Posts Tagged ‘mainstream’

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Stanislas Wolff, “Phlogiston”

The other day, I argued (as I have many times over the years) that contemporary mainstream macroeconomics is in a sorry state.

Mainstream macroeconomists didn’t predict the crash. They didn’t even include the possibility of such a crash within their theory or models. And they certainly didn’t know what to do once the crash occurred.

I’m certainly not the only one who is critical of the basic theory and models of contemporary mainstream macroeconomics. And, at least recently (and, one might say, finally), many of the other critics are themselves mainstream economists—such as MIT emeritus professor and former IMF chief economist Olivier Blanchard (pdf), who has noted that the models that are central to mainstream economic research—so-called dynamic stochastic general equilibrium models—are “seriously flawed.”

Now, one of the most mainstream of the mainstream, Paul Romer (pdf), soon to be chief economist at the World Bank, has taken aim at mainstream macroeconomics.* You can get a taste of the severity of his criticisms from the abstract:

For more than three decades, macroeconomics has gone backwards. The treatment of identification now is no more credible than in the early 1970s but escapes challenge because it is so much more opaque. Macroeconomic theorists dismiss mere facts by feigning an obtuse ignorance about such simple assertions as “tight monetary policy can cause a recession.” Their models attribute fluctuations in aggregate variables to imaginary causal forces that are not influenced by the action that any person takes. A parallel with string theory from physics hints at a general failure mode of science that is triggered when respect for highly regarded leaders evolves into a deference to authority that displaces objective fact from its position as the ultimate determinant of scientific truth.

That’s right: in Romer’s view, macroeconomics (by which he means mainstream macroeconomics) “has gone backwards” for more than three decades.

Romer’s particular concern is with the “identification problem,” which in econometrics has to do with being able to solve for unique values of the parameters of a model (the so-called structural model, usually of simultaneous equations) from the values of the parameters of the reduced form of the model (i.e., the model in which the endogenous variables are expressed as functions of the exogenous variables). A supply-and-demand model of a market is a good example: it is not enough, in attempting to identify the two different supply and demand equations, to solely use observations of different quantities and prices. In particular, it’s impossible to estimate a downward slope (of the demand curve) and an upward slope (of the supply curve) with one linear regression line involving only two variables. That’s because both supply and demand curves can be shifting at the same time, and it can be difficult to disentangle the two effects. That, in a nutshell, is the “identification problem.”

The problem is similar in macroeconomic models, and Romer finds that many mainstream economists rely on models that require and presume exogenous shocks—imaginary shocks, which “occur at just the right time and by just the right amount” (hence phlogiston)—to generate the desired results. Thus, in his view, “the real business cycle model explains recessions as exogenous decreases in phlogiston.”

The issue with phlogiston is that it can’t be directly measured. Nor, as it turns out, can many of the other effects invoked by mainstream economists. Here’s how Romer summarizes these imaginary effects:

  • A general type of phlogiston that increases the quantity of consumption goods produced by given inputs
  • An “investment-specific” type of phlogiston that increases the quantity of capital goods produced by given inputs
  • A troll who makes random changes to the wages paid to all workers
  • A gremlin who makes random changes to the price of output
  • Aether, which increases the risk preference of investors
  • Caloric, which makes people want less leisure

So, there you have it: in Romer’s view, contemporary mainstream economists rely on various types of phlogiston, a troll, a gremlin, aether, and caloric. That’s how they attempt to solve the identification problem in their models.

But, for Romer, there’s a second identification problem: mainstream economists continue to build and apply these phlogiston-identified dynamic stochastic general equilibrium models because they have “a sense of identification with the group akin to identification with a religious faith or political platform.”

The conditions for failure are present when a few talented researchers come to be respected for genuine contributions on the cutting edge of mathematical modeling. Admiration evolves into deference to these leaders. Deference leads to effort along the specific lines that the leaders recommend. Because guidance from authority can align the efforts of many researchers, conformity to the facts is no longer needed as a coordinating device. As a result, if facts disconfirm the officially sanctioned theoretical vision, they are subordinated. Eventually, evidence stops being relevant. Progress in the field is judged by the purity of its mathematical theories, as determined by the authorities.

I, for one, have no problem with group identification (I often identify with Marxists and many of the other strangers in the strange land of economics). But when it’s identification with a few leaders, and when it’s an issue of the purity of the mathematics—and not shedding light on what is actually going on out there—well, then, there’s a serious problem.

