My oldest child came home from school the other day with a problem from their economics class; the poor kid was frustrated and asked for some guidance to make sense of the assignment.
Their textbook contained a graphic depiction of the concept outlined in the text, showing a relationship between spending and jobs creation in the community. The graphic noted that consumers spent money on local goods, the money went to the business owner which in turn created the goods.
And then the business owner made more jobs.
Uh-huh. No wonder my kid was confused.
Right there, on the face of it, is a fundamental problem with our entire economy. What they teach in school has absolutely little to do with reality, and it’s this way across the entire spectrum of business and economic curriculum from K-12 through college.
Worse, kids today are taught to learn to the curriculum. They aren’t encouraged to think independently and question the curriculum, although it’s not the teachers’ fault. Deviations from the curriculum are viewed as time-sucks since the instructors are required to produce students with XX percent achievement rate on YY number of tests by the end of the year — and deviations may reduce these statistics. . . .
Thank you, George W. Bush for the useless No Child Left Behind system of teaching to tests.
Thank you, Barack Obama, for continuing this failed approach to education — and by encouraging a larger economic system which continues to demand this same flawed understanding of the world.
My kid and I ended up having several discussions about the problems with the graphic and text in their curriculum:
– More money to a business owner may not mean more profits; when it does, more profits may not mean more jobs.
– Increased demand for products may not mean more jobs will be created, only that prices may go up until all conditions including profit levels encourage other entrants into the market to make the same goods.
– The sweet spot in our current capitalist economy is between making more profits and no competition. Competition requires additional expenses in the form of product improvements for differentiation, improvements to production for reduced costs per unit sold, more money on marketing. And if eliminating competition is cheaper than actual competition, well of course a business owner will eliminate competition — sometimes this is legal, sometimes this is not, and some times the laws are so lax as to fail as a deterrent. Oh, and a corporation would buy politicians to make sure the laws were lax if it was cheaper than actually competing for customers.
(But this is a free market, right? Not really — more of a free-for-all, dog-eat-dog melee where the business owner with the most money wins and screw the rest. Gordon Gecko’s mantra, “Greed is good,” unleashed.)
I pointed to the record profits made by corporations over the last year while the nation’s unemployment rate remained stagnant at around 10% — much higher by location and dependent on one’s interpretation of employment. This was the sweet spot. Corporations were rolling in cash but not hiring.
Fortunately my kid’s pretty bright and ready to discuss the lack of incentives to hire. Or disinventives, in the case of massive profits.
We also had an understanding that the goal in this class is to get an A, which unfortunately means parroting back the crap in the book. At least in college there will be a chance to really push back against this flawed, misleading material.
I can hardly wait for the next economics assignment. I sure hope we’ll discuss how quality produced by workers will be ignored as long as products can be produced for cheaper offshore in order to increase profits.




53 Comments

Loved it, Rayne. But I’ve sure heard that businesses classes (at least in business schools are teaching the wrong lessons. Spent about 30 seconds googling for evidence of that, and as luck would have it, found this. Your daughter may like it. ;o)
“Teaching economics as if people mattered”
http://www.teachingeconomics.org/
I learned far more about Economics by working in a men’s clothing store in my home town when I was growing up than I ever did in a classroom. This smalltown had two or three or four of most every type of business. Many of the businesses (such as the store I worked in as well sa the competition) carried good brands so it came down to the marketing and customer service.
A true education in micro economics
Thanks, Wendy. If only Econ were taught that way.
Would be nice at a minimum if along with Econ if a class in Ethics was required. Some universities require them — even the horrible little libertarian private college I attended did — but most American high schools do not and Ethics is necessary for everyone, not just a smattering of college students.
I was lucky to have an attorney who taught business ethics using an English text and not an American text, too. In a nutshell, everything we did in that class centered on this premise:
Over time I’ve found only one problem with that premise, and that is business must act with long-term stakeholder value in mind. There are other forms of investment which do not equate to a legal equity stake in a business — like that of the community which surrounds and supports a business.
