Home > Uncategorized > A critique of Samuelson’s and Nordhaus’s Principles of Economics

A critique of Samuelson’s and Nordhaus’s Principles of Economics

Econ 101 textbooks are misleading more than a million students a year in the U.S. alone because they leave the lasting impression that markets could solve all our economic problems if only they were left to themselves. Not even the horrendous sub-prime mortgage-crisis bailout in 2008 and 2009, amounting to trillions of dollars, shook the professions’ faith that the markets know best. They continue to invoke the “invisible hand” metaphor coined by Adam Smith in 1776, without conceding that the global economy has undergone several revolutions and changed profoundly during the intervening centuries. Outdated metaphors will not help but only hinder any effort to understand where we have gone wrong, and why, and what to do about it.  

Happily, some students are beginning to see the disconnect between the idealized, theoretical version of economics thought on blackboards and its real-world variant. That is exactly why students walked out of Gregory Mankiw’s Principles of Economics (Econ 10) class at Harvard in 2011,1 and provided him a written explanation for this symbolic gesture:  

“[the course] espouses a specific—and limited—view of economics that we believe perpetuates problematic and inefficient systems of economic inequality in our society today … Economics 10 makes it difficult for subsequent economics courses to teach effectively as it offers only one heavily skewed perspective rather than a solid grounding on which other courses can expand. … If Harvard fails to equip its students with a broad and critical understanding of economics, their actions are likely to harm the global financial system. The last five years of economic turmoil have been proof enough of this.”  

In conjunction with the anti-Wall Street “Occupy Boston” movement, this walkout was part of a worldwide effort to establish valid new paradigms in economics. No doubt the protesters were not under the illusion that their walkout would have any impact on the well-being of the 45 million people living in poverty in the US alone, but it did serve notice to academic economists that they could not be duped indefinitely. The point of this volume is to indicate how much is left unsaid or said in a misguided manner in thousands of classrooms around the globe and not only in Professor Mankiw’s auditorium.3 We shall demonstrate below that the economics being taught on most blackboards makes it appear as though markets descended straight from heaven while maintaining a conspiracy of silence about the Achilles heals of free markets. These include that markets do not pay sufficient attention to safety, they care nothing about the environment, they are notoriously lax with providing precise information in a timely manner, and are completely indifferent to the welfare of future generations. We shall expand on these weaknesses in the chapters to follow.

from this newly published book from WEA eBooks.  Download and read it now.

Principles of Economics for a Post-Meltdown World  Cover of Principles of Economics for a Post-Meltdown World

by John Komlos     $20

A critique of Samuelson’s and Nordhaus’s Principles of Economics

Introduction
Chapter I. Basic Concepts
Chapter II. Micro: Supply and Demand in the Product Markets
Chapter III. Micro: Supply and Demand in the Factor Markets
Chapter IV. Applications of Economic Principles
Chapter V. Macroeconomics Economic Growth and Business Cycles
Conclusion 

 

  1. paul davidson
    August 25, 2015 at 5:45 pm

    in my forthcoming book [ forthcoming in the UK at the end of August 2015 and forthcoming in the USA in October 2015] entitled POST KEYNESIAN THEORY AND POLICY [Edward Elgar, Cheltenham], I present the economic theory arguments presented by mainstream economists such as Samuelson vis-a-vis the Post Keynesian theory arguments for important policy questions such as : Inflation, creating full employment, whether free trade is applicable to mass production industries which can produce products and services anywhere in the world with equal efficiency, market regulation and stabilizing financial markets, securitization, liquidity and market failure, solving the problem of persistent trade imbalances among trading partners, fixed vs. variable exchange rates, are real or money contracts more important in organizing production and exchange activities, and what policies are necessary to assure a civilized economic system.

    We shall see if any mainstream economists adopt this book for their economics courses.

    Paul Davidson

  2. August 25, 2015 at 8:58 pm

    False on principle
    Comment on ‘A critique of Samuelson’s and Nordhaus’s Principles of Economics’

    “I often wonder whether other subjects suffer as much from textbook writers.” (Hahn, 1980, p. 127)

    You say: “Econ 101 textbooks are misleading more than a million students a year in the U.S. alone because they leave the lasting impression that markets could solve all our economic problems if only they were left to themselves.” (See intro)

    The first thing every economics student encountered in Samuelson’s textbook is the ‘totem of the micro’, that is, supply-demand-equilibrium. And nothing has changed since then. “Supply and demand are at the heart of how market economies work.” (Mankiw, 1998, p. 519)

    Then and now, this first encounter is the all-deciding moment. From a student who accepts supply-demand-equilibrium as an explanation for the functioning of the market system nothing of scientific value can be expected in the future.

    “There is little or nothing in existing micro- or macroeconomics texts that is of value for understanding real markets. Economists have not understood how to model markets mathematically in an empirically correct way.” (McCauley, 2006, p. 16)

    Nobody with a modicum of scientific instinct can accept the shallow explanations, the logical blunders and the superficial formalization of Samuelson’s textbook. The time that elapses before it sinks into oblivion is a straightforward metric for the stupidity of economists.

    The first thing to do for Heterodoxy is to get rid of supply-demand-equilibrium and to come forward with the true theory of market interaction (2013; 2014; 2015). This is the cardinal point. What every heterodox economist should have learned by now is that critique and debunking is necessary but not sufficient.

    This is the scientifically correct way and there is no shortcut and no royal road: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug, 1998, p. 703)

    What indeed can be learned from Samuelson and the rest of textbook writers is how NOT to do economics. All theories/models that take at least one of the following nonentities into the premises are dead from the beginning: utility, expected utility, rationality/bounded rationality/animal spirits, equilibrium, constrained optimization, well-behaved production functions/fixation on decreasing returns, supply/demand functions, simultaneous adaptation, rational expectation, total income=value of output/I=S, real-number quantities/prices, and ergodicity.

    The only valid conclusion one can draw from all Foundations and Principles textbooks is that these foundations are unacceptable. Economics has not been built on methodologically sound foundations and this is why it is a failed science. “For it can fairly be insisted that no advance in the elegance and comprehensiveness of the theoretical superstructure can make up for the vague and uncritical formulation of the basic concepts and postulates, and sooner or later … attention will have to return to the foundations.” (Hutchison, 1960, p. 5)

    Eventually, Heterodoxy has to come up with the set of foundational propositions that displays both formal and material consistency. This will be the day when Heterodoxy legitimately takes over Econ 101. Hurry up!

    Egmont Kakarot-Handtke

    References
    Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University
    Press, 5th edition.
    Hahn, F. H. (1980). General Equilibrium Theory. Public Interest. Special Issue:
    The Crisis in Economic Theory, pages 123–138.
    Hutchison, T.W. (1960). The Significance and Basic Postulates of Economic Theory.
    New York, NY: Kelley.
    Kakarot-Handtke, E. (2013). How to Get Rid of Supply-Demand-Equilibrium. SSRN Working Paper Series, 2263172: 1–24. URL
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2263172
    Kakarot-Handtke, E. (2014). The Law of Supply and Demand: Here it is Finally. SSRN Working Paper Series, 2481840: 1–17. URL
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2481840
    Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: The Market. SSRN Working Paper Series, 2547098: 1–10. URL
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2547098
    Mankiw, N. G. (1998). Teaching the Principles of Economics. Eastern Economic Journal, 24(4): 519–524. URL http://www.jstor.org/stable/40325896
    McCauley, J. L. (2006). Response to “Worrying Trends in EconoPhysics”. EconoPhysics Forum, 0601001: 1–26. URL
    http://www.unifr.ch/econophysics/paper/show/id/doc_0601001

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