan oil drop and determining the ratio of the mass to charge of the electron.

  4. It'd be great if we could talk about empirical support for various theories in Econ 101, but the number of Econ 101 students with any sort of training in stats or even basic data analysis is vanishingly small.

    1. That needs to change, then. First of all they need to teach stats in high school instead of trig. But also, you can't do physics without math, and you can't do econ without stats.

    2. As a teaching assistant for undergrad intermediate macro at Berkeley, I devoted a good chunk of section time to teaching basic data analysis (even as basic as how to open a spreadsheet.) Even if they don't become economists, most will probably need to know some basic data analysis.

    3. Noah, don't take away the trig! No no no!

    4. Trig can be learned in a week by those who actually need to use it.

    5. The major reason that trig is taught in high school is to have something to practice algebra skills on. Prob and stats can be used for that just as easily. I would especially want to see a section on "How to lie with statistics"...too many people take others statistical results at face value.

    6. Anonymous10:37 AM

      The major reason trig is taught in high school is that calculus courses assume students know that stuff and it's really, really useful in calculus.

      Noah, you're smarter than I am. I needed more practice than a week.

      This is not to argue against stats, which are indispensable.

    7. Phil Koop1:04 PM

      I think Anonymous 10:37 has got it right. To draw statistical inferences, you must understand probabilistic deduction. To do a good job on probability, you need calculus, particularly for the distributions you will use most in statistics. And to do a good job on calculus ... I think you would be handicapped without trigonometry. Besides, pretty soon you ware going to want a periodic function.

    8. Anonymous2:00 PM

      This is for Carola Binder: Can you share with us what was taught as the basics of data analysis... courses, textbooks or even lecture notes if any.... or maybe even a blog post would be great

    9. Nathanael11:33 PM

      Trig is necessary for most *practical* geometry problems (which show up all over the place) as well as for anything to do with electricity or magnetism. In short, every engineer needs to know it.

      What you really need for calculus is *analytic geometry*, which sounds simple, but requires a minimum of a semester of *practice* in order to be good enough at it to do calculus properly. Unfortunately, analytic geometry has dropped out of the high school and college curricula entirely.

      It's not a full-semester course, it's maybe a month for the slowest people, if it's taught well (it usually isn't).

      Probability and Statistics is HARD and is a full-year course minimum no matter what. This is because it is *counterintuitive* to our human brains. That said, everyone needs to learn it. The very hardest parts are the non-mathematical parts -- question design, qualitative data analysis, etc. -- the sort of stuff in "How to Lie With Statistics".

  5. Zathras8:19 PM

    Macro and micro lead Economics instruction for one and only one reason: Physics envy. These are the only parts of economics that have very regularized laws, just like the universal basic Physics laws, such as Newton's Laws, Maxwell's Equations, etc. Micro and Macro have pretensions of universality, such like these laws. They fail spectacularly at this, but economists wave this off with the Physics trick "to first approximation...." The other topics: labor, tax econ are more particularized and don't have this universality.

    1. +1. Especially on the micro stuff.

      I do think macro is also taught because it is political/controversial, important and fun for the professors.

    2. Nathanael11:29 PM

      Micro SHOULD be politically controversial. The fact that it isn't is part of the deep rot in economics.

  6. What is so wrong with AS-AD? Everything that we are really sure about macro in general is in there. This is what I suppose that Konczal and Krugman want to teach first and emphasize more.

    I find that if electorates had a notion of AS-AD, it would be much harder for politicians to do austerity or raise wages and benefits when inflation is accelerating. Sure in the long run growth is more important, but growth will not happen if society falls apart because of extreme austerity or a hyperinflation.

    By comparison, Supply and Demand is trivial - people instinctively understand it, it is common sense. You can extend it to do really useful stuff, but time is limited on an introductory course and the triviality of a beginner S&D turns a lot of smart people of economics.