And long-term value creation as well; far too much of what we do in this country is based on short-term month-over-month, quarter-over-quarter results instead of value realized over a decade or a lifetime. Look at what will happen to our economy in the wake of the uprisings and revolutions, how we may be crippled by our inability to shift from petroleum more than 10 years ago to alternative and sustainable energy. Proof alone of our businesses’ ethical failures.
“Thank you, George W. Bush for the useless No Child Left Behind system of teaching to tests.”
Wasn’t NCLB co-authored by that lion of the Senate and hero of the Left, Ted Kennedy?
Yes it was – 10 years ago this coming May, which has given ample time to reveal its shortcomings. Regardless of its genesis, NCLB’s shortcomings need to be addressed. Like much crony legislation, regardless of authorship.
“NCLB’s shortcomings need to be addressed”. Yep, and perhaps that can be done more effectively in a less rancorous environment?
Not gonna let you hijack, especially since I agreed with your facts, and you won’t take “I agree” for an answer.
This post is about economics, and the incorrect teaching of it as regards reality.
“This post is about economics, and the incorrect teaching of it as regards reality.”
You’re right: I probably should have ignored the author’s little side-snark.
Based on what I know of the so-called “Texas Miracle,” (pdf) Teddy was sold a bad bill of goods. That “miracle” over time proved to be a sack of dung; it just hadn’t fully played out before it was foisted on the rest of the public at federal level and without adequate funding.
We’re talking about the same program that if fully realized would have drugged kids AND parents on a mandatory basis, as determined by school system and psychologists.
BTW, I’ll point out that NCLB is one more thing sucking down money out of classrooms while right wing freaks whine about union teachers costing so much. It was underfunded from its inception and has never received adequate funding in 10 years.
Little? no, I meant a rather large amount of sarcasm there, and I’ve responded to your dig about Kennedy.
George W. Bush jacked education in this country badly, and I’m sure his brother was supposed to profit from it.
Unfortunately at the rate change is happening, both my kids will have had to suffer through their entire K-12 careers under NCLB. What a fucking waste — they will literally lose one full year of educational time because of prep for and taking tests which they do not need. Both are gifted and achieve at levels above their peers. The money spent on their testing should be spent on additional assistance for kids who need it, and on improving technology resources for students.
What really hurts is the loss of time: what could my kids have learned in the time spent on useless annual testing?
Excellent Post! I sent a letter off to Jane and FDL regarding the M. Hudson Book Salon suggestion I made. We could all do with some modern day economic lessons, especially now that our government is broke except for certain programs. *g*
How would a real Lefty explain economics? Howard Zinn taught us American history, Al Gore gots climate change down. Jared Diamond study of why societies collapse seems to explain the why of our current economic and political situation.
FDR and Keynes are the ideal for real world economic examples that have worked in the past to get America hiring but today FDR seems forgotten.
Yeah, given how our economy operates, we’d be best served focusing our children’s curriculum on the economics of cartels, monopolies and organized crime.
As for “parroting back the crap in the book”, that sure would amplify the short comings of the Texas Board of Education.
I guess Bush/Obama figure that if they destroy the quality of public education it will support their argument that public education is a bad idea.
After all, the CEO of a private enterprise would never destroy their own organization. /s
Recommended reading.
I feel horrible for people trying to go through this train wreck of what used to be a great educational system. I and others I have discussed how we realize that we must have availed ourselves of the system during its Golden Age. One set of friends simply removed their teenager from what was considered one of the top US schools during the 1990s as they could do a far better job and their teen could simply avoid the trauma the system was heaping on the young people. By the 2000s, others I knew that decided to start families simply left the US for other countries that had the system that we used to have or an even better one. Meanwhile, some cities as Portland, OR have managed to maintain a very excellent school system but that many now be in jeopardy (more about recent developments are here). I have had to tell young folks asking advise about quality college and graduate programs that I honestly thought they should go out of country and we would discuss what and where. In general, the system is a FAIL and we owe it to ourselves not to go on like this or the massive “brain drain” will continue. I can’t believe today’s parents haven’t already tarred, feathered and run out on a rail the entire Federal and most of the state legislative bodies just for this wilful destruction of the American educational system as such jeopardizes our democracy at its roots.
