A Commentary on “The Value of Outreach”
Eric Crampton asks:
“Push the button, and it burns the last n years of every journal in economics, along with all knowledge that those results ever existed, though they can be rediscovered. At the same time, every potential voter is brought up to a thorough Econ 101 level of understanding of Economics. At what value of n is the deal no longer worthwhile? A decade? Two?”
Depending on your definition of “Econ 101”, my answer could easily be n = infinite. There isn’t much of practical value in microeconomics that is not covered by Econ 101.
What are the major policies that need to be enacted to ensure a good economy and what economic principles would policymakers and voters need to know to evalute them reasonably?
Policy – Theory needed
Price Controls/gouging – Supply and demand
Monopoly – Supply and Demand
Subsidies – Supply and demand
Unemployment insurance – Incentives/supply and demand
Taxation – Supply and demand, maybe some overlapping generations models (most economists don’t even get those now, so maybe not)
Minimum wage – supply and demand
Free Trade – comparative advantage, supply and demand
Information based regulation – You’d need a class on advertising, reputation, warranties and other ways that information flows through the economy. Note that killing your customers is bad for business.
Compensating differentials – safety and other regulation has offsetting effects on wages. Workers who value rules more than money will be willing to get a lower salary to fund the safety.
Pollution – externalities, property rights
Corporations – Property rights, investment. You should probably get some basic IO in there, just to show students that profits are good and that firms can’t pay workers more than their productivity.
Finance – Arbitrage, Accounting identities
Maybe one class on game theory.
The idea the consumption is limited by production. Wealth means producing more. Instinctually, people think wealth is fixed, and teaching people about positive sum games is important.
So what do students need to know about macroeconomics for society to be better off without academic work?
Inflation is always and everywhere a monetary phenomenon.
If you have too much inflation, print less money. If you have too little inflation, print more money.
Prices are sticky – deflation can cause unemployment in the short run.
I think that’s about all you need. It would be nice to have the grounds for full NGDP level targeting, but who knows? Maybe if everyone knew Econ 101, we could have honest to goodness free banking which wouldn’t require any technical macro.
So, in conclusion, I would happily delete all academic economics ever in order to teach everyone Econ 101. Remember though that the contents of the ideal econ 101 class have changed quite a bit due to academic research. In the real world, a great academic paper becomes econ 101 in a decade or two.