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Existence proofs of General Equilibrium?

(If your question gets no answers, that will speak volumes ;-) )

This, by the way, is why first year textbooks grow to stupid sizes. Everyone wants to put something in. Nobody wants to take anything out.

"This, by the way, is why first year textbooks grow to stupid sizes."

Great point - my 9th edition of Samuelson (1973) is about half the size of a 'modern' textbook.

"(If your question gets no answers, that will speak volumes ;-) )"

Agreed. In fact, I wouldn't be surprised if this comment is the last one on this post. (but now I think I've jinxed it)

If I knew how to, I would switch our entire emphasis, making perfect competition a limiting case and starting with monopoly (briefly) and oligopoly. Schotter had a text for a while that did this. But that tosses supply and demand as well....

Mike: and the first edition was much smaller still. I actually counted all the letters once (well, I estimated them). It was much smaller than 1st edition Mankiw, and that book was much smaller than the rest of the market. Size peaked in the late 1990's, I think.

Hmm... I have some ideas in my head; I will try to turn them into a coherant responce. I can't comment much on undergraduate classes; it's been too long since I've taken them.

From my brief PhD experience, it is also difficult to say, since the teaching of each class seemed to be very dependent on the professor; what material they know and prefer (e.g., my econometrics professor quickly glossed over Bayesian methods, because he personally did not like them). Speaking very generally, I would say it was too focused on math and theory and not enough on history and emperical work.

Of course, this is based on my engnieering education and expereince. I do enough work with mathematical models that I know they cannot be trusted to cover all cases. I am always suspicious of the assumptions underlying math models.

Economics doesn't have a set of constant physical laws it is based on, as in the physical sciences. Yet the theories and math models are heavily emphasized. Economics is derived from emperical observation, both historical and contemporary. However, this seems to be missing from the classroom.

- Jeff V

Ummm, claiming that economics profs in very sheltered tenured positions are "experts".

To (t)wit:

I understand the constraints Ignatieff is working under, but going 0-for-3 is terrible start for an economics platform...Ignatieff opposes carbon taxes, won't increase GST and opposes cuts to corp taxes. Puts him on wrong side of expert opinion for all 3 issues

So, two issues consistent with Harper's policies, and I have personally been asking said "expert" for proof that corporate taxes are too high. Nothing apart from theory to back up these claims.

Isn't one of the problems with economics teaching the prevalence of arrogance that is unearned, unwarranted, and unreal?

Mike you might consider spending a little more time on externalities. Not just because of their frequent occurrence, but because I'm not sure Mankiw's explanation is completely clear (assuming you use this text), especially with regards to the quantitative, consumer and producer surplus aspect of them.

If you want to up the 'fun' quotient, you might consider including some wider applications of game theory(perhaps applied to actual board or card games).

As to what should be taken out, I'll defer to the experts on that one.

Linda: I'm going to have to find a copy of that Schotter text - it sounds interesting.

Nick: What caused the size of texts not to continue growing over the last 10 years?

Jeff: Yeah, this question is a little harder to analyze from a Ph.D. program perspective, because the classes are a lot less standardized than ECON 1000 because they tend to reflect the research topics of the instructors. I think yours is as close to an answer of 'what should be dropped' as I'm likely to get.

JvfM: Well, Prof. Gordon *did* provide you links to all kinds of research. I'd start there.

Two completely serious, non-snarky question: What could we show you that would get you to say 'you know what - that makes sense - I agree with that'? And how would the answer not have at least some basis in theory?

TJM: That's exactly the problem - we can all find dozens of things to add to ECON 1000 and the economics profession gets a lot of criticism that our courses are 'incomplete'. As noted above, I would love to add all kinds of firm level analysis. The problem is, something has to give. But what? It's hard to get an answer for this, which is telling.