Absolutely recommended! I will be cross-linking back to this one more than once I think. I’ve been bleating like a stuck sheep on this one for some time now. Econ 101 is a mish-mash of bad history and wrong theory taught only at the High School level – usually to seniors – and its so fraught with confusion and shallow concepts that most seniors who take it roll their eyes and grit their teeth just to get the credit for the class so they can graduate.
And why? Because to teach REALITY based economics to students in their Freshman year (and every year thereafter) would unravel the entire charade that has been played upon the American people for the past century.
I have a few issues with Keynesian theory too. The concept of “wage inflation” being a big one. The theory that as wages are increased, inflation increases. But in that same school of thought, the concept of CEO PAY increasing 10,000x faster than wages of workers is not regarded as “Wage Inflation.” It is regarded as “capital appreciation” or “return on investment.”
Another problem is that “inflation” is not based on wages being increased. Inflation is a result of increased money supply. Wage increases are a REACTION to that inflation. Not causative.
I listened to a business owner who was faced with high employee turnover refuse to increase their wages by even 5% around 2006/2007 time frame. His reasoning? He feared “wage inflation.” He had 50 employees in a privately held company. He was losing them to competitors who paid 20% more. He quoted Keynes to me in fact.
Did we discuss his recent 10% increase that was equivalent to the 5% increase of 20 of his employees? No. So, while Keynes had some good nuggets of theory, it also has some real doozies in it too. But if Econ 101 was taught well, and students were allowed to debate and think critically in that class, then these issues could be hashed out and people could learn to think for themselves.
There is no reason people should label themselves based on an Economic theory. Every theory has good/bad parts, and people should be able and willing to evaluate and synthesize the good from the bad to apply to real world policy making and business decisions. Instead, they justify excess greed and economic rapine by hiding behind a dry and unchallenged “theory” that was crammed down their throats and which they now parrot back like bots.
The reason Keynes theory worked was because it was formulated in a time when tax rates were much higher on corporate earnings, and tax loopholes far less. Corporations that made huge profits were taxed highly UNLESS they plowed that money BACK INTO THE BUSINESS in the form of jobs. In those days, there were no “free trade treaties” that incentivized the offshoring of that money into foreign jobs. So, Keynes theory worked, then. Companies HAD TO pay their employees more to avoid huge tax hits. They had to invest in domestic growth – to avoid huge tax hits.
The dismantling of those taxes, and the increase in corporate welfare and the enabling of corporations to move money into foreign cheap labor pools and the blind-eye approach to corporate tax evasion in offshore havens has combined with other technological innovations and politics-neutral factors to now make some of the Keynes theory obsolete. As well as the Friedman school of thought. Both are equally mired in theories predicated on facts that no longer exist. We live in a new world, where greed rules and is rewarded with tax breaks and subsidies and trade agreements that favor the elites over the working classes.
There isn’t, in my opinion, a “silver bullet” theory out there. Not right now. We need a patchwork of reforms to get even close to making a difference. But my point is not to belittle Keynes as the person. Rather – like Adam Smith, that theory was formulated in a different time. Adam Smith didn’t write “wealth of multinational conglomerates” because in his day, the State was the largest economic actor. Today, most Fortune 100 companies have larger profits and operating cash than most nation states do. His perspectives were rooted in facts no longer relevant. So, obviously, his theories would need a serious makeover.
I think you’re mistaking an idiot’s misuse of Keynes as an excuse to be a Scrooge to his employees as a flaw in Keynes’ theory.