As it turns out, modern mainstream economics has two identification problems—one in the imaginary solution of the models, the other with the imagined purity of the mathematics. Together, the two identification problems mean that what is often taken to be the cutting edge of modern macroeconomics is in fact seriously flawed—and has become increasingly flawed for more than three decades.

But let me leave the last word to Daniel Drezner, who has lost all patience with mainstream economists’ self-satisfaction with their theories, models, and standing in the world:

this is a complete and total crock.

 

*Other mainstream economists, such as Narayana Kocherlakota and Noah Smith, have expressed their substantial agreement with Romer.

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You’d think a Harvard economics professor would be able to do better than invoke horizontal equity as the sole argument for reducing the U.S. inheritance tax.

But not Gregory Mankiw, who uses the silly parable of the Frugals and the Profligates to make his case for a low tax rate on the estates of the wealthiest 0.2 percent of Americans who actually owe any estate tax.*

I’ll leave it to readers to judge whether or not it’s worth spending the time to compose a column on a tax that affects such a tiny percentage of rich—very rich—American households. And then to argue not for raising the tax, but for lowering it.

Me, I want to raise a few, more general issues about how mainstream economists like Mankiw think about inheritance taxes.

First, Mankiw presents one principle—horizontal equity, the “equal treatment of equals”—and never even mentions the other major tax principle—vertical equity, the “unequal treatment of unequals,” the idea that people with higher incomes should pay more taxes. Certainly, on the vertical criterion, those who receive large inheritances (for doing nothing more than being born into and raised within the right family) should pay taxes at a much higher rate than those who do not.

Second, even the notion of horizontal equity—that equals must be treated fairly—depends on an assumption that we each have come fairly to where we now stand. If that principle is violated (as it often is, e.g., because an estate represents the accumulated wealth based on other people’s labor, their surplus labor), then we need to ask if there is even an a priori principle of horizontal equity. The alternative is to judge everyone’s entitlements and burdens, including those occasioned by large inheritances, according to a single theory of equity or justice.

Finally, and perhaps even more important, both the horizontal and vertical equity standards presume that tax justice can be achieved by minimizing the coercive relation between the citizen and the state, which is then counterposed to the freedom guaranteed by a system of voluntary exchange. As Paolo Silvestri explains,

if the problem of the legitimacy of taxation as coercion is posed in terms of ‘voluntary vs coercion’, or freedom vs coercion, the maximum that one can ask it is to minimize coercion and maximize possibilities for voluntary exchanges, and / or minimize the role and size of government and leave as much room as possible to the private sector.

The alternative, of course, is to imagine a very different economic and political relationship, one in which both exchange and taxation—and thus notions of freedom and obligation—are understood in terms of an alternative logic. Consider, for example, the gift. If there is indeed something that the literature on gift economies has revealed it is the fact that social reciprocity—literally, creating and reproducing social relationships through gift exchange—configures the relationship between freedom and obligation in a manner quite different from that presumed by Mankiw and other mainstream economists.

What Silvestri makes clear is the circulation of the gift involves the free recognition (or non-recognition) of the obligation or debt occasioned by the gift, “in the sense that human freedom is asserted as such at the very moment in which it recognizes (or not) his debt.” Taxation, in particular, can be represented as an act of “giving back” to society, the recognition of a relationship of living together beyond the family—which, while never finally solving the tension between obligation and freedom, creates and recreates relations of mutual trust and living in common. It thus redefines the issue of equal or unequal return—the accounting framework of giving and taking embedded in notions of horizontal and vertical equity—in favor of asymmetry and an unending cycle of producing and resolving instances of justice and injustice across society.**

To which the only possible answer is further giving—and thus the freedom of those who have managed to amass great fortunes to comply with the obligation, after they have died, to pay taxes at a high rate based on large accumulations of the social surplus.

 

*There are many other facts about the estate tax Mankiw conveniently leaves out (according to the Center on Budget and Policy Priorities): the effective tax rate is much lower than the statutory rate, only a handful of family-owned farms and businesses owe any estate tax, the largest estates consist mostly of “unrealized” capital gains that have never been taxed, most other rich countries levy some form of estate tax, and the estate tax is the most progressive part of the U.S. tax code.