Lee Hansen, Michael Salemi, and John Siegfried have thought a lot about this issue at the undergraduate level. For the principles courses they suggest dropping or limiting:

Drop Cost Curves
Limit graphs
Drop comparisons of imperfectly competitive industries
Limit computations of elasticity
Limit coverage of national income accounting
Drop formulas for multipliers
Drop aggregate demand and aggregate supply
http://www.unc.edu/~salemi/Papers/Principles.pdf

Avi Cohen has a new (micro, so far) text that makes many of these changes.
http://economicsforlife.wordpress.com/

MM,

As I mentioned before, and that he agreed with, how can you claim that one party's political platform is better than another until you determine the optimal tax mix (actual numbers) the assumptions that you used, and the tradeoffs in adhering to one platform as opposed to another at a given time.

If you start with the premise that zero corporate taxes is not in the works, then the optimal point is somewhere above it. Without having cranked the numbers, it is impossible to claim that they are above where they should optimally be - ie the Conservative policy of cutting corporate taxes is better than the Liberal party's platform of not cutting them. To do so is simply professing an ideology, irrespective of how many theoretical studies you have.

"If you start with the premise that zero corporate taxes is not in the works, then the optimal point is somewhere above it."

And if you don't start with that premise?

I think that the 100 courses should go in one of two directions. Either focus on understanding economics intuitively, or focus on building rigour into first principles.

Most 100 econ courses sit somewhere in the middle, trying to teach the rigourous first principles in a way that makes them intuitive.... For example, many first year micro classes present duality without using any calculus. But duality is somewhat vacuous without calculus. To get around this problem, I think that the discipline should push in one of two directions: either drop the emphasis on rigour and focus on understanding the ideas in early undergrad, or stop catering to undergrads that didn't pay attention during highshool physics and and calculus class.

Perhaps it would make sence to introduce a firm science stream that focusses on the technical fundamentals along side the courses that emphasize the principles. Personally, I would have been much better off taking electives on dynamic optimization, matrix algebra, and such in undergrad rather than basic health econ and monetary econ (without calculus!)

And if you don't start with that premise?

Then you would be starting at a point contrary to what you may have hinted/claimed in the past - directly or indirectly. I believe I may have seen two of your bloghosts make such references in the comments, but I stand to be corrected.

"Then you would be starting at a point contrary to what you may have hinted/claimed in the past - directly or indirectly. I believe I may have seen two of your bloghosts make such references in the comments, but I stand to be corrected."

I'm not sure why you would start with any such premise at all. Where's the value-added to the assumption?

To eliminate an ideological argument. If you state: No corporate taxes, period, then there's no point in doing any analysis.

"To eliminate an ideological argument. If you state: No corporate taxes, period, then there's no point in doing any analysis."

I'm not sure why you'd state *anything* a-priori, though. And what if the ideological argument (for any ideology) happens to turn out to be correct? Why remove the possibility before you even start doing the analysis?

Well, the point is that you recognize that an analysis is required. To claim corporate taxes should be lower without completing the study is what I believe you call a-priori. QED.

"Well, the point is that you recognize that an analysis is required. To claim corporate taxes should be lower without completing the study is what I believe you call a-priori."

Except lots of studies have, in fact, taken place. Including the ones Prof. Gordon linked to, as well as the Dept. of Finance study referred to in the Institute for Competitiveness and Prosperity working paper. But you didn't like any of those studies, so I'm not sure what would convince you.

Oh, remind me again. What is the optimal corporate tax rate for Canada in 2010? You seem to be intimately familiar with the studies. I'd like the precise number. Thx.

Yoram Bauman's Cartoon Introduction to Economics + some elaboration is all you need. I am of the opinion an intro course should focus on half a dozen concepts and drill them into students heads over and over. Opportunity cost, supply and demand, comparative advantage, spontaneous order, unintended consequences and maybe a bit on money are about all you need. After those concepts, just do real world problem solving like Frank's Economic Naturalist stuff.

"Oh, remind me again. What is the optimal corporate tax rate for Canada in 2010? You seem to be intimately familiar with the studies. I'd like the precise number. Thx."

It would depend on a number of factors, including what you were replacing the lost revenue with (higher deficits, a rise in the GST, etc.)

