“That Freshman Course Won’t Be Quite the Same,” is the headline of an article by N. Gregory Mankiw, professor of economics at Harvard, that appeared in the business section of the New York Times, May 24, 2009.
Professor Mankiw, as the headline indicates, is changing his introductory economics course in several ways due to the current economic crisis. His course will need to highlight more the role of financial institutions in affecting the economy, he says. Banks and insurance companies are like stage hands. They work behind the scenes and are only noticed when they fail to show up. “The process of financial intermediation is similarly most noteworthy when it fails.”
Introductory economics at Harvard needs also to discuss more “the effects of leverage,” “the use of borrowed money to amplify gains, and in this case, losses.” Economists, Mankiw suggests, will have to explore why banks “undertook so much leverage.” In addition, the gateway course will have to assess monetary policy and study the broad range of monetary policy tools that are being introduced today to reduce the crisis.
Finally, introductory courses in economics need to analyze the limits of economic forecasting, particularly to realize that economic outcomes are beyond what professional economists can predict. “…students should understand that a good course in economics will not equip them with a crystal ball. Instead, it will allow them to assess the risks and to be ready for surprises.”
The most revealing aspect of Mankiw’s view of his introductory course in economics, which he says is given to some 700 Harvard undergraduates each year, is that the current economic crisis does not suggest the need for any fundamental change in what he teaches. His words are important here:
“Despite the enormity of recent events, the principles of economics are largely unchanged. Students still need to learn about the gains from trade, supply and demand, the efficiency properties of market outcomes, and so on. These topics will remain the bread-and-butter of introductory courses.”
So for those 700 students of economics at Harvard, presumably many of whom will become influential policy makers in Washington or on Wall Street some day, economic crises require no deeper and different reflection on how the economy works, who benefits from it, who experiences it primarily as pain and suffering, and what can be done to make the economy work for people and the environment.
According to Mankiw’s description, Harvard’s Introduction to Economics course is an introduction to a way of thinking about the economic universe that emphasizes maintaining systems of wealth and power. It presents as “science” an ideology that serves and justifies the status quo. It represents that intellectual tradition, neo-classical economics, that extrapolates from the historical reality of the rise of banks and corporations, the connectedness of economic institutions and the state, the use and abuse of those who work for a wage, and the use of race and gender to make workers more malleable, to create a mathematics of individual rational actors engaging in a system of free choices and supply and demand.
Neo-classical economics dismisses the great classical political economists from Adam Smith, to Karl Marx, to Lenin, to Joseph Schumpeter, to Paul Baran and Paul Sweezy, who realized that economic processes change through history, connect economics to politics, benefit some and disadvantage others, and create new powerful economic and political institutions that need to be studied, evaluated, and changed if they fail to meet growing human needs.
In the end, the introductory economics taught at Harvard describes and defends the status quo. Those who seek to understand the current economic crisis in order to change it will have to look elsewhere.