We Need to Reimagine Econ 101: It May Constrain Your Business Perspective

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0:35So when your mind won't switch off, you've got something that can help. Erasing thoughts and restless nights won't stand a chance. Find OLLI's sleep solutions for the whole family at OLLI.com. That's O-L-L-Y dot com. If you listen to how a lot of mainstream media and also mainstream economists discuss unemployment, You know, you hear there's an ideal level of unemployment. And so the coverage and the discussion all focuses on whether what the Fed is doing with interest rates is going to get us to that ideal level and how that might impact inflation. But it's actually a little perverse to say that there is some ideal rate of joblessness.

1:13No one would really argue for an ideal rate of hunger or an ideal rate of lack of access to education. A necessary first step is to kind of transcend this simple assumption that we have to have a certain level of unemployment. We can kind of turn the knobs on the machine that is the economy until we optimize it. But look, the knobs themselves are constraining our thinking.

1:42Economics in universities today is often taught in a way that suggests it's really just one of the natural sciences. This is a deeply misguided and misleading way of teaching the subject. In fact, it's much closer to a branch of political philosophy. One of the best ways to think about what's wrong with academic economics is to think about a quote from John Maynard Keynes. He once said that the master economist has four elements, historian, statesman, philosopher, and mathematician. That final element is something that academic economics tends to do very well, mathematics, history, philosophy, politics, the exclusion of those elements really from the curriculum.

2:25That's, I think, in a nutshell, what's wrong with a lot of academic economics. Business leaders can really take advantage of a highly mathematicized view of the economy to say there are just these law-like forces, increasing wealth concentration, increasing concentration of corporate power, the impact of externalities onto the natural world. All of these things are just inevitable features. If you don't want nice things, then you have to go back to the Stone Age. There's just no other option. The move from math to inevitability is really the crucial one. It's a very dangerous way of shutting down conversation by a false analogy to natural laws.

3:04If, on the contrary, you see the economy as a deeply human sphere that inevitably reflects moral choices, political assumptions, then much more is sort of up for grabs. suddenly debate, discussion and progress seem much more possible. It's understandable that CEOs, especially who are answerable to shareholders, might feel constrained to implement more humane living wages, for instance, or workplace conditions. But there are already businesses that are paying something close to a genuine living wage, a very capacious wage that recognizes the value of employees. Their success also reflects a growing desire among consumers.

3:51On some level, most people do care about the products and services they receive, not being deeply implicated in profound suffering and misery. So imagine that you could have a very cheap chocolate bar only on the condition that young children in your neighborhood will both be deprived of an education and will work really brutal hours in difficult conditions to grow the cocoa that's going to end up in your chocolate bar. Most people, if they were presented with a choice in such stark terms, would say, absolutely, I do not want the chocolate bar. It might seem a little surprising to say, in fact, that is the current condition for much, not only chocolate, you know, take coffee, take tea, take meat, take electronics, a huge range of consumer products only reach us at the very low prices that we pay for them because of the suffering of vulnerable people and also the degradation of our natural world.

4:44So it's standard to assume within a kind of traditional economic framework, externalities to economic transactions are one, kind of hard to measure, and two, should not really be put back into the price mechanisms. You kind of just ignore them. That's how stuff gets to us. In fact, there is another option. There are people in the Netherlands, especially in Amsterdam, using a family of accounting methods, sometimes called true cost accounting or true price accounting. The basic intuition here is that we're not paying the full price for products. Think about a hamburger, think about an apple, think about really anything that you consume.

5:22There are all of these hidden costs. We don't have a single comprehensive signal of all of those externalities. So true price says, what if we did? What if we actually knew all of the relevant externalities for a product, we took that price and then we put that back into the price signal itself, which would make dramatically higher prices for many products, which would partly be the point. You would want to shift consumer behavior by giving people accurate information about what the costs are. With the extra money, you now have an option to try to remediate some of those harms. I absolutely think there's a lot of hope for the transformation of how Econ 101 functions.

6:03The core economy textbook is this very interesting interdisciplinary project. The authors have expertise in all sorts of fields to create a textbook that's really much more capacious in its vision. It includes more of the political, moral, historical elements of economics, and it also has a lot of sophisticated math and modeling. So it's a false choice. We can't sacrifice the kind of clarity of our modeling, so we'll just jettison all of the humanistic elements that are really inseparable from economics.

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