That has nothing to do with this post, I just always wanted to say that.
What this post is really about is that Josh wrote a post about my Bloomberg post about Econ 101! So I decided to write a counter-rebuttal post. Hmm.
OK, let's back up. I have two basic criticisms related to Econ 101:
1. I think 101 classes don't include enough empirics.
2. I think 101 models often get misapplied in public discussions, a phenomenon I call "101ism".
Josh is arguing about (1). I think. Mostly. But I think he doesn't always quite get what I'm saying. Therefore, I will do - you guessed it! - a point-by-point response. You know you love em.
Noah Smith’s dislike of Econ 101 seems to come from the discussion of the minimum wage.Not really, no. That's just one example. It's probably one of the more egregious examples when it comes to the quality of the public discussion, but in terms of 101 models not fitting the data, there are better examples. For example, immigration is a positive labor supply shock, and positive labor supply shocks push down wages, right? Well, no, not in reality. That debate is probably a lot more settled than the minimum wage debate.
[Noah's] basic argument is that Econ 101 says that the minimum wage increases unemployment. However, he argues that:
That’s theory. Reality, it turns out, is very different. In the last two decades, empirical economists have looked at a large number of minimum wage hikes, and concluded that in most cases, the immediate effect on employment is very small.
This is a bizarre argument in a number of respects. First, Noah seems to move the goal posts. The theory is wrong because the magnitude of these effects are small? The prediction is about direction, not magnitude.If a theory represents only one tiny piece of reality, should we teach that theory front-and-center, in intro classes, as the main lens through which we are to understand the world?
I say no.
Here's an analogy. Suppose I drop a feather and an iron ball off of the Leaning Tower of Pisa, at the same height. Which one hits the ground first? Correct answer: The iron ball. It's denser than the feather, so it is less slowed down by air resistance. In fact, it's not even close.
Now, Newton's laws (including the classical Law of Gravitation) are a lot more general than air resistance. You need to learn Newton's Laws, just like you need to learn supply-and-demand.
But if you teach Physics 101 kids that Newton's Laws imply that feathers and iron balls fall at the same rate here on Earth, you're going to be embarrassed when some smartypants kid points out that no, they don't actually. And then the kids are going to start thinking physics is quackery.
This is why Physics 101 teachers are careful to emphasize that Newton's Laws only describe motion well when you can neglect air resistance. And then they send the physics kids to a lab, where they can see how and when air resistance matters, by looking at the evidence.
Econ 101 teachers are not always so humble in their presentation of theories, nor do they always defer to the evidence as the ultimate arbiter. And because of this, Econ 101 students are going to grow up, and they're going to read a Nick Hanauer column saying econ is total bullshit, because we keep raising the minimum wage and it hasn't and they're going to think "Everything I learned in Econ 101 was wrong!" Then they're going to turn to alternate sources - ideological movements, wordy literary tomes, etc. - to help them understand the economy.
In fact, this has already happened to a substantial degree.
Second, David Neumark and William Wascher’s survey of the literature suggests that there are indeed disemployment effects associated with the minimum wage and that these results are strongest when researchers have examined low-skilled workers.OK, yeah, the debate surely isn't settled. Not as much as, say, the immigration debate. But meta-analyses show that the estimates of the studies with the largest sample sizes cluster at exactly zero effect. It seems to me that the people saying the short-term effect is quantitatively small haven't yet won, but they're winning.
Forgetting the evidence, let’s suppose that Noah’s assertion that the discussion of the minimum wage in Econ 101 is empirically invalid is correct. Even in this case, the idea that Econ 101 is fundamentally flawed is without basis. When I teach students about price controls, I am careful to note the difference between positive and normative statements. For example, many students tend to see price controls as a “bad” thing. When I teach students about price controls, however, I am quick to point out that saying something is “bad” is a normative statement. In other words, “bad” implies that things should be different. What “should be” is normative. The only positive (“what is”) statement that we can make about price controls is that they reduce efficiency. Whether or not this is a good or a bad thing depends on factors that are beyond an Econ 101 course — and I provide some examples of these factors.Josh seems a bit confused here about what I'm saying. I'm not arguing for the inclusion of normative economics in Econ 101. I'm saying that if you don't teach Econ 101 kids some evidence, you're getting the positive economics wrong.
The value of Econ 101 is the very process of thinking through [the] possible effects [of a policy change like the minimum wage]. What effect we actually observe is an empirical question, but it is of secondary importance to teaching students how to logically think through these sorts of examples.Here's a real difference in philosophy between me and Josh. Josh thinks that teaching kids how to think deeply about the implications of models is Job #1, and everything else is of secondary importance. I think that if people use the wrong model to think about real-life situations, then this kind of deep logical thinking becomes worse than useless. Thinking deeply about bad models just leads to yet more mistaken conclusions about reality. I think Job #1 is to figure out how to use evidence to tell good models from bad.
You can learn how to think deeply through model implications in your second-year classes, after you have a realistic understanding of how to know whether you should do so in real life. Theories are powerful tools, and I think the first lesson for any powerful tool should be how to use it responsibly.
If you are a student who only learned the perfectly competitive model in Econ 101, then you should politely ask for a refund. Econ 101 routinely includes the discussion of externalities, public goods, monopoly, oligopoly, etc. All of these topics address issues that the competitive market model is ill-equipped to explain.On this point, Josh and I are in total and complete agreement. This is what I mean when I bash "101ism".
Anyway, thanks to Josh for responding, and I look forward to
And now, back to my regularly scheduled caffeine-overdosing.