This column illustrates a problem I run across regularly when I talk to people about economics: policymakers and those who cover economic policy don’t keep up with our field. They took introductory economics, or even minored or majored in economics, 20 to 50 years ago and those are the tools they bring to current economic problems.
I’m not criticizing anyone for not reading academic journals or digging into the latest and greatest stuff by leading scholars. Professional economists can’t do this for much more than their own fields. This is why the Journal of Economic Perspectives is so valuable (and why it’s wonderful that it’s available to everyone for free.)
No, my point is that too many people are working with the introductory economics they learned in college, and the field has moved on at the introductory level.
For instance, I took introductory economics in 1980 and we covered the standard supply and demand model. We made three assumptions about these markets (yes, I’m a nerd, I still have my notebook from the class; I have the textbook too):
- there are many buyers and sellers in the market;
- there is a single, homogeneous good bought and sold in this market;
- there is free entry and exit for buyers and sellers in this market.
We still make these assumptions, but there is another one I include today that is especially important but that we never discussed in 1980:
- buyers and sellers have complete and symmetric information.
In plain language, sellers don’t have anymore information about the product being traded than do buyers and vice versa.
Excuse me, but have you ever bought a car? How about a used car? Right away I think you’ll see why this is an important assumption, because if it’s not there you get the lemons problem. Economists identified this issue back in the 1960s and 1970s but it wasn’t in the textbooks until much later. (It started to be standard once George Akerlof earned a Nobel for this work.)
This is just one example of a concept we regularly cover today in introductory economics but wasn’t there 20 years ago. Other concepts I cover today but didn’t learn in my intro class include basic game theory, long-run growth, and basic financial concepts such as the differences between stocks and bonds. I’m sure I could find more if I dug into my files and compared my syllabi from 25 years ago with my syllabus for this past spring.
I’ve tried to fill this need through some of my columns over the past 5 years. Here are just a few:
There are many more in my column archive.
Do you have ideas for other things like this I should tackle? Let me know.