What Economists Get Wrong

What Economics Gets Wrong (Almost Everything)

BY IAN WELSH 

ON APRIL 25, 2022 

Economics as a discipline is nearly worthless. What it teaches mostly isn’t true.

• Decreasing price does not always increase demand and increasing price sometimes increases demand (aka. the law of supply and demand isn’t a law.)
• People do not optimize utility (by any definition that is not circular).
• People are not rational.
• The market is not rational.
• The market does not discount the future well at all.
• Competitive markets are created by government, and destroyed by private actors.
• Markets do not and never have properly priced externalities and never will do so while humans remain human. The only way to price externalities properly is thru government or custom (government in drag.)
• Profit or loss in any enterprise in a modern economy is a social choice, entirely based on government and social decisions and mostly unrelated to fundamentals like energy in and energy out.
• Railroads are far more efficient, energy wise than roads, but govt. subsidizes roads.
• The vast majority of profit is based on market position and sustained profit is almost always based on having an unfair advantage that makes the market less competitive and therefore not have the virtues of competitive markets.
• Genuine competitive markets don’t exist, and no businessman wants them to because they drive profits to almost zero.
• The best economies the world ever saw went out of their way to keep wages and prices high, not to reduce them.
• Any concentration of market power that is not regulated or broken up will engage in practices intended to buy/undermine government and destroy wages.
• Higher CEO pay is correlated with lower company performance.
• You cannot have a good economy for long without keeping the rich poor, weak and under your thumb. It is impossible.
• Monetary efficiency between countries is bad. It should be hard to move large amounts money in and out of another currency or country.
• Financial market efficiency is generally bad, and effectiveness and shock pads should be optimized for rather than financial efficiency.
• Countries should, if it is possible, make or grow everything important inside their own borders and not trade for it.
• People perform better when happy, healthy and at least moderately autonomous. The literature on this is so abundant it is silly. Bosses are authoritarian assholes because they like being authoritarian assholes who micro-manage employees. It’s what Bezos gets out of being Bezos.
• Private money creation concentrated in a few hands is destructive to the economy, democracy and freedom (authority: Thomas Jefferson). It is also anti-competitive market, since you can’t compete with people who create money out of thin air.
• Moderate levels of inflation are good, not bad, if they include assets, because they take away the control of people who won the past so they don’t control the present and the future.
• Taxes should be low on ordinary people and high on anyone rich, including wealth and estate taxes. No one should be rich because their parents were.
• People who lend money should lose that money if the person who they loaned it to can’t afford to repay it. The function of lending is “I know how to pick people who will use the money well.” If you can’t do that you deserve to lose the money, and govt shouldn’t collect it for you
• bankruptcy should be easy, fast and leave people whole. Economically crippled people are not in the interest of society as a whole.
• A UBI’s main function is allowing people to do what they want to do, and forcing bosses to make jobs good, not shitty.
• Pensions should simply be handled by government or a general UBI.
• Comparative advantage is a terrible strategy for improving your economy.
• Free trade is garbage for most countries.
• Raising the minimum wage is not correlated with increased unemployment
• The unemployment rate measures supply driven wage push inflation pressure, not how many peole can’t get a job.
• Initial capital for capitalism was primarily acquired by theft, first of European commons, then of non-European land, people and resources.

Essentially everything Economics teaches is wrong. If and when their prescriptions for action are followed, disaster ensues. With almost no exceptions every country which ever developed did so by not doing what economists say to do.

Economics also has a morally corrosive affect on those who study it.  People mostly don’t free ride or otherwise act according to the maxims of economics: but people who have studied economics do.

Because economics is wrong and harmful about almost everything, and because economists do not say “please don’t follow our advice”, Economics should probably be banned and all Economics faculties shut down.

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Michael Martin on Standardized Testing

A recent post by Michael Martin (and I hope he forgives me):

I think the fallacy here is to conflate pretest/posttest comparisons in specific subject areas with broad high-stakes tests that are removed in time from the instruction. There is always a problem with using multiple choice tests to measure anything other than what is termed “inert knowledge” but like any measuring instrument it makes a big difference on how it is used.

