Greg Mankiw:
Noah Smith takes the standard course to task. David Henderson says, not so fast.
via gregmankiw.blogspot.com
The title to this post (without the question mark) is the assertion made by Noah Smith last week. He laments the fact that principles of microeconomics courses might overstate some of the effect sizes. He gives two examples*: the minimum wage and welfare (David Henderson explains Smith's huge mistake re: welfare). Noah Smith does not criticize the theory, e.g., "I say ye that truly demand curves are upward sloping!" It is only the effect sizes that seem to be of concern.
The other point that Noah (aka Noahpinion) makes is this:
So what's the solution? Complex theories sometimes do a better job of explaining reality than simple ones, but these theories are way beyond the mathematical skill of most undergrad econ majors. A better alternative is to start teaching empirics in 101.
Current textbooks, including Mankiw's, almost all play down the role of data and evidence. They sometimes refer to the results of empirical studies, but they don't give students an in-depth understanding of how those studies worked. Yet this wouldn't be very hard to do. The kind of empirical analysis now taking over the econ profession -- often called the "quasi-experimental" approach -- isn't that hard to understand. Simple examples could even be done in the classroom, or as homework assignments.
I can't think of a worse alternative to helping students in econ 101 courses understand theory than teaching empirical methods. There would be a huge opportunity cost (Smith doesn't mention if he thinks the concept of opportunity cost is wrong). We would need to cut out all of the theory because I don't think there is any way to "give students an in-depth understanding of how [empirical] studies worked" other than to have students take a semester long statistics course. At Appstate we call this course Business and Economics Statistics II (I cover differences in means to regression in stats II and, maybe surprising to some people, it is "very hard to do"). At Appstate (and many other places) we further encourage students to take econometrics and then in their senior seminar class they test economic theories with empirical methods using data they have collected themselves (mostly secondary) and examine effects sizes they have estimated themselves.
It is simple-minded to think that the economics 101 course should be where one learns everything that one needs to know about economics. On some campuses econ 101 is called "introduction to (micro) economics." An introduction is just that. If an undergraduate really wants to understand economics then the undergraduate should pursue a major in economics. Duh.
So, a better (but less attention grabbing) title to the post would be "Some of what you learned in econ 101 should be further examined empirically to better understand the effect sizes. In fact, this is what economics majors do in their course of study."
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*Note: I see the point, that simple economic theories broadly applied make for poor public policy and that politicians are the most serious abusers. But, I don't think this is a problem resulting from econ 101. For example, I don't think that "cutting income taxes increases tax revenue" is taught without nuance in econ 102 (macro). Indeed, the text drawings show that tax rates increase tax revenue up to a certain point (and there is little empirical research to show that this is around 10%).
