Economic indoctrination

This is from Adbusters. Many of the comments on this article claim that the author oversimplifies and to some extent misrepresents Mankiw. Myself, I find the author rather mild in his critique. I find orthodox economics a combination of ideology often with the addition of mathematical models. The whole aim of the "science" is to obscure the most important aspects of an economy such as who owns the means of production, how what is produced is appropriated, the contrast between effective demand (backed by funds) and needs that can be more urgent but are not even factored into the economic picture since they are not effective (backed by money). The market is a system of rationing that rations goods on the basis of money. If you have no money but are starving, need health care or whatever, then you don't enter the picture. Of course concepts such as surplus value, contradictions in the economy and their causes are entirely missing.
As the article notes Mankiw and other orthodox economists recognise problems with markets. For example they do not price externalities such as pollution. Many orthodox economists including Mankiw if one commetator on the article is correct, believe in measures such as carbon taxes as a "market" solution to one type of solution. This is misnamed probably deliberately since it is precisely not a market solution but a government regulation a fiat solution but within a market economy. Because it is within a market economy it will provide an incentive not to pollute and also collects money that can be used perhaps to compensate for some of the damage done by the pollution etc.


Economic Indoctrination
From Adbusters #75, JAN-FEB 2008






You might not have heard of N. Gregory Mankiw. The Harvard economics professor and former adviser to George W. Bush is one of the most gifted economists of our generation. He is also one of the most effective and talented propagandists of our times. His target: young economics students. His field of operation: the world’s universities. His weapon: the best selling textbook in the world. It includes 36 chapters and 800 pages of nice colors, graphs, cool stories and interesting asides. Don’t worry if you or your kids don’t speak English, Mankiw’s text surely exists in your language.

Gregory Mankiw is one of the most effective and talented propagandists of our times. His target: young economics students.But what is most worrisome is that Mankiw’s text presents economics as a unified discipline, entirely committed to the neoliberal agenda. Mankiw believes that markets are the solution to everything – and he would like students to think likewise. According to Mankiw, if a problem persists, it can only be for one of two reasons: the market is imperfect, or it is inexistent. No other explanation for persisting economic or social problems is permitted.

Unemployment is an example of the market being imperfect. For Mankiw, if unemployment exists, it is only because of human inventions such as unemployment benefits, trade unions and minimum wages. Without them, there cannot be unemployment. Mankiw presents this view as being consensual among economists. In fact, quite a few of them admit that the labor market is a very special “market” indeed, where the price – the wage – is not set the same way as the price of other “goods,” say, tomatoes. As Alan Krueger has put it, “it is a gross oversimplification to say that ‘wages are set by the competitive forces of supply and demand,’ or that there is a unique, market-determined wage.”

This specificity in the way in which wages are set is one of the reasons why 600 economists (including stars like Kenneth Arrow, Robert Solow and Joseph Stiglitz) have recently argued in favor of an increase of the US minimum wage. But when students and workers at Harvard asked for a “living wage,” Mankiw opposed it. As he told Harvard Magazine in 2001, raising, even modestly, the minimum wage for janitors at Harvard would “compromise the university’s commitment to the creation and dissemination of knowledge.” No kidding. Of course, Mankiw does not discuss the possibility that the salary of tenured professors might be above its “equilibrium” value; not to mention the very existence of tenure, which goes against the principles of a perfectly competitive labor market – for academics.

Pollution is an example of the inexistent market. Mankiw admits that in some cases, markets do not ensure that the environment is clean and the result is excessive pollution (what economists call a “negative externality”). But what is the solution to pollution? According to Mankiw, it is to define property rights to pollute. Public authorities issue “pollution permits” to polluting companies (who then cannot pollute more than the amount covered by the permits they hold). Companies buy and sell these permits on the market, depending on how much they will pollute in a year. The fewer the permits, the higher their price and the higher the incentives for firms to reduce their pollution. This system is not stupid. Indeed, there are instances where such permit systems might work to solve simple pollution problems. But the problem is that, to the amazement of his students, Mankiw never mentions self-restraint, and downplays government regulation as a way to regulate production and diminish consumption or waste. Nor does he bring up the imperative to use renewable sources of energy. In fact, Mankiw even insists in his textbook that we are not running out of resources (because if that were the case, the price of oil would be much higher than it is now). Climate change is a critical issue, caused by ever-growing economic activity – but it doesn’t even merit an index entry.