What you ideally want is that, at the margins, each tax to be

We do know, from the Dept. of Finance study that the long-run gain to the economy from a cut to the corporate income tax is roughly 4 times what the loss would be from a revenue-neutral rise in the rise in the GST - clearly a net gain. Now that ratio would be affected by the actual level each is at, so at some point the ratios would align (which again, is what ideally you're looking for). We are nowhere near that point, which I suspect would be at *below zero* percent corporate income taxes (again, assuming that the GST-corp. inc. tax tradedoff is the only one we're looking at, which of course it wouldn't be).

But suppose we determined that the optimal corporate income tax rate were 5% and the optimal GST (excl. the provincial portion) was 11% and this would be revenue neutral. (I'm not suggesting it is, but for the sake of argument).

I don't think most people would argue that we should make that entire change right away. It would likely be more prudent to move in that direction, collect the results, and see how that changes where we believe the 'optimal' point is.

Because you're not going 'the entire way' in one tax swap, you don't need to know exactly where the 'optimal' point is - you just need to know what direction to move in!

That's exactly what the Feds should do - cut corp. income taxes somewhat, raise the GST, and re-evaluate.

I hope that answers suffices, but I suspect it won't, since absolutely nothing is going to convince you, I don't think it matters too much.

Got a link to that Dept of Finance study?

That's exactly what the Feds should do - cut corp. income taxes somewhat, raise the GST, and re-evaluate.

FWIW, this would be my answer as well.

Sure - it's here - TAXATION AND ECONOMIC EFFICIENCY: RESULTS FROM A CANADIAN CGE MODEL http://dsp-psd.pwgsc.gc.ca/collection_2009/fin/F21-8-2004-10E.pdf

Stephen: Glad to hear it! I suspect this would be one of those boring issues that practically all (Canadian) economists agree on, so there's no fascinating debate.

First year chemistry textbooks swing periodically between emphasizing "principles" (theory) and "facts" (descriptive chemistry). Each swing gives the authors an opportunity to throw out a lot of material (although last I looked, chemistry texts were pretty big). If economics textbooks went to a descriptive approach (more history) then a lot of the "principles" could be moved to later year courses - but has there ever been such a pendulum in economics?

MM, that report was written in 2004. Now, Canada's economy has changed significantly since then. Without going through the whole report, are you claiming the impact of tax changes, modeled on Canada's economy in 2004 is relevant today, 6 + yrs later?

Mike: "Nick: What caused the size of texts not to continue growing over the last 10 years?"

Short answer: Mankiw.
Long answer: I don't really know. Because that doesn't explain why Mankiw's text is short, and why it caught on. I think it's just one of those weird equilibrium paths they look at in catastrophe theory, where it grows slowly, until it reaches a critical size, then crashes. Then slowly grows again.

Why is lowering corporate taxes, raising GST and seeing what happens a better experiment than holding corporate taxes and GST at current levels, and providing tax incentives for productivity/training/investment to improve innovation/productivity?

"MM, that report was written in 2004. Now, Canada's economy has changed significantly since then. Without going through the whole report, are you claiming the impact of tax changes, modeled on Canada's economy in 2004 is relevant today, 6 + yrs later?"

Absolutely! Naturally, though, over time the results are less relevant. We're talking about a 4-1 ratio, though, which is extremely large. Ideally, though, you're right - we would like newer studies.

Keep in mind, this is just *one* study. We've linked to others.

But again, that's why we suggest that we make incremental changes and re-evaluate.

"Why is lowering corporate taxes, raising GST and seeing what happens a better experiment than holding corporate taxes and GST at current levels, and providing tax incentives for productivity/training/investment to improve innovation/productivity?"

Because it's not an either/or issue. We can have more than one policy change! The last budget was in the neighbourhood of 500 pages.

But, that is the fundamental difference between Liberal and Conservative economic platform that has been definitively discounted here. So, it is an either/or issue!

In case you missed it, the Liberal Thinkfest that SG attended and blogged had Roger Martin and others on the innovation/productivity panel - the lead of the report I linked to in SG's blog on the same subject. And the basis for some of the Liberal platform.

"But, that is the fundamental difference between Liberal and Conservative economic platform that has been definitively discounted here."

How so?