**My concern here is with the inheritance tax. Silvestri takes his argument in a related but different direction: “the European economic crisis, the restrictive fiscal policies and their social consequences [that] have done nothing but to sharpen the citizen’s distrust in such legal-political institutions, increased their resentments, and even undermined the very possibility of a democratic discussion on taxes.”

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I have argued many times over the years that mainstream economists, especially mainstream macroeconomists, largely ignore the issue of inequality. And when they do see it, they tend to misunderstand both its causes (often attributing it to exogenous events, such as globalization and technical change) and its consequences (often failing to connect it, other than through “political capture,” to events like the crash of 2007-08).

In my view, mainstream economists overlook or forget about the role inequality plays, especially in macroeconomic events, for two major reasons. First, their theoretical and empirical models—either based on a representative agent or undifferentiated macroeconomic relationships (such as consumption and investment)—can be solved without ever conceptualizing or measuring inequality. The models they use create a theoretical blindspot. But, second, even when it’s clear they could include inequality as a significant factor, they don’t. They literally choose not to see inequality as a relevant issue in making sense of macroeconomic fluctuations. So, as I see it, when it comes to inequality, mainstream economics (especially, as I say, mainstream macroeconomics) is haunted by both a theoretical and an ethical problem.

distribution

That’s why recent research by Kurt Mitman, Dirk Krueger, Fabrizio Perri is so interesting. What they show, using a standard macroeconomic model with household heterogeneity to account for an unequal wealth and consumption distribution, is that inequality does in fact matter. In particular, they demonstrate that the aggregate drop in expenditures depends on the distribution of wealth (e.g., it is much larger in an economy with many low-wealth consumers) and that the effects of a given macroeconomic shock are felt very differently in different segments of the wealth distribution (e.g., low-wealth households have little ability to insure themselves against risk, and thus the welfare impact of a recession is significantly larger for them). As a consequence, they make it abundantly clear that ignoring inequality means failing to understand the severity of a macroeconomic downturn and underestimating the welfare costs of a deep recession.

That’s not all the work that needs to be done, of course. Mitman et al. rely on exogenous macroeconomic shocks rather than analyzing how inequality itself plays a role in creating the conditions for an economic downturn. But even their limited attempt to include inequality as a significant factor in an otherwise-mainstream macroeconomic model demonstrates that such work can in fact be done.

In other words, it’s not that mainstream economists can’t make sense of inequality in their models. They simply, for the most part, choose not to.

wealth shares

[modified from the original source (pdf)]

We’ve been learning a great deal about the conditions and consequences of the obscene levels of inequality in the United States—now, in the past, and it seems for the foreseeable future.

Right now, inequality is escalating within public higher education, especially in research universities that are chasing both tuition revenues and rankings. Thus, the editorial board of the Badger Herald, the student newspaper at the University of Wisconsin, found it necessary to criticize the lifting of the out-of-state student enrollment cap because it betrays the Wisconsin Idea and is making the university both “richer and whiter.”

Instead of increasing enrollment by targeting low-income and underrepresented Wisconsin students, UW now joins the ranks of public institutions that are happy with increasing the — already substantial — socioeconomic divide on campus. Making UW a bougie playground for the greater Chicagoland area is not the way to keep Wisconsin a world-class institution.

The Wisconsin students are right.* As recent research by Ozan Jaquette, Bradley R. Curs, and Julie R. Posselt confirms, public research universities are increasingly relying on tuition increases to fund their activities.** Thus, they are admitting more nonresident students—both for their out-of-state tuition payments and to raise the universities’ academic profile—and, as a result, the proportion of historically underrepresented students and especially of low-income students is declining. Moreover,

The shift towards nonresident students suggests that public research universities have increased the value they place on students who pay high tuition and have high test scores. This shift is indicative of a deeper change in organizational values, away from the public good emphasis on access and towards the self-interested emphases of academic profile and revenue generation. As scholars, campus leaders, or policymakers, we must ask ourselves, whether these are the values we want our flagship public institutions to promote?