The idiot employer was willing to pay the costs related to high turnover because he was still making a comfortable level of profit. “Wage inflation” is merely a nice label for opting not to compete. He must not have lost enough of his business volume or profits to realize he was full of shit.
If anything this employer you’ve pointed is the perfect example I could have used for my kid. Still making profits, no reason to expand, no reason to pay more.
If you’re speaking of laws that mandate businesses to maximize profit for the shareholder, it would be nice if the law could reflect the longer view. Might lead to increased investment. Remember the days when there was a move to create supportive workplaces and breaks and day care and all since Happy Workers were more Productive Workers? Oy!
Teaching ethics is troubling to many now since religious rules are so ascendant in the society, and few want to examine how or why you might come to ethical or moral standards without dogma. Tough one. Believe me, I’ve had the conversation with more than one school superintendent and a number of principals over the years, and I’d guess it’s harder now.
‘Don’t want none o’ yer Pinko ‘Ethics’ talk! ;o)
I’ve enjoyed reading about Joseph Stiglitz working to invent new models for measuring a nation’s economy with Happiness (crap word, but…) factored in, and sustainablity, etc. Wish we could crown him the new father of economics.
Well, I’ve seen rampant use of the term in every major business news rag. Bloomberg, Financial Times, Wall Street Journal, CNBC online, etc. They all talk about “wage inflation” still not having kicked in yet. That’s a part of the theory. But I made a followup post to better explain my thinking. Its not that Keynes was “wrong” in his day. Its that facts have so radically changed that his theory is more inapplicable now. Technology and globalization were not realities in his day, so his theories were predicated on American companies relying largely on American employees. Today, they don’t need American employees. They can find cheap labor around the world. So, there is no incentive to invest in American labor. Just as one of many ways to see where I am coming from. But, as you note – none of this is being debated or put on the table for kids in classrooms. They are taught the dogma and expected to learn by rote. Which is itself the great shame of it.
I would add the role of Lobbying Organizations to that list. Lobbyists are to Corporation what Unions should be to Employees – their advocates. The dismantling of Unions is an attempt to make this a one-side takes all result. Corporations have direct control over government decisions through lobbyists. The attempt to strip out the union rights of employees is an attempt to make the system even more imbalanced in favor of the haves against the have-nots. Those are also two concepts not taught much in High School Economics.
Amen to that! But Obama rejected having Stiglitz on his team. Which was the first let-down in my string of heartbreaks after his victory. If anyone has lead the charge to create new paradigms that reflect economic reality, it is Stiglitz. Its just a shame that both parties reject him now. Its another data point that proves the two-party system is just two-sides of the same coin. Stiglitz smashes their paradigms, so they distance themselves from him. I share your wishes on that last sentence.
That’s deliberate misuse; remember that most of the bonehead talking heads you see on the financial programs are products of curriculums based on the Chicago School of Economics, where “wage inflation” has an entirely different spin and Keynes is persona non grata.
Whenever they say “wage inflation” they mean that there are threats to profits, not that anybody’s wages are actually going to increase, and the threats to profits mean the corporations will take steps to protect profit margins.
I can think of a specific publicly-held firm which has committed XX percent returns to investors this year. Any reference to “wage inflation” in this case means there will be a move to consolidate operations and cut staff and facilities in order to maintain that XX percent promise to analysts.
Okay, fair enough. Deliberate Misuse of Adam Smith has also been occuring quite a bit too.
But I think the bigger point I am making is that theory is only good if it can be challenged by each new generation and pushed back and allowed to evolve. I think we can agree on that larger goal. The rest is just details. :)
That should have been your biggest clue right there of how the term is misused – None of those are quite bastions of good reporting to say the least – especially on issues that effect workers.
**I replied to the wrong arrow**
Okay, fair enough. Deliberate Misuse of Adam Smith has also been occuring quite a bit too.
