A Pedagogical Paradox

What is really strange is the contrast between the strength of the arguments against conventional economics, and difficulties involved in teaching common sense. It is like someone who has been convinced that day is night, and great effort is involved in pointing out the sun to him. I sometimes give the following example.

Look at that old lady purchasing tomatoes. You know what she is doing? She is differentiating a multivariate utility function and setting up a simultaneous equations system of first order conditions. Now she is solving the nonlinear system. Fantastic, she just solved it to find the utility maximizing purchase under budget constraints is exactly 12.8 oz of tomatoes. Alas, she cannot slice them with such precision, and does not know the integer programming techniques required to solve the more complex optimization problems. OOPS, she miscounted the money she paid, and did not notice the change in the budget constraint when the greengrocer shortchanged her.

While this is usually good for a few laughs, especially from deeply indoctrinated students, because we are poking fun at the sacred principle of utility maximization, there is a serious point involved. Our personal experience, observations of others behavior, and general knowledge of how markets and shopping works, provide overwhelming evidence against microeconomic theory of consumer behavior. Yet we set it all aside when we read Samuelson. If a Nobel prize winner said so, it must be right. My sruvey which provides a summary of this evidence is linked below:
The Empirical Evidence Against Neoclassical Utility Theory: A Review of the Literature” [with Mehmet Karacuka] International Journal for Pluralism and Economics Education Vol. 3 (4) 2012, p 366-414

As a group, why are we such complete failures at persuading the public of something which is plain as the sun? I have the following hypotheses

  1. There is no consensus on an alternative — every dissenter has his own private views on how to do things right. As Kuhn noted, paradigms do not change because they are contradicted by facts; they change when a better alternative emerges.
  2. Lukewarm heterodoxy — that is, majority of dissenters believe that small amount of tinkering with core will fix the problems. In fact, if we take a collective view of all the problems, then it becomes clear that the entire structure needs to be replaced.  But like the blind men and the elephant, everyone sees only one small part of the problem, and does not have the big picture. Tinkering only strengthens orthodoxy, because it proves that it is flexible enough to assimilate a lot of contrary views.
  3. Internal disagreements — different small groups have different ideas about what is wrong with economics and how it can be fixed. More time is spent on fighting each other, than on the main front.

I am not sure if this accounts for it, or if there are other important relevant factors that I have missed. In order to overcome these problems, we need to build a rainbow coalition (as in the Battle for Seattle) which bridges differences across diverse groups to work together for a common goal.  I propose the following goal, as starting points:

  • Economics is about improving human lives, especially those of the bottom billion.

We must realize that we have the potential to change things — a scientific deterministic view militates against this idea. Wrong theories cause a huge amount of damage, leading to famines, and death by interest payments on loans by the poorest countries. Correct theories and actions guided by these theories can help feed the hungry, and bring hope and happiness to thousands if not millions or billions. Given that this is possible (which most people do not realize) we cannot choose to be bystanders. We must learn how to act together in ways that will help change things for the better.

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