(Roughly) Daily

… It could, Walt Frick suggests, have to do with the way in which economics has been taught for decades, centering zombie ideas from before economics began to become an empirical disciple. Happily, he suggests, that may be changing…

What happens to the job market when the government raises the minimum wage? For decades, higher education in the United States has taught economics students to answer this question by reasoning from first principles. When the price of something rises, people tend to buy less of it. Therefore, if the price of labour rises, businesses will choose to ‘buy’ less of it – meaning they’ll hire fewer people. Students learn that a higher minimum wage means fewer jobs.

But there’s another way to answer the question, and in the early 1990s the economists David Card and Alan Krueger tried it: they went out and looked. Card and Krueger collected data on fast-food jobs along the border between New Jersey and Pennsylvania, before and after New Jersey’s minimum wage increase. The fast-food restaurants on the New Jersey side of the border were similar to the ones on the Pennsylvania side in nearly every respect, except that they now had to pay higher wages. Would they hire fewer workers in response?

The prediction from conventional economic theory is unambiguous,’ Card and Krueger wrote. It was also wrong. Fast-food restaurants in New Jersey didn’t hire fewer workers – instead, Card and Krueger found that employment slightly increased. Their paper set off a hunt for other ‘natural experiments’ that could rigorously test economic theory and – alongside other research agendas like behavioural economics – transformed the field.

Over the past 30 years, PhD-level education in economics has become more empirical, more psychological, and more attuned to the many ways that markets can fail. Introductory economics courses, however, are not so easy to transform. Big, synoptic textbooks are hard to put together and, once they are adopted as the foundation of introductory courses, professors and institutions are slow to abandon them. So introductory economics textbooks have continued to teach that a higher minimum wage leads to fewer people working – usually as an example of how useful and relevant the simple model of competitive markets could be. As a result of this lag between what economists know and how introductory economics is taught, a gulf developed between the way students first encounter economics and how most leading economists practice it. Students learned about the virtues of markets, deduced from a few seemingly simple assumptions. Economists and their graduate students, meanwhile, catalogued more and more ways those assumptions could go wrong.

Today, 30 years after Card and Krueger’s paper, economics curriculums around the world continue to challenge the facile view that students used to learn, in which unfettered markets work wonders. These changes – like spending more time studying market failures or emphasising individuals’ capacity for altruism, not just selfishness – have a political valence since conservatives often hide behind the laissez-faire logic of introductory economics. But the evolution of Econ 101 is not as subversive as it may sound. Instead, it reflects the direction the wider discipline has taken toward empiricism and more varied models of economic behaviour. Econ 101 is not changing to reflect a particular ideology; it is finally catching up to the field it purports to represent….

[Frick describes the recent evolution– or revolution– in curricula…]

… It’s tempting to judge [open-source text project] CORE and even Harvard’s [recently-overhauled introductory economics course] Ec10 in ideological terms – as an overdue response or countermeasure to a laissez-faire approach. But the evolution of Econ 101 is about more than politics. (Despite its focus on traditionally more progressive topics, CORE has been criticised for being insufficiently ‘heterodox’, according to Stevens.) By elevating empiricism and by teaching multiple models of the economy, students in these new curriculums are learning how social sciences actually work.

“A model is just an allegory,” says the economist David Autor in his intermediate microeconomics course at MIT. For decades, Econ 101 taught one major allegory, in which markets worked well of their own accord, and buyers and sellers all emerged better off. Government, when it was mentioned at all, was frequently portrayed as an overzealous maintenance man – able to solve some problems but also meddling in markets that were fine on their own.

That is not how most contemporary economists think. Instead, they see the competitive market as one model among many. ‘The multiplicity of models is economics’ strength,’ writes the Harvard economist Dani Rodrik in Economics Rules (2015). ‘[W]e have a menu to choose from and need an empirical method for making that choice.’ As the Econ 101 curriculum catches up, economics students are finally getting a taste of the variety that the field has to offer.

As much of an improvement as the new curriculums are, they raise a puzzle. The traditional Econ 101 course was, for all its flaws, coherent and memorable. Students came away with a clear framework for thinking about the world. What does the new Econ 101 leave students with, other than an appreciation that the world is complicated, and that data is important?

[UCL economist and CORE co-creator Wendy] Carlin’s answer is that “the workhorse [of Econ 101] is that actors make decisions.” Modelling those decisions remains a central part of economics. What’s changed is the way decision-makers are represented: they can be selfish, but they can also be altruistic. They can be rational, but they can also be biased or blinkered. They are social and strategic, and they interact with one another not just with the faceless market. Models help approximate the most salient features of these interactions, and students learn several different ones to guide their understanding. They also learn that models must fit the facts, and that a crucial part of economics is leaving the armchair and observing what is going on in the world…

On the importance of recognizing the mutability of models and re-emphasizing learning in an essential discipline: “Economics 101,” from @wfrick in @aeonmag.

* economist (and Nobel Laureate) Robert Solow

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As we revise, we might recall that it was on this date in 1963 that President John F. Kennedy signed the Equal Pay Act into law. Aimed at abolishing wage disparity based on sex, the legislation was part of Kennedy’s New Frontier Program. On the one hand, since it’s enactment, the wage gap has narrowed; on the other, it is still large: in 1963, women were on average paid about 60% of a man’s income for the same job; today, that figure is roughly 80%.

Opponents of the Act (including, of course, many economists) suggested that higher wages for women would discourage employers from hiring them; in fact, female participation in the workforce has grown– the gap between their participation and that of prime-age men has shrunk to less than one-third of its previous size. Some of those critics also argued that higher wages for women would a drag on economy; to observe the obvious, the economy has, by myriad measures, grown materially over the period– indeed, beyond the “no EPA” projections of those opponents.