    1. Supply and demand is a very cool little model, if applied on a micro-scale. As soon as you start to aggregate and expand it into macro, you start running into horrible conceptual problems. They range from aggregating things into nice simple curves (Sonnenschein, Mantel and Debreau say hello) to S and D being interdependent the more they are aggregated (Sraffa 1926). In a partial equilibrium model S and D represent different actors, but how the hell the whole economy of a country could simultaneously be expressed in two different ways with AS and AD? Micro can't be boiled down to just crossing S and D curves. For macro, it's doubly so.

    2. "What is so wrong with AS-AD? "

      It's got "P" on the y-axis, that's what. Sure, you can take an eraser, pull a Samuelson, and put "pi" up there instead, but that's when all the problems come out like little hobgoblins and it's no longer "everything that we are really sure about macro in ... there"

  7. First and foremost macroeconomics is by definition Keynesian economics-prior to him there was only micro. In many ways I think the real battle lines remain Keynesian economics vs per-Keynesian economics. One very successful play for anti Keynesians has been to once again enable micro to lord it over macro.

    By giving micro chronological priority it leads to micro enjoying continued priority in how economics is done. To touch on something of a hornet's nest, what we have today is a state of affairs where you have to ground any macro theory you have in microfoundations but certainly no one would ever speak of 'macrofoundatoins.'

    I guess you feel like economists must start out by letting undergraduates think that economics is a lot more unified than it is and only later giving them a hint of how things really are. However, isn't it possible that by introducing things with their best panglossian sheen right away it makes things seem much more simple than they are-ie, gives students an inaccurate picture?

    1. In the old-school textbooks, the ones that liked to talk about different schools of thought, there was the same AS/AD model as the newer editions, but it was used to portray a variety of different view without contradiction. It oversimplified a lot, and was arguably very unfair, but it was still macro, and wasn't all Keynesian.

    2. Nevertheless, there was no Macro before the GT. Even a great opponent of Keynesianism-MIlton Friedman- admitted that to the extent that we all use macro aggregates at all 'we are all Keynesians.'

      In these textbooks that had different schools of thought the one thing they had in common was they 'were all Keynesians now' in Friedman's sense.
      Prior to Keynes and specifically the Keynes of GT there was no macro at all. No GDP, and other macro statistics. That's what makes the Austrians different-at least the most hardcore claim to reject macreconomics in principle. Supposedly they think economics can be done purely on the level of methodological individualism

    3. "Prior to Keynes and specifically the Keynes of GT there was no macro at all."
      To give just one example, read David Hume:

      They just didn't call it "macro". They called it the theory of money and the trade cycle. And they didn't need GDP data to tell them there was a slowdown in trade. (Though better data helped, of course.)

  8. That should read 'vs pre-Keynesian economics.'

  9. Which to teach first, micro or macro? Hmmm. I was going to say don't teach macro at all.

    1. Nathanael11:28 PM

      I was going to say don't teach micro at all -- most intro micro is a useless pile of bull, with assumptions which are never true.

      But see below. I think the answer is to teach mostly economic history with multiple case studies. And a tiny, tiny number of theories -- only the ones which *really* work.

  10. Trouble is, most of the stuff listed "works" only in very circumscribed domains, so an proper economics education should pay a lot of attention to the limits, uncertainties and alternative behaviours. Which is does not do. even simple things - "prices", or supply and demand are often very different from the simple models (Price can include money, credit terms, waiting time or variation in quality; rationing is as common a response as price variation to changes in supply and demand; wages are set by social norms and social structures much more than by individual productivity - I could go on, but you get the point).

    As someone whose career involved using a lot of stats, I can attest that the first and most important things to know are how they are gathered, by whom, how reliable are they, and what are they leaving out.

    1. Anonymous3:37 AM

      Yes - this. Start with micro and look at the simplest case. Then start removing all the assumptions that underpin perfect markets and take students through what happens. Micro does not equal (or should not, if properly taught) equal the worship of perfect markets. It simply starts at perfect markets as these represent an analytically simple limiting case. From a policy perspective many (most?) questions concerning regulation or government spending come down to what assumptions are reasonable to make about how people make decisions and what information they have...

