Top Ten False Assumptions Taught In My Economics Classroom

Or – Why Seeing The World Like An Economist Is Screwing Up Our Society And Our Planet.

Each of these ideas has been taught in my Introduction to Microeconomics class at the Harvard Kennedy School over the last three months. No doubt there are valid and useful models that deal with some of the issues below – but these were never pointed to or explained in class.

I share these to point to the worldview that traditional economics holds, and that this is what future policy makers are taught as standard. For alternatives, check out the New Economics Foundation.

1) Self-interest is the only thing that motivates human beings. This is only one side of the human story –  what about empathy, for example? Further, have a read of Amartya Sen’s rehabilitation of Adam Smith. His ‘invisible hand’ theory was about much more than self-interest.

2) There are productive and unproductive people. ‘There are two types of people – high productivity people and low productivity people. They are born like this and can’t do anything to change it.’ The idea that productivity is only what can be measured through GDP is flawed – NYT times explains why.

3) More is better. Is it? Not at the expense of other necessities like human connection, meaningful work etc.

4) Market equilibrium is socially optimal. ‘Subsidies make people buy things they shouldn’t be buying.’ Similarly, on subsidies – ‘Let’s screw the market up’. The normative language around ‘market distortion’ reveals the assumptions underneath the statements.

5) There are no limits to natural resources. Obviously.

6) Humans are rational actors. ‘Individuals can constantly and consistently rank different consumption baskets [what they want]’. Simples.

7) Survival of the fittest. Rather than, as natural selection theory intended, survival of the fit enough. The market is seen as a zero-sum game, rather than an ecosystem of multiple species coexisting.

8) The government wants to take ‘your’ money. ‘The minute you leave the firm, there is an IRS [HMRC, in the UK] agent at the door saying “you’ve gotta give me money”‘. Right.

9) Utility maximisation theory is true: so that the moral worth of an action is determined only by its resulting outcome. The irony is that over the last three months in our Ethics class, we have debated and debunked this very worldview.

10) Pollute poor people, not rich people. ‘Just between you and me, shouldn’t the World Bank be encouraging more migration of the dirty industries to the Least Developed Countries? A given amount of health-impairing pollution should be done in the country with the lowest cost. I think the economic logic of dumping a load of toxic waste in the lowest-wage country is impeccable and we should face up to that.’ Larry Summers, former President of Harvard in a memo. This quote was put up on the board in our final class, without discussion, to hammer home what we should have learned this semester.

Now, I should get back to revising for that economics exam on Wednesday…