Principles of Economics
by N. Gregory Mankiw
Incredibly, in Mankiw’s chapter on growth, the only two factors of production are capital and labor. Workers and firms do not use land nor electricity, gas or coal. They produce with their hands and their brains, and work on machines that run day and night on . . . well on what, exactly? Nobody knows. But what is sure is that it’s not energy. As natural resources and energy are absent in Mankiw’s model, they cannot become a problem – for economists, that is.

Some of the students I had at Harvard have described Mankiw’s course to me during private conversations as “massive conservative propaganda.” One of them told me that he thought that Mankiw manages to “indoctrinate a whole generation.” In 2003, a protest against a similar course then proposed by professor Marty Feldstein, an ex-adviser to President Reagan, led to the creation of an alternative intro economics course, taught by radical economist Steve Marglin. But while Mankiw’s course gives the required credits to students, Marglin’s does not. As a result, Mankiw has around 800 students, and Marglin 100. Not to mention the more than 100,000 students around the globe who learn from Mankiw’s textbook.

According to Mankiw, since markets are a good way to organize economic activity, supply and demand is just about all you need to know in economics. Whatever you desire, you can pay for in the market: tomatoes, health care, housing, a car. That’s demand. On the other side of the market, firms compete to supply the consumers with the latest cool clothes, or mobile phone or housing. That’s supply. When supply is higher than demand, the price falls (holiday trips to a country at war). When demand is higher than supply, the price rises (a war in the Ivory Coast reduces the supply of cocoa). And supply and demand apply to absolutely every single issue you can think of, including organ scarcity. But Mankiw’s text is all about trivial choices, such as how many slices of pizza you are willing to give up to buy yourself an extra can of Coke. This method is extremely effective in hiding the magnitude of what is at stake. The reactions of the students would not be the same if the textbook addressed how much health care people have to give up to be able to buy basic food. Also, the very notion of “need” is absent from Mankiw’s text. One may wonder how students would feel if we discussed the fact that a millionaire’s desire for a yacht will always be met because it is backed by money, while a poor family’s need for a roof wouldn’t. But such discussions are avoided.

By repeating his trivial examples, Mankiw accustoms the students to the idea of individual choices and preferences. The words “poor” and “rich” are rarely used. But, more surprisingly, there is also no mention of the power of corporations to shape tastes. This is because Mankiw’s world is a world of small firms operating on perfectly competitive markets. “Corporate America” is not part of the picture. No MacDonald’s, no Nike, no Microsoft.

Also, Mankiw downplays inequality, even if the growing gap between rich and poor in the US over the last decade has commanded the attention of more and more American economists, even within the mainstream. But Mankiw is not one of them. True, he admits that there is more disparity in the US than in Europe (even if he forgets to mention that this was not the case in the 60s). But he goes on to remark that there is less disparity in the US than in Brazil and China. So we can all relax.

Mankiw knows that the vast majority of his students are not going to become economics majors. He is not interested in training economists – his textbook is too simplistic to prepare a student for advanced study in economics. As he explicitly tells his teaching fellows, Mankiw’s interest is in shaping the minds of thousands of citizens and future leaders around the world. Mankiw’s world is one where “there is no such thing as a society.” Rather, the world is made up of isolated individuals. But it is a world where fairness prevails: everybody gets what they deserve. It is also a world where, thanks to the magic effect of markets, private enterprise and property rights, standards of living rise constantly. It’s a beautiful world . . . if only it existed.

While Mankiw’s text is easy for professors to use, it oversimplifies economic theory and leaves out the ways in which markets can degrade human well-being, undermine societies, and threaten the planet. Each year, tens of thousands of students go out into the world, with Mankiw’s biases as a roadmap to the future. But we know that the neoliberal agenda is more and more disputed outside universities. And within universities, alternative textbooks are flourishing. One can thus hope that these new textbooks, with their greater relevance to real world problems – and their better acknowledgment of the diversity and complexity of economic thought – will soon out-compete Mankiw’s bible. As a believer in competition, Professor Mankiw could only consider this to be fair game.

_Gilles Raveaud obtained his PhD in economics from the University Paris-X Nanterre, France, and was a teaching fellow for Greg Mankiw at Harvard in 2006 and 2007. He is a co-founder of the “post-autistic economics movement.”