Must-Read: David Glasner: What’s Wrong with Econ 101?

Must-Read: David Glasner: What’s Wrong with Econ 101?: “The deeper problem… [with] Econ 101 is… fragility…

…Its essential propositions.. are deducible from the basic postulates of utility maximization and wealth maximization…. Not only are the propositions based on questionable psychological assumptions, the comparative-statics method imposes further restrictive assumptions designed to isolate a single purely theoretical relationship…. The bread and butter of Econ 101 is the microeconomic theory of market adjustment in which price and quantity adjust to equilibrate what consumers demand with what suppliers produce. This is the partial-equilibrium analysis derived from Alfred Marshall…. [But] all partial-equilibrium analysis relies on the–usually implicit–assumption that all markets but the single market under analysis are in equilibrium…. start[s] from an equilibrium state… [which] must be at least locally stable… restricted to markets that can be assumed to be very small relative to the entire system….

So the question naturally arises: If the logical basis of Econ 101 is as flimsy as I have been suggesting, should we stop teaching Econ 101? My answer is an emphatic, but qualified, no. Econ 101 is… still the most effective tool we have for systematically thinking about human conduct and its consequences, especially its unintended consequences. But we should be more forthright about its limitations and the nature of the assumptions that underlie the analysis…