But I think the bigger point I am making is that theory is only good if it can be challenged by each new generation and pushed back and allowed to evolve. I think we can agree on that larger goal. The rest is just details. :)
Agreed — and not just Adam Smith’s invisible hand of the market which seems to bitch-slap workers so often, but Ricardo’s theories on free trade as well. Bugs the crap out of me that transnational corporations use Ricardo as a justification for transferring jobs overseas, but fail to see that there is a compelling national interest in retaining jobs, technology and production which overrides their interests.
I remember the stunned look on my international econ prof’s face when I pointed to the Irish Potato Famine and the loss of the banana crop after Hurricane Mitch as reasons why Ricardo’s encouragement of specialization was flawed and risked entire nations’ revenues and lives.
that’s priceless! Wish I could have seen it too!
too bad the economics theorists ignore the contribution that we get “for free” from the planet.
the “free” part is being tested, and the theories are about to change.
“The Economics of Ecosystems and Biodiversity, or TEEB, was conceived at the meeting of environment ministers in Potsdam in 2007. Its goal is to end the economic invisibility of nature—to help stakeholders and beneficiaries recognize the value of ecosystem services, those benefits that nature provides to the human economy, and to reward responsible custodians of Earth’s ecosystems and biodiversity. Under-standing the problem of biodiversity loss in its complex social, economic, and policy dimensions is a necessary prerequisite for any proposed solution, and this also underpins the guiding philosophy of TEEB. ”
marsdragon,
Your point above is AWESOME!
I had not thought of it in that way. Any law or regulation that they try to put into place to remove or bust Unions would essentially shut down K-Street as well. That point of removing representation of a group of people is exactly what we need to be pushing. If the repugs make laws to remove the collective bargaining rights and stunt Unions, then they have done the same to all Lobbying firms.
ZOOM! Excellent comment and thought train.
Excellent point — attempts to implement carbon taxes are struggling because economic theory to date does not take into consideration the cost to the commons which nearly all businesses incur but rarely ever pay.
Strangely, I talked yesterday with the parent of a child who was trying to come home, claiming she felt sick, from taking a preparatory test – and the parent is sickened by the amount of pressure on her child by the constant testing and emphasis on it. As a result, the pleasure is gone from her child’s education.
On your point about parroting back incorrect material; a family member who’d had a business in C.A. attended a business school and took a course on foreign business that insisted on concepts he’d learned up close and personal were false. To do well, he had to parrot back what the course taught, which wouldn’t work in reality at all.
Too bad for us, Rayne, that you are not part of the Department of Education… that is, before the GOP completely does away with it.
What a concept, it’s almost as if we NEED air and water.
/s.
And then there was the Beers-in-the-Oval with Stiglitz and Krugman, obvioulsy a plea to STFU. Worked for a while with Krugman, but not Joe. bless his heart.
Reading about the terrible income and wealth disparity in the ME nations to which we, via the World Bank, exported neoliberal economics is depressing as hell. Thankfully those nations seem to know now to be wary in the future; the question about the degree to which they will be able to unwind the effects is still an open one. Here’s to their success!
I watch Frontline’s ‘The Warning’ every few months so that I never lose track of what got us here, and how essentially there has been zero true financial reform yet, and there won’t be another opportunity until the next bubble bursts–or worse.
Yeah, we’ve had to deal with some of that here as well. Next week is ACT and state MME test week — three days, back-to-back. I can’t deny the ACT is necessary, but this is in addition to the SAT and the state’s MEAP and the tests to come for AP and IB coursework. If we have kids who are already fully qualified for AP-caliber work, why are we doing any more state- and federally-mandated testing, except to skew the results of the entire school system? Why aren’t we testing just the kids who haven’t shown improvement earlier in grade school, or kids who who screen for at-risk factors? Way too much stress on the kids all across the board.
We got lucky and had two snow days this week, during which my kid could take their sweet time studying for tests. It was nice to actually hear them say they were bored for once, not enough to do except take it easy and watch a few old movies.
Not to mention the direct control, since many members of Congress (and the Cabinet) are so heavily invested in oil and defense-oriented industries.
