Economics, Even The Liberal Freshwater Kind, Is Fucked By Week 3

The best thing about the hoopla surrounding Capital In The Twenty-First Century by Thomas Piketty, is neither the economic conclusions nor the policy recommendations. The great value of the book is Piketty's method: decades of research, compiling wealth data going centuries, in order to generate a picture of the world as it is that is rigorously true before one heads off to the ivory tower to develop a theory of economics. The method of research first, theory second is obvious in other fields. Here's the first three weeks of Psych 101 at Iowa State (because the syllabus came up early in Google):

8/23      Introduction to Course syllabus

8/25      Psychology – History & Overview Ch. 1; HW #1 due Sunday 8/28

8/30      Research Methods in Psychology Ch. 2 (not 70-73); Quiz 1 due Wed, 8/31

Psychology class number 3 teaches students to go into the world and find out how humans behave.

Meanwhile, here is the syllabus for class 3 in Econ 1 as taught by liberal Freshwater econoblogger extraordinaire, Brad DeLong:

W Jan 25: Demand and Supply II (Principles, chs. 1-3)

* Reading for Section: Dasgupta, Trust, Communities

* Section: How to do problem set 1: demand and supply

And here is part of the lecture for class three:

The Market Economy

Now let us set up a market system to serve as a societal calculation mechanism for planning and organizing production and distribution. A guy walks out and tells Dharma and Greg: “You own the products of your work, but if you want to and if you both agree you can each trade the products of your work to the other at a price I will write down.”

And he sets up a big whiteboard on an easel and writes:

1 yl = cu2

One yoga lesson trades for two cups of coffee.

Now what happens. Dharma thinks:

“Hmmm. Suppose I spend all my shift time doing or teaching yoga. I could teach Greg yoga half time, and do yoga myself half time. That still gives me my 2 ½ yoga sessions, and Greg will pay my five cups of coffee for teaching him yoga lessons. That makes me a lot better off—or at least a lot more caffeinated.”

Similarly, Greg thinks: “Hmmm. Suppose I spend all my shift time making cups of coffee. I could trade half my coffee to Dharma, and consume the other half. That still gives me my 5 cups of coffee. And with Dharma teaching me I will get through about 2 ½ yoga lessons for each shift that I work. That makes me a lot better off—or at least a lot more likely to attain inner peace.”

Thus, they both think, the market system is a win-win arrangement. Dharma benefits as long as the price of yoga lessons > cu0.40. Greg benefits as long as the price of yoga lessons < cu10. At any price between cu0.40 and cu10 there is an incentive for each to specialize their production in what he or she does best—we will have a wealth-maximizing outcome.

This even comes with a cute little picture:

 This is what the world looks like?

This is what the world looks like?

So in a semi-scientific field like psychology, class number three is when students learn about field research. Meanwhile, in economics, class three is when students learn to build thought experiments where one simply assumes one knows how people behave. The thought experiments generate graphs, and from there it's off to the equations. 

Perhaps most damning, by class 3, DeLong's students are already doing problem sets! That means they are literally coming up with the "textbook economic answers" before looking at the world.

 And we wonder why economists claim, in the face of decades of contrary data, that raising the minimum wage will lead to job losses? From week 3 they are taught that textbook economics answers questions without any reference to the external world.