Behind scientific façade, economics depts serve heavy dose of laissez faire

Another normative judgment presented as neutral fact is the basic neoclassical precept that there is a necessary tradeoff between efficiency and equality. Indeed, this is presented as one of the “10 Principles of Economics” in the most widely-used introductory economics textbook in the country, N. Gregory Mankiw’s Principles of Economics. The precept begins with the idea that the “natural” tendency of the market is to distribute resources most efficiently. It then says that anything that interferes with the market’s allocation of resources will impair that efficiency, creating waste (that is, less than maximum production from a fixed set of resources).

According to Goodwin, students are encouraged to think that it is simply a matter of objective fact that economies work “best” when they are most efficient. If, on the other hand, there is a proposal to make a society more fair to more of its members by redistributing resources (through modifying a tax system, for example), that goal is treated as a waste-generating consideration, laden with subjective values, and “outside of economics,” she said.

Imbued with that bias, Goodwin concluded, “it’s perfectly reasonable for students to assume that redistribution is inherently wasteful” and decide that the market should be left alone.

More generally, many economists argue that neoclassical economics has an inherent bias towards free markets and against government intervention. “Neoclassical economics has an agenda, and it’s an agenda that tends to reinforce arguments for laissez faire policies,” Schneider said. The idea that markets will generally produce the most efficient outcomes and promote economic growth, he said, serve to justify a range a political arguments, from tax policy to environmental and labor regulation.

And even more generally, some economists see neoclassical economists as providing a justification for capitalism. “Students can graduate without ever studying capitalism as a social system,” said Cohn. “They are studying a narrow set of ideas about how capitalism works and how it can work well, but they never get a sense that this is only one way to organize society. For example, they never question capitalism’s reliance on indefinite growth in consumption, or what affects that might have on the environment.”

“If students get nothing else out of their education,” Ruccio said, “I would want them to see that every time we think about the economy we’re employing a certain theory, and each of those theories have consequences. That puts the onus on them to decide for themselves how the world should look.”

Divorce from reality?

Over the past half-century, neoclassical economics has become increasingly mathematical and abstract, placing a heavy emphasis on economists’ ability to create complex mathematical models to simulate economic behavior. The reliance on mathematical “proofs” is one of the primary reasons that neoclassical economics has been able to portray itself as akin to hard science, and has played a large role in its dominance of the discipline as a whole. But as those models have become increasingly complex, critics say, they have also become so abstract that the conclusions they point to may not always match up with the empirical reality observed by the students who learn them. 

“The consequence is that students are learning a lot about economics, but very little about the actually economy,” said Perry Mehrling, a professor of economics at Barnard College and a senior advisor to the Institute for New Economic Thinking.

The disconnect between abstract models and the observable economy can sometimes mean that students are expected to take conclusions for granted that may not be borne out by empirical research, said Julie A. Nelson, a professor and chair of the economics department at the University of Massachusetts Boston. As an example, she used the debate about the minimum wage.  Because the economy is said to “work like physics, the laws of supply and demand should mean that if you put in a price floor” — or a minimum wage level — “you will increase unemployment. That’s a very standard conclusion that comes from the model.”

Nelson said that while the model may hold in certain situations — “We might expect unemployment if you raised the minimum wage to $100 an hour,” she said — she added that empirical evidence shows that the model is hardly binding. In fact, the most rigorous empirical research on the minimum wage has shown that increases can actually increase employment. “Why wouldn’t you take the policy issue as the starting point?” she asked. “Then if it’s helpful you can work back through the models and explain why they do or don’t hold in specific situations.”