So glad for those snow days. Although I did well on tests, I wasn’t under the pressure these kids are and don’t know what effect that would have had.
And just think, if they were being home schooled, your kids wouldn’t have gotten days off at all….
(Thought I’d just use the opportunity to make another point about what kids being home schooled miss.)
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Yup, add that to the list!
Most of what I noticed in high school and college was economics in the form of simple math equations and charts. You could wrap the lot of it up nicely in an excel spreadsheet.
Hey! Those clothes sounded kinda interesting; and, man, am I in tatters!
Probably good to point out that Keynes theories and FDR’s policies were not identical. Strong overlap in some area’s but not identical.
Some of those differences certainly came to light during the setup of Bretton Woods and related issues such as what to do about the nazi riddled Bank of International Settlement(BIS).
Sorry, Wendy, haohao is a spammer who’s had one account blocked already; this second sockpuppet account will die shortly, along with our attached comments.
haohao needs to find a different website to spam or a different line of work.
I wuz just joshin’, Rayne. My micro-fiber polyester shorts is wearin’ out. ;o)
Capitalism cannot manage rapidly evolving technological societies. It places far too much emphasis on the individual who fights to maintain his or her status no matter what the impact on the group. Sounds socialistic but we endure internal combustion engines and fossil fuels well past reason because people fight to protect their jobs, investments and status. Capitalism cannot be adjusted to make it less destructive. Runs against collective wisdom but it should be self evident.
Yeah, capitalism’s only good for several thousand years. /s
The problem with capitalism is unfettered greed, not that the economic system itself doesn’t work. That black markets that emerge spontaneously in the shadow of centralized economies should tell you that capitalism is natural. The appropriate rein on the damage that unfettered greed can wreak through capitalism is adequate social mechanisms to ensure fairness — like regulations, oversight and adequate enforcement.
A mixed economy, in other words, one which rewards risk takers and innovators with profits but one which punishes the corrupt appropriately at the same time while protecting the least able by ensuring baseline services. Had there been adequately enforced regulation in place the financial crisis of 2008 and the ensuing economic trauma would never have happened.
And if this had been a centralized economy, you wouldn’t have been sitting at a keyboard on the other side of network typing your comment.
The author of “Lies My Teacher Told Me” needs to add a chapter on economics. If by chance he’s a reader of your blog Rayne, I’d like to humbly request he include some history on price-fixing, market manipulation, and collusion.
Agreed — and all of those fall under categories “corrupt practices,” “ethical failures,” and “regulatory failures.” In a society with advanced tools like ours, these things are not hard to detect — but if the government does not regulate adequate nor enforces regulations it already has, this stuff is toxic and cancerous. It’s not a so-called “free market” when both parties on either side of a market cannot act freely and in a fully-informed fashion.
??? Several thousand years?
Um, what do you think people were using before 100 A.D.? Long before that?
I’d give a more specific figure but I’m not certain historians have actually pinpointed the origin of capitalism. It pre-dates the creation of fiat money, goes back to the original uses of commodities as currency — and that’s before 5000 B.C.
Black markets spring up because capitalism is scarcity based i.e. burning wheat and killing pigs in the thirties to suppport prices. We do it today-limit crops when people are starving. Were we to switch to a system based on abundance we wouldn’t need black markets.
Rather than go into details, your perception of the lone innovator creating wonders in his garage is about as realistic as someone who expects to solve retirement financial problems by winning the lottery. Competition is inefficient. Take high definition television, beta vs VHS, the big three auto companies separately working on fuel cells. The winner take all philosophy strands lots of good ideas by the wayside. You defend capitalism because you can’t imagine something better and you do not care to try.
Very astute of you to mention the potato famine. Not many people are aware of the reasons for that little glitch in “pristine” economic theories. Not that it’s hidden, but one must dig a little deeper into it to find the reasons for the economic collapse in that instance. A great lesson in non-diversification.
I would have liked to have been there when you brought it up too.