    2. A couple of years ago Brad DeLong included things for his students on his blog, which is one reason I became devoted to it. In addition to "draft mid-term exam" questions he had two articles, something like "The Most Important Thing For Students To Remember." The first gave a bunch of reasons why free markets are the best thing since bubblegum. The second was a list of a lot of ways free markets can fail. When I took econ they never mentioned the many assumptions involved in the supply and demand diagrams. They never mentioned that you must have many producers, none of whom can influence the price. They never mentioned that you must have absolutely free entry into the market. They never mentioned that consumers must have instant, complete information. Fifty years later, most advocates of "free" markets still don't want to mention those things. We used Samuelson's textbook, and the way he presented macro I think would have been understandable before micro. That was before the math became so important.

  11. Great entry. Perhaps these are part of your "... and more" but I was wondering whether History of economic thought (i.e. a critical reflection as on how past theories fared vis-a-vis the 'real world' challenges) and a course on the 'Economics of Innovation' may not have more prominence in the Economics curriculum?

  12. Very good post Noah. I add my twopenceworth here:

  13. Anonymous11:16 AM

    Noah, I think you totally missed the whole point Mike was trying to make. It seems what he was suggesting is to start with a Big Picture first.

  14. It's hard to do applications and teach models that work at the same time because people come in with beliefs (based on their politics) about how the economy works. So when you do an application with a definitive conclusion someone has to face reality and that gets ugly. It can be a big distraction for those students (usually liberals so usually most of the class) and if they want to argue about the setup for the application it is a distraction for everyone.

    "What do you mean CO2 causes negative externalities.... this carbon tax is BS?"
    (studying labor supply/high implicit marginal tax rates) "So you're blaming the poor for being lazy?!?"

    You can concede there are alternative models, blah blah blah, but then you're either going to be back to studying what we don't know or lying to the kids.

    1. I don't think econ's job is to teach a particular political viewpoint.

    2. Econ as presently constructed DOES teach a particular political viewpoint. So maybe it should be open about this? Maybe teach it 'Political Economy?"

    3. How are you going to teach "what works" without teaching any facts? Or what facts are you going to discuss where students aren't politically invested?

      You can eliminating teaching anything about poverty, unemployment, taxes, spending, debt, the environment, and health care right off the bat.

    4. Nathanael11:25 PM

      Steve, if you're dealing with empirical applications, you won't run into trouble. Just say "Look, here's the facts (big piles of statistical and historical data follow)". "Now, here's the models which work to explain these facts."

      The trouble is, if you're a *typical* econ professor, teaching a *typical* curriculum, the liberals in your class are usually right -- and you're usually an idiot who hasn't been paying attention to reality, who has instead been promoting models which don't work. The lack of attaching your theories to evidence is the problem.

      How did I learn about the relationship of the money supply to inflation and deflation? A discussion of the gold mines of 16th century Spain, and how they didn't make the country rich -- outside of class. Followed by a discussion of the effects of deflation with specific historical examples of debt deflation. None of the theory was worth jack shit, the historical examples are what mattered.

      Most of the econ curriculum should be thrown out in favor of an economic history curriculum, frankly. You've got maybe 5 working generalizations from that history, and a lot of non-working ones. What matters is teaching the students the history.

  15. No, I got that, I just disagree.

  16. Anonymous4:12 PM

    start with game theory as Dixit recommends, then do micro and then macro. Recessions are easy - its just a stag hunt game.

  17. Not that I'm really qualified to have an opinion, but I'm with you. If you haven't spent at least a little time pondering supply and demand and what they mean and how they work, I don't know how you're going to understand things like loanable funds and the effects of changes in interests that come up in intro macro (or should).

    Also, I would think a good intro micro course would spend nearly as much time talking about what's unrealistic about the assumptions of perfect competition as memorizing "abstract theory."

    Frankly, I'm not sure I buy that micro is abstract theory while macro is not.

  18. Anonymous6:59 PM

    You have the political problem that many right-wing types don't think many of these fields should (or even do) exist....

