Reforming Empirics in Econ 101


I have a confession to make; I have no idea how to fix the economics profession. For people who don't follow many economics blogs, that statement is no big deal. For people who follow many economics blogs, that statement is rare to find.

Recently, modest proposals to transform the whole economics profession have flooded to blogosphere. If you just read some newspaper accounts, you might think that economics needs a revolution along the lines of the Bolsheviks.

Those who are slightly more reserved have plans to just transform the whole economics educational system. Everyone seems to be a master designer, like the blogger who thinks Washington D.C. would work if the fools would "JUST LISTEN TO ME." If only most economics course taught post-Keynesian/Austrian/Marxists/Behavioral economics, everything would be swell.

Now, I'm skeptical of "mainstream," "neoclassical," "Samuelsonian," or whatever you want to call popular economics and will never defend every aspect of it. I would like to see reforms, such as more history of thought. The system clearly falls short of perfection, as do all human activities.

However, this does not make me confident in my own ability to understand such a complex system as the whole profession. I think I know what is wrong with others' proposals. The system needs to change, but I don't know how to do it. Maybe I take this stance because the critic's job is easy. I'd like to hope I'm echoing (reportedly) H.L. Mencken

The fact that I have no remedy for all the sorrows of the world is no reason for my accepting yours. It simply supports the strong probability that yours is a fake.

Since every post has been about redesigning everything, Noah Smith's avoidance of this in his recent post (at his new part-time forum Bloomberg View) brought me joy. Noah sets himself an easier task: how to just change Econ 101. More specifically, I read Noah as simply explaining how he has taught the course differently than most and why he did this. He does not make any claim that he would transform the whole profession. For Noah, this was quite the humble post.

Noah's proposes a simple change. Econ 101 needs more empirical results. Instead of drawing supply and demand graphs all day, students need to see the real world results of economic theories. I'll add that economics cannot exist simply on the blackboard.

Noah comes to this conclusion from his physics training. Physics 101 impressed Noah (and me) by its ability to make concrete predictions and then demonstrate them right in front of your eyes. Students can really see the power of physics.

(O)ur intro physics teacher took us to the lab to test the theory of projectile motion. It involved lobbing metal balls at a piece of tape and recording where the balls hit. When we looked at the tape, it was like magic -- the math had predicted just where the ball would hit. Physics theory really worked. “So that’s how they did it!,” I exclaimed to myself, thinking of the Turkish cannon pounding away at the Byzantine walls.

However, Noah fails to provide a similar example for economics. What mirrors the ball and tape example for economics? I can think of examples of how economic predictions hold in the real world, although many cannot be easily shown right in class. Also, economic predictions are never like physics predictions. Economics can predict the direction of movements if everything else is held constant. It can never predict where exactly the ball will hit. That is the nature of the science, not a problem of Econ 101.

Economics explains a wide variety of things, but since many are about complex phenomena, they can't be just shown directly in class. It is hard (not impossible) to show the most important story of economics, how markets coordinate actions, in a classroom.

Noah tried his own attempt to correct the overuse of blackboard economics. He is an empiricist and showed his students a few empirical papers, although he is skeptical of their effectiveness. I can understand why this approach didn't work well. Empirical papers are not as sexy as classroom demonstrations in physics. Think AER paper vs. gyroscopes demonstrations.

Even if the students can understand the intuition behind the econometrics used in the papers, the papers don't show the laws of economics as clearly as the laws of physics. That's always going to be true. The data of economics comes much noisier than physics and rely on more complex assumptions. Few clear results come from empirical papers.

I applaud Noah's goal of imitating the coolest course in any college, Physics 101, but he took the wrong direction. Notice that Noah did not get attracted to physics by reading modern papers on prediction of quantum physics. He saw the results with his own eyes. Econ 101 must show through demonstrations and examples, not empirical papers. I agree that Econ 101 should include less formula memorization and more demonstrations and good examples. Dirk Mateer has many demonstrations on his website.

One example I have heard of- the teacher gives different size shirts to people randomly in the classroom. Through exchange the shirts end up being matched to the person. Boom- benefits of trade/efficiency/Pareto optimality in one example.

Other economics lessons don't require a whole economy. Diminishing returns can be demonstrated with any good. Comparative advantage could be show by asking two people of different heights to jointly accomplish two tasks (one involving height). The people will divide the duty. Simple examples arise everywhere for the creative professor.

Even a great textbook (here I'm thinking Alchian and Allen, not Mankiw) has lively examples. A good story about economics might work just as well. A story of Ann and Bob trading apples and bananas poorly imitates graduate blackboard economics. The examples need to be lively. Peter Boettke uses examples of dating to illustrate basic supply and demand. If you want to catch 18 year old's attention and teach at the same time, dating works as well as cannons. This would a close match to Noah's tape example.

We have the tools to teach Econ 101. Many people just don't use them.

Yet, we shouldn't draw too many connections between the two subjects. Physics and economics are fundamentally different. First, the use of empirical research in physics does not involve econometrics in the way that economists use it. Physics are looking for different evidence than the standard economist. As I said above, predictions in the two disciplines are different.

More importantly, if the goal is to intrigue and teach students, the job of the professor in the two fields are different. They have different students. Go and talk to an econ student and then talk to a physics student. Yes, students and curriculum influence each other. From economics jargon, they are endogenous. But it's not fair to assume econ students learn or are interested in the same things that interest physics students like Noah and me. Physics is not economics. Physicists are not economists. And neither needs to be a bad copy of the other.

I plan to follow Noah's advice when I am teaching Econ 101 (well my TA sessions first) and more away from the blackboard, but I will focus on demonstrations, not empirics. It will not fix the profession or the educational system. Hopefully, it will fix my little class.

Or maybe I am just a punk student who has no idea how to teach economics. True, but I only can know the things that I found interesting when I discovered economics, outside of Econ 101.