Post-Autistic Economics Network Home Page PAE Review

www.paecon.net Doctrine-centered versus problem-centered economics Peter Dorman (The Evergreen State College, USA) Bruce Caldwell's response to Bernard Guerrien illustrates exactly what is wrong with mainstream economics as it is taught and applied: it is doctrinaire.  He believes that he has made an advance over more typical teaching approaches by scaling down the math, but I can see no change in the overall project of imposing a dogma in the name of an academic discipline.  It is sad to have to conclude this, given Caldwell's large contributions to economic methodology, but there it is. His examples of "economic reasoning" for the improvement of undergraduate minds are worth a closer look.  I could take up all of them, but I will confine myself to the two that are given the most attention, the role of price supports in agriculture and the advantages of free trade over protection. Agriculture Agricultural policy has many dimensions.  It is a social policy that can support, change or weaken rural culture.  It is certainly an ecological policy, whether by intent or not.  It influences food security in the face of ineradicable uncertainties in supply.  It is competition policy, favoring either centralized or decentralized market structures.  And, or course, it has a political economic dimension, responding to the various interest groups that have a stake in the choices made by government. What do Caldwell's price ceiling diagrams tell us?  If they are like all the other price ceiling diagrams I have seen, they announce that, as a first-round effect, price supports are economically inefficient, sending false signals to the marketplace and incurring deadweight loss.  The second-round effect, alluded to by Caldwell, is political: there is rent-seeking that further absorbs resources and distorts policy. It seems obvious to me that the price ceiling analysis, while it has some value, is hopelessly inadequate as a primary guide to what to do about agriculture.  The role of uncertainty and time, of environmental externalities and public goods (such as a healthy rural culture) ought to be central to any serious analysis of this topic, and to short-circuit the process in the way Caldwell describes is to abandon higher-order for lower-order thinking.  In practical terms, it also silences students, because their common-sense intuitions about agriculture (many of my own students have rural backgrounds) often have no standing amid the supply and demand curves. Trade Caldwell would have students learn the theory of comparative advantage as a guide to making sense of globalization and combatting the naive belief that interference with trade can ever be a good idea.  He talks in precise dollar terms about the cost per job saved by tariffs on steel, as though the complex effects of such a policy can be perfectly know and calculated.   Yet trade policy is complex, and it is fair to say that economists have not yet put together a convincing model of how the system works.  In particular, comparative advantage depends on the assumption of balanced trade at the margin - that every extra dollar or euro of imports will be automatically and simultaneously balanced by an equivalent additional value of exports.  If this were true in the real world, of course, we would have a simpler, more pleasant life: no country would experience balance of payments crises, there would be no pressure on countries to be "competitive", and one policy alone - free trade - would be all we would need to follow.  (For a more extended critique of this sort of cost-of-protectionism analysis, see Dorman, 2001.) Unfortunately, life is not like that.  Laid off steel workers will not automatically find jobs in exporting sectors, and not only because they have the wrong skills or live in the wrong cities, but also because the effect of more steel imports may simply be that the trade deficit increases.  (Yes, I know, there is also a theory that says that this can't happen because it would require investors to change their already-perfect international allocation of asset positions.  No comment!)  This doesn't mean that protective tariffs are a desirable policy response, just that an a priori dismissal of them contradicts the creative, disciplined thinking that teachers ought to encourage in their students - and that denying the legitimacy of reasonable ideas that might occur to students pushes them into passivity or out the door altogether. Conclusions I have two concluding thoughts.  First, the level of math is not the issue.  One can be dogmatic with blackboard diagrams and open-minded with reams of equations.  In general, less math is generally better, because it lowers the barrier to critical thinking, but simply getting rid of math is not the point.  Second, the solution is not to replace one dogma by another or even by a menu of competing dogmas, but to redefine, for our students and ourselves, economics from being a doctrine-centered to a problem-centered enterprise.  Instead of agreed-upon theories dictating simplified or completely fictitious examples (with their widgets, perfectly behaved functions, etc.), real-life cases in all their messiness should be the measure of any theories we throw at them.  Such an economics would not only be post-autistic, but also a lot more fun. Reference: Dorman, Peter. 2001. The Free Trade Magic Act. Economic Policy Institute Briefing Paper. For details visit http://www.epinet.org/briefingpapers/dorman-bp2/dorman-bp2.pdf SUGGESTED CITATION: Peter Dorman, “Doctrine-centered versus problem-centered economics”, post-autistic economics review, issue no. 14, June 21, 2002, article 3. http://www.btinternet.com/~pae_news/review/issue14.htm