the weaknesses of analogical reasoning

This article, shared recently by Marginal Revolution, got Anti-Mankiw's blood boiling, for all the wrong reasons. The core issue was the defense of mainstream economics through the use of particular analogies that we believe are fundamentally flawed.

As we explain elsewhere, analogies are often a deceptive way of explaining the core analytical framework of a concept, because an analogy between A and B is only as good as the likeness between A and B. It seems better to start off by explaining the core logical framework from within the language of economics, instead of alluding to its likeness to other sciences. Unfortunately, that is not the approach taken in Mankiw's textbook -- as early as chapter 2 he analogizes the study of "economic science" to physics.

What are the specific offenses that the article makes?

1. Saying that economics is like other sciences, such as medicine. As the article states,

"Galbraith’s and Varoufakis’s worry [that economics has become too mathematical] has been around for 20 years, says Grossman at Princeton. “It comes and goes. It particularly comes when economic times are hard, when it appears that the old way has let us down.” Did the old way let us down? “No,” he answers, “which is very different from saying we know everything. … I don’t think medicine has let us down because there are diseases we don’t know how to cure.”"

Economics is not like medical science. In medicine, all hypotheses go through rigorous empirical testing before they can be accepted by the field, and even at that point, caution is exercised when it comes to making generalizations. Also, in medicine, we don't have to make assumptions about how cells or molecules behave, while with people, making such assumptions is not only very important, but subject to a much wider menu of possible interpretations, often with dramatically different, and political, implications.

2. The idea that there is a "free market" in economics departments, so that graduate students can pick the ones that seem to be offering the most realistic version of economic theory out there. As the article states,

"Harald Uhlig, chair of the economics department at the University of Chicago, another of the No. 1-rated economics graduate schools in the U.S., offers a kind of a model of his own. In an e-mail, he writes: “Above all, I do not believe in central planning. What is true in private markets is true in PhD education as well: It is good to see different places try different approaches, to let the PhD students decide where they want to be educated, and to let the marketplace for future scientists decide what works and what does not. I am sure that if the new PhD program in Athens is successful and produces the top young economics researchers of the next generation, many other PhD programs will take notice.”

Such a comment ignores the very real differences between top graduate programs and lower-ranked schools in terms of prestige -- something that often goes hand-in-hand with support for the status quo and getting top (influential) jobs, and refraining from any radical criticism of the current paradigm (which is what economics needs at this point).

The thing that concerns us most about these analogies is that, for the casual reader who doesn't know much about the field of economics, it is very easy to take these analogies for granted. Without any rigorous knowledge of the field, understanding is made easier by analogy.

But for those who have an advanced understanding of the field, the weakness of the analogical approach is clear. We are, indeed, actively promoting ignorance by taking such an approach, instead of being honest about our flaws and about the structure of graduate education.

politics and methodology: alternative teaching resources

"Pyramid of Capitalist System"

We at Anti-Mankiw are no strangers to the idea that politics shapes economists' theories about how the world works. Unlike Mankiw, who regularly asserts in his textbook an ideal-type of "observation, theory, observation" method of economic science, the fact of the matter is that how we view the world often shapes our evaluation of the facts of that world.

Perhaps in no other place in economic theory is this fact more true, and thus more dangerous, than in the Marxian vs. non-Marxian (or neoclassical) theory of distribution. When Marx argued that the source of all wealth is the laborer and that surplus value, or profits, were taken from the laborer by the capitalist, neoclassical economists replied with a theory of distribution asserting that capital earns its fare share of the output, too.

The neoclassical response in the late 1800s offered a new theory, or new way of looking at the world. This subsequently helped shape how all neoclassical economists thought about the source of profits: instead of seeing them as fundamentally sourced from workers, these economists saw capital and entrepreneurs simply getting their fair share of the pie -- represented by the marginal price of capital multiplied by the marginal physical product of capital, or the value added by capitalists to production. This victory was a major one for capitalists because it essentially legitimated their control/monopoly over the means of production, which is really the main role capitalists play.

