Why did I Ever Sign Up to be an Econ Major Part II

by Gilbert Keith

Back in High School, I liked Econ not only because I was good at my AP microeconomics class, but that econ just felt intuitive. It’s not like other classes were not intuitive (mechanics, for instance, was pretty intuitive) but econ somehow seemed to explain why certain behaviors I saw out in the market. I could simply parrot ‘supply and demand’ at pretty much anything and it would explain why   got cheaper over months, why the price of gas rose up, etc.

That was in 2006, when the Dow was at 14,000 something. I remember catching whispers in the air about how things were going to unfold in a couple of years, but there was nothing concrete. Back then I didn’t know of any of the blogs I currently surf, didn’t know of any of the debates that rage on in the intellectual circles/blogosphere, etc.

I took macro economics freshman year of college. In my sophomore year, I took intermediate micro and micro and was introduced to “calculus” in economics. The classes are all well and good, but I thought they were just too easy. How is it that after spending several weeks on Walrasian equilibrium people were still unable to understand what “market clearing” is? and how come people couldn’t figure out the solution to relatively trivial optimization problems?

Given the theme of my previous post, and all the thinking I’ve done over the last day or so, my belief is that many of my classmates lost track of economics once it lost the intuitive appeal.  A bunch of log-linear or Cobb-Douglas production functions provide a poor illustration of how an economy decides to allocate its productive powers, and as I discussed yesterday, it is simply not possible that you’ll find someone who knows that his utility function is the natural log function.

Mathematics is a fine tool to study economics. I’m kind of glad that people resorted to quantitative approaches, since I’d probably have been turned off if economics only involved making field observations and producing theories to describe the observations. However, by diving into the wreck of equations and optimizations without motivating them, instructors are doing a poor job of reaching out to the people who are generally confused about where these equations and things originated from anyway.

Instead of stressing on the fact that mathematics is a tool for describing some relationships in economics, stressing on making sure people setup optimization problems properly puts the mathematics front and center, leaving the economic framework defenestrated from the students’ perspective. I know this is not the case with me, but I bet there are good portion of students who pass intermediate micro and macro econ (the “gateways” into more econ) being able to solve optimization problems but not having the faintest clue of the implications of the theory that the problems are addressing.

Physics and Engineering departments, for instance, have done a great job of making sure students understand what equations mean; ask an engineer a problem about heat flow, and he’ll immediately tell you the equations he used to solve the problem and the phenomenological description of the equations. Ask people in my finance class about what the CAPM equation is telling you, and you might hardly get 10 responses, no two of which tell you the same thing and none of which are right. I can go so far as saying “It describes the idea that the risk premium associated with a security is a function of the risk premium of holding a market portfolio and a function of the covariance of the security with the market portfolio as a proportion of the variance of the market portfolio.” I hope it’s right; if not, I’ll look like an idiot, but “khuda meherban to gadha pehelvan” always applies.

People in academia these days seem to talk a lot about how models in economics need to change significantly in order to better deal with situations like the financial meltdown (c.f the Economist’s discussion on the same topic.) But nobody ever talks about how dismal the  state of undergrad econ classes are. My colleagues have specifically said that they have gone through 4 years of undergrad without learning absolutely anything beyond Econ 101 and 102. Couple this with the fact that none of the classes are taught by professors*+, and you get a student body that has only really seen marginal gains in any knowledge of economics and which is not prepared at all to use their background information to take a stand on particular topics.

Do academicians simply view undergrad as a filter by which the best of undergraduates will be picked out for grad school a and lucrative business jobs, and the remainder see some marginal gains in their incomes due to the possession of a degree? Why is it that during and after recessions, when the popularity of econ majors suddenly starts rising, the University of Minnesota is unable to get any of its faculty to take on some of the excess demand? Do professors just not care about undergraduates? Are they just not worth it? Like I said yesterday, I hope that is not the case, but given the pessimistic outlook you see from me, it might just be wishful thinking.

*This is not exactly true. I have had one course taught by a professor, and it was all right.
+I don’t mean to imply that all graduate students who teach classes are terrible. I’ve enjoyed some of the grad students I’ve had, but in general it seems as if undergrad students feel like they’re not getting their money’s worth and generally resign to the fact that instruction is going to be of a relatively lower quality compared to what one would expect of professors.