  19. Mostly a great post Noah. I often had the feeling when trying to navigate the current macro debates, that so much depends on hard to observe parameters, regimes etc... that cannot be identified well based on the available data and evidence (and micro data need not resolve the debate: the same evidence on say wage rigidity can be interpreted very differently depending on how applicable you think the wage rigidity is to the marginal workers, and how much flexibility firms have in shifting future work conditions etc...). I suspect you have the same problem with string theory (or other attempts to unify physics) , except high level theoretical physics doesn't have the same real world implications as macroeconomic policy and analysis for now. I guess some people are more optimistic than others in thinking that once you've understood your microeconomics (+some game theory, and basic models of assymetric information,principal agent probleme -i.e modern micro), you can use that to build up coherent explanations of business cycles and financial crises, possibly without constantly appealing to large deviations from non market clearing prices. But, as you said this contention that you can easily develop macro from micro is still controversial: not yet fully digested for convenient use by MBA's and journalists. And at the end, you may still have to allow for large exogenous shocks reflecting hard to quantify animal spirits, sentiments, technological factors. At which point you need to know your econometrics, ideally including how to deal with unobservable variables (state space models and filtering- which is unfortunately not part of undergrad or even many masters econometrics courses). By the way, if you dig deeply enough into the macro growth/development litterature, a lot of the mechanisms explaining big long term income differences between countries can be relevant to explaining permanent effects of things like financial crises, which is kind difficult if you're just thinking in terms of AS/AD or other pure business cycle models. So there is a connection at that level.

  20. Anonymous12:17 AM

    A couple of points....

    First off, I don't know why you are calling macro 101 business cycle theory. There is much more to macro 101 than business cycle theory. In fact, I am not sure why anyone would simply devote a whole semester to business cycle theory for basic macro. That would be a disservice to students.

    Second, the order it largely irrelevant. I remember reading some studies a few years back showing that it was largely irrelevant in what undergraduates took first. If anything, taking macro before micro was slightly more beneficial. I would try to look them up, but I am too apathetic since I see this debate is much ado about nothing.

    Third, and most importantly, basic macro has a lot of explanatory power and you start to run into the law of diminishing returns fairly quickly or even to the point of being taught nonsense. This is unlike basic micro. Basic micro has a lot of explanatory power, but it doesn't nearly run into the law of diminishing returns as quickly.

    We don't need an unifying explanation of recessions, and trying to achieve one is a practice in absurdity. Different recessions have different explanations. Sometimes recessions can be forecasted in advance. Baker predicted both the dot com and housing bubble. Many recessions are follow after an inverted yield curve.

    There are explanations for inflation - cost pull, demand push, and more money chasing the same amount of goods and services.

    Government has a role in preventing and correction recessions. However, we live in a time where many economists have abandoned basic macro, along with a time where basic Keynesianism is viewed hostility, ignorance, and outright insanity. Unfortunately, we now live in a world where many economists have abandoned basic macro and resorting to making things up - like fiscal consolidation during a time of severe AD deficiency leads to economic growth, that high debt causes lower growth, instead of lower growth causing more debt, and "printing" more money causes deflation.

    Simply reversing the unprecedented contraction in public employment, investing into infrastructure, and offering middle class tax relief would push us back to full employment. However, many people (and some economists) are still struggling with this. Instead, they see investment into public infrastructure and restoring public employment an assault on their freedoms and an attack on future generations.

    It simply complete abandonment of basic macroeconomics to see some of the policies being pushed forward by some economists and VSPs.

    1. Nathanael11:19 PM

      " Basic micro has a lot of explanatory power, but it doesn't nearly run into the law of diminishing returns as quickly. "

      Actually, it doesn't. See Christian Gormsen's comment below. Basic micro has close-to-zero explanatory power and fails almost immediately. Much worse than the situation in macro.

  21. Anonymous5:54 AM

    Good post, Noah. But how about: "Teach the microeconomics that work"? A typical intro micro class is a simplified version of an Arrow-Debreu model. Everything on your list above is a departure from that perfect-competition-constant-returns-to-scale-no-uncertainty world. I think the true scandal in econ 101 is all the effort wasted on general equilibrium ideas, which also happen to give the wrong intuition for how the macroeconomy works.
    Paul Seabright has a nice complaint about where research micro is in introductory micro:

  22. Anonymous6:50 AM

    There should be far more emphasis on assumptions. As a math student, I'm trained to pay a ton of attention to the assumptions in the statement of a theorem. I've made enough mistaken "proofs" by ignoring what seemed like trivial assumptions in the statement of theorems.