No more explanation for all the profit was necessary! And the political consequences were indeed severe. For one, the neoclassical response to Marx came in the 1870s, when labor militancy across Western Europe and America was reacting to a rapidly growing capitalist power in politics and the workplace. And the political victory is felt even up to today: even when compensation starts to be outstripped by worker productivity as it did in the 1970s, neoclassical economists could simply ignore it because in their baseline model, workers get what they put in, and so does capital. The rest was just minor details.

Why do we mention this now? Because Fred Moseley from Mount Holyoke College has written an excellent introduction to the neoclassical theory of distribution as well as some ways to critique it for an introductory- or intermediate-level class. Find it here. We highly recommend checking it out and trying it out in your own classes!

we know what we're protesting

This Crimson article by Harvard undergraduates Rachel Sandalow-Ash and Gabriel H. Bayard from November 2011, addressing the fundamental issues underlying the Occupy Ec 10 movement, did not get nearly the amount of attention that it deserved. Published about a week after the walkout on Mankiw's class, very few sources on the walkout linked to it, instead choosing to focus on the open letter and Crimson editorial(s), which were good, but not very carefully articulated.

We think the exclusion of the Bayard-Sandalow-Ash piece is very unfortunate. The articles which Greg Mankiw chose to cite in this New York Times article "Know What You're Protesting" did not accurately portray the types of issues that most people who chose to walk out have with his course. It would have done more for discourse around the issue if Mankiw had actually spent time dealing with the substantive attacks, instead of largely arguing past the protesters.

For example, Mankiw chose to concentrate his Times article on the argument that economics is mostly a tool, not an ideology. In other words, Mankiw sees the standard introductory economics curriculum as introducing the student to a scientific framework in which students can approach any kind of problem related to public policy or current events. This is a very familiar argument to those of us who have taken an economics course or two -- the idea that we're equipping ourselves with tools to go out and change the world. Too bad those tools are stained with ideology. Let us explain

The issue which Sandalow-Ash and Bayard rightly point out is that the frameworks Mankiw presents are themselves value-laden and politically motivated. So while the efficiency-equity tradeoff seems to offer an analytical framework in which government intervention can be "objectively debated", underlying the framework is a market-centered approach that fails to point out how a more equal society, through promoting stability and long-run health, can help to promote efficiency. And though Mankiw goes to some length to present a consensus among mainstream economists about core issues such as the adverse effects of minimum wages and free trade in his book, both historical experience and a growing literature on these topics have already successfully taken on seemingly-unobjectionable tenets of neoclassical theory.

Overall, we strongly suggest you take a look at the piece by these two very intelligent and socially conscious Harvard students. This is where the Occupy movement's critique is truly located.

rodrik on occupy ec 10

Responding to the issues surrounding the Ec 10 walkout, highly acclaimed development economist Dani Rodrik weighs in on the particular question of the ideological content of mainstream economics here.

We at Anti-Mankiw are glad to see the debate moving past the difficult-to-support claim that mainstream economics is not political, or that Mankiw's ideology is "not at all obvious". As we tried to emphasize in a previous article, a key sign of an ideological approach, especially in economics, is when space is not opened up to a critical analysis of the economy.

We are hoping that Mankiw can begin to address the most important question behind the walkout, namely, why any group of students would choose to walk out on a course that has (in theory) so much potential for enriching discourse on the economy. Thankfully, Rodrik suggests to us an entrypoint. His premise is the vast set of  policy proposals often invoked in economic theory. As he states succinctly here:

Indeed, though you may be excused for skepticism if you have not immersed yourself in years of advanced study in economics, coursework in a typical economics doctoral program produces a bewildering variety of policy prescriptions depending on the specific context. Some of the frameworks economists use to analyze the world favor free markets, while others don’t. In fact, much economic research is devoted to understanding how government intervention can improve economic performance. And non-economic motives and socially cooperative behavior are increasingly part of what economists study.

