The Political Economy of Economic Education: The Moral Dimensions

By Lee, Dwight R.; O'Neal, William J. et al. | Journal of Markets & Morality, Spring 2011 | Go to article overview

The Political Economy of Economic Education: The Moral Dimensions


Lee, Dwight R., O'Neal, William J., Schug, Mark C., Journal of Markets & Morality


Introduction

Economics is commonly thought of as difficult to teach. In some respects, this is surprising. The basic economic concepts of scarcity, opportunity costs, the law of demand and supply, and marginalism are really quite straightforward. At an early age, everyone becomes familiar with scarcity. Indeed, we believe the best explanation for the "terrible twos" is that at about age two children discover scarcity. This discovery quickly leads to an awareness of the ubiquity of opportunity costs. Few things are more reasonable than people buying more when the price goes down and supplying more when the price goes up. Even the paradox that water is far more valuable than diamonds, but the price of diamonds is far higher than the price of water, is easily explained with the concept of marginalism. It is true that deriving the implications of these basic concepts can be difficult, but this difficulty is commonly far greater than it needs to be. Much of what economists learn in their doctorate programs is how to take simple ideas and render them completely incomprehensible. If they do not learn it there, they learn it when trying to publish their papers. (1)

Yet teaching economics is difficult. One reason for this difficulty is that many of the conclusions that follow from the basic economic concepts are counterintuitive. Consider some examples: country A can benefit from trading with country B even though all goods can be produced better in A than in B (an implication of comparative advantage, which is based directly on opportunity cost); education makes people better off by increasing the cost of everything they do (opportunity cost); legally reducing the price of a product increases the cost consumers pay for it (opportunity cost, law of demand and supply, and marginalism); and paying star athletes more than medical doctors makes consumers better off even though the former only entertain us while the latter save our lives (demand and supply curves and marginalism). These conclusions are not intuitively obvious and getting students to understand why they make sense can be a challenge. (2)

The challenge to economic educators we discuss here, however, concerns a moral bias against economics and, particularly, against markets. Consider the widespread resistance to the central insight of economics: Countless numbers of diverse and widely dispersed individuals with no direct knowledge of, or concern for, each other can coordinate their actions in mutually beneficial ways in the absence of a coordinator. Obviously, we are talking about Adam Smith's "invisible hand," a proposition that has long been criticized. A common criticism of the invisible hand is that it suggests markets work better than they actually do--a criticism that has little to do with morality and that cannot be dismissed, though it can be moderated by standard economic education. No economic system, market or otherwise, performs perfectly, and economists are fully aware of market failures, having devoted much effort determining and explaining the conditions under which they occur. They have also pointed to the difficulty of the coordinating task confronting all economies and made a compelling case with theory and evidence that economies relying primarily on decentralized markets do a better job of coordinating economic activity than do economies relying primarily on centralized planning.

We believe the most misguided, but also the most effective, criticism of markets is aimed at their morality rather than their performance, and this criticism has received much less attention from economists and economic educators. This relative lack of attention is unfortunate for two reasons. First, economics is a moral discipline founded by Adam Smith who was a moral philosopher and much that is important about economics cannot be fully understood or appreciated without considering its moral dimensions. Second, there is a strong moral bias that favors government over market approaches to solving problems, even when the public welfare is better served by the latter than the former.

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