Markets usually efficient and governments sometimes effective?

The latest issue of Advances in Economics Education features a set of papers evaluating different aspects of the CORE Project to introduce new methods, materials and contents in economics teaching.

Sam Bowles and Wendy Carlin, two of the leaders of CORE, write about the importance of showing in textbooks the economic reality and contemporary economics research in dialogue with other disciplines, as a response to criticism following the Global Financial Crisis. The need for reform has been exacerbated in the midst of making sense of a pandemic, climate change, disruptive politics and wars. It was not enough since the mid 2010s with changing 15% of textbook  contents (as it was common until then), as it was not enough to Samuelson with his famous textbook after the Great Depression and the Second World War. As a result, CORE presents a new benchmark model of economics, founded in social interactions and in dialogue with the real world, where the perfect competition supply and demand cross is just a special case of secondary importance.

The other three articles in the issue reflect an external evaluation of CORE and in particular its free e-textbook The Economy. Carlos Coutinhas argues that regardless of one’s stance as a supporter or sceptic, CORE’s approach has had a profound impact, “leaving a lasting mark on the publishing and economics education landscape”. He also reports that these reform efforts may be insufficient for those in favor of more radical approaches such as feminist economics or ecological economics.

Paul Crosby and David Orsmond, acknowledging the strengths of CORE in speaking to the big problems of our time, provide the closest call in the collection to defending the traditional approaches. In particular, they claim that there is still value to keeping the basic supply and demand graphical model as a benchmark to explain most interesting things in economics. They praise the list of Mankiw’s “10 principles of economics” contained in the most successful of the traditional textbooks. These principles do not mention problems such as inequality or climate change, and include “markets are usually a good way of organizing economic activity” and “government can sometimes improve market outcomes.”

Jo Michell’s article is in my view the most interesting of the external evaluations. He focuses on some of the details of the theoretical benchmark that accompanies the textbook The Economy, in particular on the transition from micro to macroeconomics. He finds some weaknesses in how this transition is represented in CORE’s benchmark model. He has some other interesting remarks, such as a call to define a discipline like economics by its domain, not by its specific models. Still, he believes that CORE responds to a real need for reform, and that any remaining shortcomings are more problems of the discipline in general than problems of pedagogy or teaching.

CORE is the result of an effort to present economics as a set of tools to facilitate a dialogue between theory and the real world using the scientific method. At the same time, in the selection of topics and variables of interest (such as real wages and employment), it represents an economics for the working class, which happens to be the majority of the population. The old is gone, and the new is in construction and will probably always be. As the authors of these articles explain, CORE’s contents are not easy (the way to respond to students’ criticism was not to make economics “easier”, because that would have been to mislead them), and there is a role for instructors in making them digestible. But they are more interesting, and importantly students (in my modest experience) find them more interesting than traditional approaches.

After the (not universal) success of CORE, reliance on the old textbooks is difficult to justify. CORE’s materials are not the final word, but they are useful and of high quality, and they should be taken as a motivation to keep moving in ways to make economics as a discipline a more relevant set of tools for students, researchers and citizens.

Economics for the working class

One of the great things, although not the only one, of The Economy, the free e-textbook of the CORE Project (in its 1.0 version and even better in the half-completed 2.0 one), is that it targets an audience of working class students, people that over their life will have employment and real wages as their main, but not exclusive, economic concerns. It makes sense, since it turns out that people who care about these things are a majority. Bringing a rigorous economics for the working class to the mainstream of the profession may be one of the greatest achievements of this Project. As Wendy Carlin, one of the leaders of CORE, once said, economics is not about shopping, is not about finance, it is about understanding and changing the world.

The e-textbook starts by analyzing the Industrial Revolution and how its exponential productivity growth was not translated into higher real wages until there were institutional changes that facilitated it, such as the labor movement and universal suffrage.

It presents the typical microeconomic model of constrained choice, not by analyzing the choice of bananas and apples, but the choice of working or studying hours by human beings like those in the classroom or their relatives. Next Bruno the boss and Angela the worker, two fictitious characters, are used to model the institutional history of labor relations, from slavery to the welfare state.

Before presenting markets in perfect competition in Unit 8, Units 6 and 7 analyze the firm as an institution. First, what happens inside the firm between owners and workers, how effort and salaries are determined. Second, using the relationship between the firm and its customers as a stepping stone for the aggregate labour market model, where Units 6 and 7 are put together to determine real wages and employment in the macroeconomy. 

The aggregate labour market model is then used to analyse short run fluctuations (positive and negative demand shocks) and how it is affected by fiscal and monetary policies. Inflation is described as a conflict among the claims on the value of output by capitalist owners and workers.

Unions are not one more interest group, but a critical institution that may affect the labor market equlibrium, including in a positive way (on employment and real wages) with the “union-voice effect.” The same aggregate labour market model can be used to analyze the effect of immigration in the short run and the long run. And alternatives to organizing work in the expanding fringes of the capitalist system, by worker cooperatives, are also addressed.