We also need to look at the way inequality played out in American history, and make the appropriate connections to the present and future. In a recent paper, Suresh Naidu and Noam Yuchtman examine the situation of labor markets during the first Gilded Age. Their argument, in a nutshell, is that labor markets in the late-nineteenth and early-twentieth centuries are as close as we have seen in U.S. history to the unregulated labor market that is presumed and celebrated within neoclassical economics. But, the authors explain, those Gilded-Age labor markets were characterized by high levels of conflict—between labor movements and employer organizations (over wages and, when workers went on strike, replacement workers or scabs)—which, in turn, called on increased levels of judicial intervention as well as domestic policing and military intervention, generally on the side of the employers.***

And the implications for the United States, in the second Gilded Age:

Looking around today, it is obvious that inequality and conflict over the distribution of wealth and income remain salient a century after the first Gilded Age. History is never a perfect guide, but the late 19th century suggests that even as markets play a greater role in allocating labour, legal and political institutions will continue to shape bargaining power between firms and workers, and thus the division of rents within the firm. What remains to be determined – and battled over – is which institutions are empowered to act, and whose interests they will represent. Regardless, latent labour market conflict seems likely to be a prominent feature of our new Gilded Age.

Finally, what can we way about inequality looking forward? According to Robert Shiller, it “could become a nightmare in the decades ahead.”

The reason for this dire prognosis is that the structures that create high levels of inequality in the first place serve as barriers to policies that might actually lessen the amount of inequality. According to Angus Deaton, “Those who are doing well will organize to protect what they have, including in ways that benefit them at the expense of the majority.” Historically, the only exceptions in capitalist democracies emerge in times of war, “because war mobilization changed beliefs about tax fairness.”

And contra Robert Solow (“We are not good at large-scale redistribution of income”), capitalist societies have consistently shown to be very good at large-scale redistribution of income toward the top—just not particularly interested in moving in the opposite direction, in redistributing income to those at the bottom.

In fact, neither Shiller nor the nine other economists who contributed to a recent project on long-term forecasting “expressed optimism that inequality would be corrected in the future, and none of us ventured that any major economic policy was likely to counteract recent trends.”****

Shiller uses Satyajit Ray’s 1973 movie “Distant Thunder”—about the Bengal famine of 1942-43, when millions died, almost all from the lower classes—to illustrate our current dilemma. There was plenty of food in the Bengal Province of British India to keep everyone alive but “the food was not shared adequately.”*****

Systems of privilege and entitlement permitted hoarding of food by people of status whose lives went on much as usual, except that they had to brush off starving beggars and would occasionally see dead bodies on the street.

It’s clear that, today, there are plenty of goods—food, clothing, and shelter—to go around but they’re not being shared equally. Not by a long shot. The problem is, existing “systems of privilege and entitlement” permit the accumulation of wealth on one end and misery on the end—just as they did during the first Gilded Age and, unless things change, will continue to do so for the foreseeable future.

Meanwhile, the lives of people of status go on much as usual, in their “bougie playground”—except they have to brush off the contemporary equivalent of starving beggars and occasionally see the analogy today of dead bodies on the street.

 

*It should perhaps come as no surprise that a prominent mainstream economist, Rebecca Blank, Chancellor of the University of Wisconsin-Madison since 2013, is the one who sought (and won) an end to the cap on out-of-state and international students.

**As Stephanie Saul reports,

According to the College Board, the average cost of attending a four-year public university, including room and board, increased from $11,655 in 2000 to $19,548 in 2015, in inflation-adjusted dollars. In the City University of New York system, tuition at four-year colleges is now $6,330, having increased by $300 each year since 2011, when it was $4,830. . .

“What Sanders figured out — it’s not the $65,000 cost of attendance at some of our pricier privates driving the debt bubble, but rather the disinvestment and privatization of public higher ed,” said Barmak Nassirian, the director of federal relations and policy analysis for the American Association of State Colleges and Universities.

***This is one of the examples I use in my graduate-level course on the Political Economy of War and Peace—that the United States has its own history of intrastate wars (which, like many such wars in recent times, have been class wars) and that, as the authors explain, “military and law enforcement institutions of the United States, in particular the Army, the National Guard, and the FBI, can trace their origins to the federal troops, state militias, and private Pinkertons deployed in 19th century labor conflicts.”

****The key point Shiller does not address is the role mainstream economics has played both in creating the current levels of inequality and in creating barriers to imagining and enacting policies and strategies for doing away with the grotesque levels of inequality we are witnessing today.