    The sense that I get is that economists, especially when debating public policy love to go back to their usual models, but completely ignore the assumptions the model requires.

    Like for math students, it should be drilled into economics students that paying attention to the assumptions is CRITICAL.

  23. Jamie8:41 PM

    I agree that economics education should start with the parts that work but I’d go further. Many of the problems with economics arise from a failure to adequately answer the question of the link (if any) between economics and science/scientific method.

    One aspect of science is that it starts with simple things that work and builds from there. For example, physics took several hundred years to move from apples falling from trees to speculating about the beginnings of the universe. Ideology, on the other hand, comes up with an answer to the beginning of universe and then asks what other questions it can answer before dinner. Science also tends to be very sceptical about forecasting the future while ideologues can forecast just about anything. Science revels in diversity (did you know that there are about 100 different species of lemur in Madagascar, all carefully identified and classified by scientists) while ideologues simplify everything.

    It’s not clear where economics fits into the science-ideology spectrum.

    Economists should also spend time thinking about other more philosophical aspects of economics before getting into the technicalities.

    For example, in a system as relatively simple as a single large business, different people will give different descriptions of the system and its problems. The CEO, finance manager, head office planning manager, factory operations manager, marketing manager, HR manager etc will all have different perspectives.

    In successful businesses, the various perspectives are blended into a whole which is greater than the sum of the individual perspectives. In failing businesses, people can often mistake their own perspective for ‘the truth’; other perspectives are then dismissed as ‘wrong’; anyone using a different perspective is dismissed as stupid or corrupt; and endless infighting ensues.

    You might think that this is obvious. However, from the outside, the economics profession resembles my description of a failing business. The concept of perspective is rarely mentioned except to point out that non-economists are all stupid as they think of the macro-economy from the perspective of a household. It rarely seems to occur to economists who think in terms of one specific model that there might be other models, with different perspectives, which might also be useful.

    The skills required to synthesise the useful bits from different perspectives are very different from the skills required to develop a single logically consistent perspective.

  24. Nathanael11:17 PM

    I agree with your basic principle -- teach the parts which work -- but I have to point out that most of microeconomics 101, as generally taught, falls in the "It does NOT work" category.

    Microeconomics 101 "theory of the firm" (models of firm behavior) are just wrong, and aren't even decent approximations.

    So your curriculum restructuring would be radical. Neither micro NOR macro would, as a whole, be taught during the first year.

    First course: Keynesian theory-of-money principles of money printing in busts and money shredding in booms would be taught, but that's pretty much all of macro which is proven to work. Absolute advantage is too obvious to be worth mentioning, and relative advantage theory is false, empirically, so no trade theory. Supply and demand would be taught, but without the usual "supply curves" because they don't really exist in most cases. Then spend some time on public finance theory and pollution -- negative externality theory.

    Then move straight on to econometrics. You can't learn finance econ properly without doing econometrics -- learning it by itself leads to voodoo behavior and bad investing, since the finance "rules" never actually hold consistently, only statistically. So econometrics would finish off the introductory course. And there would be NO supply curves (supply is fixed or caused by outside forces) and NO "Okun triangle" nonsense -- and NOTHING about tax policy, because economists other than Emmanuel Saez don't appear to know anything about tax policy. Maybe a short segment on what a mess price caps cause, but with real-world examples like Nixon or NYC rent controls, rather than theoretical gibberish.

    Finance econ requires explaining all kinds of erudite legal obscurities in order to explain to people what bonds actually *are* and stuff like that, so it's slow to teach. So finance would be the 201 course.

  25. ‘bourgeois’ economics is able to grasp the phenomena of the everyday life of a capitalist economy in a manner that is far superior to anything the Marxists can produce' Oskar Lange 1935