Pedde: Ignorant Economics

by Jonathan Pedde | 11/20/11 11:00pm

Earlier this month, about 70 Harvard University freshmen walked out of their introductory economics course. In an open letter to their professor, the students claimed to be protesting "bias" in the class and expressed solidarity with the "global Occupy movement." Given the profound economic ignorance shown by the content of their letter, it is tempting to simply dismiss this walk-out as little more than a stunt by a few arrogant freshmen. But I think this event is but one facet of a larger problem the politicized way in which public discussion often treats economic theories and evidence. This means of discussing economics is wrong, and needs to be changed.

While the open letter repeatedly claimed that the economics course was "biased," the only evidence given to support that claim was an assertion that the course presents "Adam Smith's economic theories as more fundamental or basic than Keynesian theory." This statement is quite ironic on three levels. First, most of the theories taught in a typical introductory microeconomics course were first synthesized by Alfred Marshall in the late 19th century and were never proposed by Adam Smith. Second, introductory macroeconomic courses at "saltwater" schools like Dartmouth or Harvard focus on the neo-Keynesian theories developed by the likes of John Hicks and Paul Samuelson. Third, the Harvard professor to whom the letter was addressed, N. Gregory Mankiw, is best known for his research pertaining to a macroeconomic school of thought known as New Keynesian economics.

In a way, the ignorance of the letter mirrored the ignorance of the Occupy protestors with whom the students were claiming to show solidarity. Last month, Alex Klein of New York Magazine did an informal survey of the protestors in Zuccotti Park. Nine out of 10 people who were surveyed were unable to identify the Dodd-Frank Act as a financial regulation law, fewer than three in 10 knew that "the S.E.C" was "the Securities and Exchange Commission," nine in 10 underestimated the top marginal income tax rate for the richest 1 percent and 94 percent wrongly believed that the federal government spends more on the military than on health care and pensions.

While the ignorance of these students and protestors is bad enough, the general public's awareness is often little better. Many people seem to suffer from what psychologists call "confirmation bias" rather than evaluating economic claims with the available empirical evidence, many people will simply accept those claims that fit their pre-existing ideological beliefs and reject those that do not.

For example, George Mason University economist Daniel Klein and Zeljka Buturovic, a psychologist who works for polling firm Zobgy International, did a public opinion survey that asked questions about basic economic facts that challenged common ideological beliefs. The results were disheartening. Far more self-identified liberals and progressives disagreed with statements such as "rent-control laws lead to housing shortages" than did self-identified conservatives. Conversely, far more self-identified conservatives than self-identified liberals disagreed with statements such as "making abortion illegal would increase the number of black-market abortions." The vast majority of economists of all political stripes would acknowledge that the empirical evidence overwhelmingly supports both of these statements.

In order to avoid falling into the trap of confirmation bias, as many of these Harvard students and Occupy protestors clearly have, we all need to keep in mind the distinction between "positive" economics claims about how the world is and "normative" economics claims about how the world should be. This distinction is often blurred in public discourse when people argue that "standard economics says we should do X." Well, no, positive economics does not say we should do anything. Instead, it is by using an ethical theory, and not merely an economic theory, that one comes to a conclusion about whether something is good or bad. Given how blurred this distinction has become, it is perhaps not surprising that many people succumb to the confirmation bias when evaluating economic claims that are positive in nature.

When thinking about economics, people need to adjust their perspectives in two ways. First, empirical and theoretical claims should be evaluated solely on the basis of empirical evidence, not ideological belief. Second, people must be honest with themselves and evaluate the ethical assumptions that underlie their opinions.