*****Amartya Sen famously argued that democracy prevents famines. That may be true. But it doesn’t prevent hunger or the other economic and social catastrophes that stem from the high levels of inequality we’ve witnessed during the first and second Gilded Ages in the United States.

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I know I shouldn’t. But there are so many wrong-headed assertions in the latest Bloomberg column by Noah Smith, “Economics Without Math Is Trendy, But It Doesn’t Add Up,” that I can’t let it pass.

But first let me give him credit for his opening observation, one I myself have made plenty of times on this blog and elsewhere:

There’s no question that mainstream academic macroeconomics failed pretty spectacularly in 2008. It didn’t just fail to predict the crisis — most models, including Nobel Prize-winning ones, didn’t even admit the possibility of a crisis. The vast majority of theories didn’t even include a financial sector.

And in the deep, long recession that followed, mainstream macro theory failed to give policymakers any consistent guidance as to how to respond. Some models recommended fiscal stimulus, some favored forward guidance by the central bank, and others said there was simply nothing at all to be done.

It is, in fact, as Smith himself claims, a “dismal record.”

But then Smith goes off the tracks, with a long series of misleading and mistaken assertions about economics, especially heterodox economics. Let me list some of them:

  • citing a mainstream economist’s characterization of heterodox economics (when he could have, just as easily, sent readers to the Heterodox Economics Directory—or, for that matter, my own blog posts on heterodox economics)
  • presuming that heterodox economics is mostly non-quantitative (although he might have consulted any number of books by economists from various heterodox traditions or journals in which heterodox economists publish articles, many of which contain quantitative—theoretical and empirical—work)
  • equating formal, mathematical, and quantitative (when, in fact, one can find formal models that are neither mathematical nor quantitative)
  • also equating nonquantitative, broad, and vague (when, in fact, there is plenty of nonquantitative work in economics that is quite specific and unambiguous)
  • arguing that nonquantitative economics is uniquely subject to interpretation and reinterpretation (as against, what, the singular meaning of the Arrow-Debreu general equilibrium system or the utility-maximization that serves as the microfoundations of mainstream macroeconomics?)
  • concluding that “heterodox economics hasn’t really produced a replacement for mainstream macro”

Actually, this is the kind of quick and easy dismissal of whole traditions—from Karl Marx to Hyman Minsky—most heterodox economists are quite familiar with.

My own view, for what it’s worth, is that there’s no need for work in economics to be formal, quantitative, or mathematical (however those terms are defined) in order for it be useful, valuable, or insightful (again, however defined)—including, of course, work in traditions that run from Marx to Minsky, that focused on the possibility of a crisis, warned of an impending crisis, and offered specific guidances of what to do once the crisis broke out.

But if Smith wants some heterodox macroeconomics that uses some combination of formal, mathematical, and quantitative techniques he need look no further than a volume of essays that happens to have been published in 2009 (and therefore written earlier), just as the crisis was spreading across the United States and the world economy. I’m referring to Heterodox Macroeconomics: Keynes, Marx and Globalization, edited by Jonathan P. Goldstein and Michael G. Hillard.

There, Smith will find the equation at the top of the post, which is very simple but contains an idea that one will simply not find in mainstream macroeconomics. It’s merely an income share-weighted version of a Keynesian consumption function (for a two-class world), which has the virtue of placing the distribution of income at the center of the macroeconomic story.* Add to that an investment function, which depends on the profit rate (which in turn depends on the profit share of income and capacity utilization) and you’ve got a system in which “alterations in the distribution of income can have important and potentially offsetting impacts on the level of effective demand.”

And heterodox traditions within macroeconomics have built on these relatively simply ideas, including

a microfounded Keynes–Marx theory of investment that further incorporates the external financing of investment based upon uncertain future profits, the irreversibility of investment and the coercive role of competition on investment. In this approach, the investment function is extended to depend on the profit rate, long-term and short-term heuristics for the firm’s financial robustness and the intensity of competition. It is the interaction of these factors that fundamentally alters the nature of the investment function, particularly the typical role assigned to capacity utilization. The main dynamic of the model is an investment-induced growth-financial safety tradeoff facing the firm. Using this approach, a ceteris paribus increase in the financial fragility of the firm reduces investment and can be used to explain autonomous financial crises. In addition, the typical behavior of the profit rate, particularly changes in income shares, is preserved in this theory. Along these lines, the interaction of the profit rate and financial determinants allows for real sector sources of financial fragility to be incorporated into a macro model. Here, a profit squeeze that shifts expectations of future profits forces firms and lenders to alter their perceptions on short-term and long-term levels of acceptable debt. The responses of these agents can produce a cycle based on increases in financial fragility.

