We Must Lean Over Backwards

The straight-talking Nobel Prize–winning physicist Richard Feynman (1918–88) is one of my idols for his famous 1974 commencement address at the California Institute of Technology. In it, he beseeched the graduating class to practice “scientific integrity,” “utter honesty,” and most importantly “to lean over backwards”, so as not to “fool ourselves” (and of course others).

I have a feeling that my economist colleagues would benefit from following his tenets. They should sure that students do not come away from Econ 101 with the wrong impressions on the effectiveness of real existing markets, rather than the imaginary ones on the blackboard. I believe we should be utterly honest and, cease immediately from presenting a caricature of the economy on the blackboard. We should not use the perfectly competitive model with perfectly informed rational agents for at least four crucial reasons:

1. Half-truths hardly belong in scholarship at any time, not any more in the beginning of one’s studies than at the end and omitting the ideas of important economists such as John K. Galbraith, Hyman Minsky, Daniel Kahneman and Amos Tversky, Herbert Simon, Thorstein Veblen, who are seldom—if ever—mentioned in principles courses is not what I think of as being utterly honest about the essence of economics.
2. It is much more efficient to learn a discipline correctly the first time than have to unlearn it and correct it subsequently. It is extremely difficult to unlearn something once one is socialized into accepting the main tenets of the discipline without learning the qualifications.
3. The more “sophisticated” ideas of countervailing power, financial instability, prospect theory, satisficing, relative income, or asymmetric information turn out to be not so complicated after all and can be explained easily at the 101 level. Neglecting them distorts economic theory to such an extent that the students’ take-away from the course is that the free markets can work perfectly well without governmental oversight and without careful regulation. This imparts a pro-market bias to most Econ 101 courses especially since the emphasis is on the perfectly competitive model with perfect information and without any uncertainty,—a model that is completely irrelevant to the real existing global economy today. Instead, we should stress that real markets are characterized by imperfect competition of oligopolies or monopolies with asymmetric information, lots uncertainty, and opportunistic behavior.
4. One of the major problems is that Econ 101 is conceived in such a way as to prepare the students from intermediate theory courses. Of course, this leads to a lot of distortions insofar as 80% of Principles students do not go on to take other economics courses so they are never even exposed to the more nuanced version of the discipline and are therefore indoctrinated for the rest of their lives. I believe this played a substantial role in forming today’s intellectual climate tilted heavily toward the free-market-above-all view of the world that prevails and forms the basis of the current worldview in political discourse. Thus, it is important to distinguish between theoretical and actual markets. It is time for us to lean over backwards and tell the students the ‘utter truth”, namely, that real free markets are not efficient at all and need constant oversight and an institutional framework that will keep the playing field level for all participants.

John Komlos is professor emeritus, University of Munich and author of What Every Economics Student Needs to Know and Doesn’t Get in the Usual Principles Text http://www.amazon.com/Every-Economics-Student-Doesnt-Principles/dp/0765639238/ref=sr_1_1?s=books&ie=UTF8&qid=1428279338&sr=1-1&keywords=komlos