It is not clear to us how Mankiw's particular assumption set -- i.e., his 10 principles -- makes him immune to Rodrik's point. Aren't they just another assumption set, chosen by a professor with certain political aims? The weakness in Mankiw's approach is in the level of critical analysis that takes place in discussing economics. And why should introductory students at Harvard be spared of learning about the tools necessary for critique? Rodrik continues:

Now let the reporter go undercover as a student in the professor’s advanced graduate seminar on international trade theory. Let him pose the same question: Is free trade good? I doubt that the answer will come as quickly and be as succinct this time around. In fact, the professor is likely to be stymied by the question. “What do you mean by ‘good?’” he will ask. “And good for whom?” 

In other words, economic policy proposals are much more nuanced than Mankiw seems to present. (A similar argument could easily be made for recent economics work on minimum wages.) And if we were to add such nuance, this does not necessarily make things to difficult to grasp. At UMass, we ask these kinds of questions to our undergraduates: we ask them how different efficiency criteria might change ones policy proposal, and we question the foundations of a hedonistic approach to economic theory. While such discussions admittedly require sources outside of the standard textbook, there is no need to go "too far" for a solid discussion of these issues. They are definitely in the reach of first year students.

We'll let Rodrik have the last word here:

Applied appropriately and with a healthy dose of common sense, economics would have prepared us for the financial crisis and pointed us in the right direction to fix what caused it. But the economics we need is of the “seminar room” variety, not the “rule-of-thumb” kind. It is an economics that recognizes its limitations and knows that the right message depends on the context.

That's right. Contrary to what Mankiw might say, there is much that students can learn about the financial crisis which would come from a different approach to introductory economics. Let's not speak so condescendingly of them!

anti-mankiw links; or, the dangers of technocracy

On his blog and in his New York Times articles, N. Gregory Mankiw has slowly but carefully advanced a position which is critical of fiscal expansion. He has given a variety of reasons for his position. These include: fiscal responsibility provides more certainty for investors in determining the future potential of economic growth; as well as observing that the short-sighted character of most politicians leads them to underestimate how difficult an unbalanced budget can be to get out of in the long run.

In presenting these views to the public (i.e. in terms of his rhetoric), Mankiw has often said that he's demonstrating a centrist view of the issue -- evidenced, for example, by his signature on the Simpson-Bowles plan which garnered the support of people on the left and right. Deficit reduction is just simple economics, according to him, because we need investors to stay confident in the strength of our economy.

But deficit reduction is not that simple and focusing on it during a recession might not be the best option. Indeed, the argument that deficit reduction sustains confidence does not hold up. The correct argument for deficit reduction actually seems to be something a bit different: namely, that it can potentially reign in overzealous spending at a time when the economy can afford to do so. That is the gist behind this report by Arjun Jayadev and Mike Konczal entitled "The Boom, not the Slump". In that article (which was referenced in a blog post by Paul Krugman) they work through a few case studies which analyze the timing of austerity measures vis-a-vis movement in some of the economy's broad indicators to show that the case for austerity is weak. And on the other hand, as the Great Depression and World War II showed us, the standard argument for deficit spending in the case of recession has much stronger empirical support.

Still, even when Mankiw's "confidence fairy" argument falls, can he rely on a sound logical footing for his argument? The Jayadev and Konczal paper suggests at first glance that he can't. That is to say, the "sound" economics of Mankiw is really just ideology dressed up as science. In this interesting Monthly Review piece, Marcello Musto applies that exact idea to Europe. Simply put, technocratic discourse is sometimes laden with violence against anyone willing to speak out against the "science" of economic thinking. The result, at least in Europe, is one of the most acute forms of class warfare.

As Musto himself puts it:

The separation between economics and politics that differentiates capitalism from previous modes of production has reached its highest point.  Economics not only dominates politics, setting its agenda and shaping its decisions, but lies outside its jurisdiction and democratic control -- to the point where a change of government no longer changes the direction of economic and social policy.

Introductory economics should start off with a very simple idea: be immediately distrustful of anyone you see (especially elites) presenting the "consensus" view within the economics profession as the "right" policy platform. And, indeed, this is the type of "apolitical" discourse that can end up being the most lethal kind for workers or other groups with less power in the economy.