It’s true: such a model does not lead to a specific forecast or prediction. (In fact, it’s more a long-term model than an explanation of short-run instabilities.) But it does provide an understanding of the movements of consumption and investment that help to explain how and why a crisis of capitalism might occur. Therefore, it represents a replacement for the mainstream macroeconomics that exhibited a dismal record with respect to the crash of 2007-08.

But maybe it’s not the lack of quantitative analysis in heterodox macroeconomics that troubles Smith so much. Perhaps it’s really the conclusion—the fact that

The current crisis combines the development of under-consumption, over-investment and financial fragility tendencies built up over the last 25 years and associated with a nance- led accumulation regime.

And, for that constellation of problems, there’s no particular advice or quick fix for Smith’s “policymakers and investors”—except, of course, to get rid of capitalism.

 

*Technically, consumption (C) is a function of the marginal propensity to consume of labor, labor’s share of income, the marginal propensity to consume of capital, and the profit share of income.

 

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Mainstream economists, such as Harvard’s Gregory Mankiw, celebrate international trade (including outsourcing, which they argue is just another form of international trade) at every opportunity. But right now, voters—especially in the United States and the United Kingdom—aren’t buying what mainstream economists are selling. They are (as I’ve argued here, here, and here) ignoring the so-called experts.

That rejection clearly disturbs Mankiw, who just adds fuel to the fire by arguing that the more education people acquire the more they will eventually come around to his view. The implication, of course, is that being against free trade is a sign of ignorance.

We all know that Mankiw and his mainstream colleagues have spent an enormous amount of time and effort—in abstract modeling and lending their support to trade agreements, in the classroom, research, and the public arena—extolling the benefits of more international trade.

trade

But it’s clear, not only from the Brexit vote and the rhetoric on both sides of the current U.S. presidential campaigns, but also from a survey earlier this year by Bloomberg, that many people remain opposed to free international trade: 65 percent favor restrictions on imported goods to protect American jobs, 44 percent think NAFTA has been bad for the U.S. economy, and 82 percent are willing to pay more for U.S.-made goods.

Clearly, mainstream economists’ campaign hasn’t worked. So, Mankiw turns to the research of two political scientists, Edward Mansfield and Diana Mutz (pdf and pdf) to find what he wants: anti-trade sentiments are positively correlated with isolationism, nationalism, and ethnocentrism and negatively with level of education. So, in his view,

there is reason for optimism. As society slowly becomes more educated from generation to generation, the general public’s attitudes toward globalization should move toward the experts’.

What I find interesting in Mansfield and Mutz’s research is actually something quite different: people’s attitudes toward international trade (including outsourcing) are not determined by narrow self-interest (such as their job skills or the industry within which they work) but, rather, by the “collective impact that trade policy has on the nation” (what they refer to as a “sociotropic influence,” because of the tendency to rely on collective-level information rather than personal experience).

That result is important because it suggests both mainstream economists and the general public, who may be and often are using very different representations of the economy, have an equally global view of the impact of international trade. Both groups are referring to and forming their judgements based on the nation as a whole. However, while mainstream economists tend to celebrate international trade based on the idea that the nation as a whole benefits (because of the efficient allocation of resources, cheaper imports, and so on), everyday economists may be emphasizing the fact that their nation is internally divided. Thus, in their view, many of their fellow citizens have been negatively affected by international trade and the only real beneficiaries are their employers. So, they continue to be critical of free trade and international trade agreements (such as NAFTA and the Trans-Pacific Partnership).

As I see it, more education won’t eliminate that critical view—as long as trade agreements are enacted within a profoundly unequal society and workers have no say in designing the policies that govern international trade.

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Peggy M. Hart, The Magic of Coal (1945)

As I have argued many times on this blog, representations of the economy are produced and disseminated in many different spaces (in addition to academic economics departments) and through many different media (in addition to the usual, mostly mainstream economics textbooks).