I don't even see how this is a Lib/Con issue - which party is advocating raising the GST?

I can't speak for anyone else, but my interest in this matter has nothing to do with the Liberals or Conservatives. Presented the options of 'Voting Liberal, Voting Conservative, or Losing a Toe in an Industrial Accident' (and not voting was not an option), I'd probably respond with 'Will the toe be crushed, or neatly severed off'?

No, your arguments are based on this, a safe refuge:

I suspect this would be one of those boring issues that practically all (Canadian) economists agree on, so there's no fascinating debate.

In management theory, as you know, this is often referred to as groupthink.

"In management theory, as you know, this is often referred to as groupthink."

Agreement does not imply groupthink. Honestly, you should know better than that.

I'm not suggesting simply agreement does. If you believe the Canadian economy in 2010 at all resembles 2004 then you've got your blinders on. And I suspect the 4 x multiplier from tax cuts that you are quoting is based partly upon increasing business investment in technology/machinery/innovation/productivity, which never came to be realized.

To carry on following the same path today with the same assumptions/expectations is just plain silly. But, just my opinion.

Over and out.

You could always read the study and find out for yourself, JvfM. Or any of the other studies we've linked. Again, this whole "2004 vs. 2010" argument is predicated on the assumption that advocation of this policy comes from a *single* study done in 2004, which simply isn't the case. See here.

Geez! Here MM, right in the comments to the link you provided.


OK. I'll continue waiting - a q I've been asking for quite sometime. Tough to argue one political platform is better/worse than the other until one knows the optimal point (and assumptions), and the tradeoffs in adhering to that policy as opposed to others.

Posted by: Just visiting from Macleans | May 27, 2010 at 08:57 PM

Indeed. But I'm pretty sure you were one of the people asking where the evidence was for the tax-shift story. One thing at a time.

Posted by: Stephen Gordon | May 27, 2010 at 09:11 PM

I'm afraid I can't come up with a better answer than what Mike came up with. If I worked really hard, I might come up with a model that would derive an optimal mix, but I wouldn't be confident enough to suggest that anyone should make it a basis for policy. Moving slowly in the right direction and re-evaluating as we go along seems smart and prudent.

As an undergrad in an ECON 1000 class, I was frustrated by the amount of time the professors spent on policy implications of the perfect competition model on issues too messy to be adequately represented by it. We should take most of the policy implications of the perfect competition model out of the introductory class and keep only:
1)If perfect competition is a good approximation of a market: DON'T MESS WITH IT! Done
2)Effects of taxation, which hold pretty much the test in other market structures and are too interesting to be taken out.

Moving slowly in the right direction and re-evaluating as we go along seems smart and prudent.

But isn't that what the KPMG tax study did? Isn't that what the latest productivity/innovation discussion paper is doing? Isn't that what Don Drummond / Mark Carney etc are advocating? A change in direction - the tax cut incentives haven't worked on the productivity/innovation front as well as expected - take a different approach?

Anyway, we're arguing the same thing (same goal)- I just remain unconvinced that this approach of continuing tax cuts is the best/optimal trial at this time. We'll have to agree to disagree, I suppose.

CIT cuts aren't meant to increase innovation; they're meant to increase investment in capital equipment. And the available evidence says that's just what they do.

I believe I wrote productivity/innovation - the former more directly related to capital investment.

"Agreement does not imply groupthink."

But it sure is hard to tell the difference sometimes. I have yet to work for a firm where being right was better than agreeing with your boss.

Formal econ courses are far in my past, but I still benefit from Dr. Keeling's learnable economics teaching. My advice, based on hindsight, is to pound in practical, real-world fundamentals until the student's long term retention rate is high. What one learns in class is much less important than what one retains for later use. Curves, graphs, and tables are interesting and can add insight. But what matters later on for non-econ majors is often the simple insights such as the time value of money, the typical relationship between money supply and inflation, the gains from reciprocal trade, economies of scale, market distortion causes and their effects, how to survive personally in an uncertain economic world, and so on. I recall a talk with an economist some 20 years ago. He stated that he put all his spare money into a local bank savings account. I hope that his students do better.

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