As UCLA Professor James Popham, an expert in testing and former president of the American Educational Research Association, wrote in a March, 1999, essay titled “Why Standardized Tests Don’t Measure Educational Quality” published in Educational Leadership:

“Employing standardized achievement tests to ascertain educational quality is like measuring temperature with a tablespoon. Tablespoons have a different measurement mission than indicating how hot or cold something is.”

There are numerous valid uses of professional testing. In the experience I have, there is very little appreciation for how difficult it is to actually develop a valid question to measure what you want to measure. I actually took a survey methodology course in college where each week we designed and administered a small survey with the restriction that we had to ask each question in two different ways to see if the responses matched up. What I learned was that we were never able to reliably design a survey that gave similar results from the two questions process.

People have an unwarranted trust in tests much like they have in lie detector tests. Experts in both fields explain that they don’t do what people think they do.

Harvard University Professor Daniel Koretz, a national expert on achievement testing, writes in his 2008 book “Measuring Up” that there is “a single principle” that should guide the use of tests, “don’t treat ‘her score on the test’ as a synonym for ‘what she has learned.’”

In a May 8, 2005, news story, a Cox News Service reporter interviewed experts on standardized testing and reported that at “the Lindquist Center – located on the University of Iowa campus and named for the grandfather of standardized testing – you won’t find a lot of fans of No Child Left Behind.” The story, titled “U.S. testing craze worries experts behind the scores,” explained “the consensus is that standardized tests weren’t created for such a sweeping, high-stakes purpose” and continued:

“That’s the position of our entire field,” said Steve Dunbar, head of Iowa Testing Programs, developer of the Iowa Test of Basic Skills. … Experts in the Lindquist Center … expect the No Child Left Behind to run its course, confident the politically driven pendulum will swing back to a more reasonable view of the value of testing. Dunbar predicts public support will wane because of results that don’t seem to make sense. “The tests,” Dunbar said, “will lose credibility.”

One of the foremost experts on academic testing in the world, Professor Robert Linn, wrote in a 1998 technical paper for the Center for the Study of Evaluation:

“As someone who has spent his entire career doing research, writing, and thinking about educational testing and assessment issues, I would like to conclude by summarizing a compelling case showing that the major uses of tests for student and school accountability during the past 50 years have improved education and student learning in dramatic ways. Unfortunately, that is not my conclusion. Instead I am led to conclude that in most cases the instruments and technology have not been up to the demands that have been placed on them by high-stakes accountability.”

Economists are simply ignorant of the reality in testing. They think that all numbers are accurate measures. I have a background in which after I had graduated from college and worked in the field for several years I enrolled and then dropped out of a masters in economics program because I could not believe how naïve the instructors were. I took several classes and in each one I would put a vertical line on my notebook and write what they told me on the left of the line and write what was actually true from my knowledge on the right of the line. The back breaker was a course in international trade in which most of the semester was spent teaching the Hecksher-Ohlin theory and in the last two weeks they revealed the Leontief Paradox in which economist Wassily Leontief had tested the Hecksher-Ohlin theory and found it was wrong. Leontief later received the Nobel Prize. They spend an entire semester teaching student economists a theory that had already been proven wrong.

I also should point out that at Arizona State University where I took these courses, and presumably in others, they offered a B.A. and a B.S. in economics, where were unfortunately named in reverse. I had to work with people who graduated with a B.A. in economics and what they learned was mostly BS that required to mathematical training. The B.S. in economics had an entirely different curriculum involving mathematics and they were even disparagingly called “quants” by the B.A. people for their quantitative approaches. It was a bizarre Alice in Wonderland world. The only saving grace is that the one professor I actually respected was later made chairman of the department.

So it doesn’t surprise me at all that the most foolish reports about using data in education come from economists. A lot of them are way out of their depth. On the other hand, one of the most influential studies that I’ve seen regarding education was a study done back around 1979 by the Philadelphia Federal Reserve in conjunction with the school board to use statistics to associate what education variables were associated with gains in fourth grade reading scores. The Federal Reserve economists regularly used econometric models to work with economic data so they were experts in using quantitative methods. What impressed me was that they found little correlation between test score gains and whether the teacher had a background in reading instruction, but a strong correlation with whether the principal had a background in read[ing] instruction. Something to think about when you consider value added over forty years later.

Michael T. Martin
Research Analyst
Arizona School Boards Association
2100 N. Central Ave, Suite 200
Phoenix, Az 85004