One example of this proliferation of economic representations is children’s literature. Children are the targets of educators and writers, most of whom (at least these days) are determined to make sure children get the “correct” understanding of key concepts and institutions. And, for the most part, they mirror the kinds of knowledges produced by mainstream economists, albeit with language and illustrations appropriate for children.

Scholastic offers such a list (which features Homer Price by Robert McClosky, through which students learn the “law of demand”). So does Choice Literacy (which includes Tomie dePaola’s Charlie Needs a Cloak, “good for discussing the four factors of production”). And then there’s the Rutgers University Project on Economics and Children, which groups books by concept (such as Markets and Competition, Opportunity Cost, and so on).

Motoko Rich’s view is that “By and large, the economic lessons in children’s books lean left of center” (and that may be true of books that teach the importance of sharing and gift-giving) but, at least for the books on the lists provided by economics educators these days, the tendency is much more mainstream, if not purely neoclassical.

That was not always the case, as Kimberley Reynolds [ht: ja] explains, in the Soviet Union but also during the interwar period in the United Kingdom.

The fact that children’s books can have a strongly formative influence upon the young has often attracted the attention of new leaders and regimes. In the early days of the Soviet Union, Lenin and his followers harnessed the power of children’s books to shape culture. Some of the artistically vibrant work that resulted from co-opting leading writers and artists is currently on exhibit at London’s House of Illustration with the title, A New Childhood: Picture Books from Soviet Russia. In interwar Britain too, a group of socially and aesthetically radical children’s books underpinned the work of making Britain a progressive, egalitarian, and modern society. But unlike their Soviet counterparts, these books have since remained a largely hidden secret, with most scholars of the period overlooking them altogether.

A good example is Peggy M. Hart’s The Magic of Coal, which was published as a Puffin picturebook in 1945. It was the British equivalent of the Soviet “production books.”

Production books detailed the production process of economically essential resources such as coal or steel. Emphasis was placed on the difference between the capitalist and communist machinery used to create these resources; where capitalist machinery was shown to feed greed and overproduction, communist machinery provided a helping hand in creating a prosperous future everyone could enjoy. Thus production books clearly directed the child reader’s attention to a wider political narrative beyond the specificities of the text.

Production books were aesthetically modernist, combining ideas from abstract painting with typography to create a visual language strikingly different from what had gone before. Pictures held a machine-like appearance, using straight lines and elementary forms. By championing newness, it was conveyed to the child reader that they had the potential to be aesthetically innovative. Rather than simply encouraging them to learn to copy what was already seen as beautiful, aesthetic modernism puts more at stake for the child; if whatever they create has the potential to be considered beautiful, there is more incentive for them to attempt to create. Similarly, if a transformed communist society is shown to be a plausible alternative to today’s society, there is a greater incentive for the child to become an activist to help bring this society about.

Apparently, the Magic of Coal contained all the features of a production book:

Reference is made to, ‘our gas works’ and ‘our community, implying collective ownership, and all images are aesthetically modernist. Thus it is an example of the attempts of a popular front of left-wing publishers to bring the production book genre and its associated radicalism to Britain in the interwar period.”

As such, it was quite different from what passes today for children’s economics literature:

Taking the child on a journey, it tells not only of the production of coal but also elevates the miner as an important and  respectable member of society. In doing so, the text and its illustrations point towards a political goal.

The text focusses on the production process rather than around any one character. Each role within the mine is shown through illustrations and accompanying text, implying that there is something for everybody. Every individual has a skill set to offer in the production of coal and is a valuable cog in the machinery of the mine. A sense of a community at work is created and when combined with impressionist illustrations of tiny black figures and miners whose faces are blurred or have their backs to the reader, this sense of community solidifies into the socialist theory of collectivism.

The text informs the reader that the miners can attend the ‘pitbaths’ before or after work, challenging class boundaries as it suggests that before he enters the mine, a working-class man looks like, and therefore is like, any other man going about any other business. The text also tells us of the miner’s life outside of work, mentioning societies, theatre visits and higher education, indicating that the miners are not only important members of coal-fueled, modern society, but also respectable citizens with good standards of living and a thirst for culture.

I don’t know if children’s economics books of this sort—whether about coal mining or Wall Street—are being written and produced today. If they’re not, they need to be. If they are, then they need to be included in the lists that promote the economics education of children.

There is—and there needs to be—a lot more than mainstream economic ideas in representations of the economy, both inside and outside the official discipline of economics.