Trickle Down What?

Ayush Kumar • Columnist



The core-curriculum has its obvious flaws but it surely is successful in instilling the basic necessity of understanding the world we live in.


While this may be the intention in the creation of common core, it might be feeding undergraduates with misleading half-knowledge. This certainly can be said for the field of economics, the introduction to economics classes may very well be relabeled to introduction to utilitarian pseudo-science, these classes focus entirely on the prescriptive description of what “rational” humans are supposed to do instead of a descriptive analysis of what people do.


While the field now understands and accepts the drastic failure of expected utility theory (the theory which is discussed in introductory classes) the unwillingness of economists to let go of this fossil is mind numbing. Economists attempt to “revise” the expected utility theory to match the empirical evidence instead of creating or accepting a theory which describes the empirical evidence. Therefore the method of teaching economics at university level is that we begin with the implications of expected utility theory and then analyze its shortcomings in future classes. The implications of this approach is that most individuals who do not take economics beyond the ones required by core curriculum have dogmatic and incorrect understanding of the economy and human behavior. These individuals then vote on policy actions based on these dogmatic and incorrect understanding of economics, these inturn have huge implications on all of our lives.


To further unpack what I mean, consider tax cuts and the implication it has on GDP; if you took an introductory level economics you were told that GDP would rise if taxes went down as consumption increases. Such blanket statements and theorizations forego the complexity of tax cuts. For example, tax cuts on what income bracket?, do tax cuts for the bottom 90% have the same implication as tax cuts for the top 10%? Is there any empirical evidence to back this up? What type of taxes are we talking about?


Based purely on your understanding of introductory economics classes you might be perplexed as the simplified version of analysis tells you that tax cuts would result in higher GDP. For a simple illustration considering income taxes, the empirical evidence on the effects of tax cuts suggests that an effective increase in GDP is plausible through a tax cut for the bottom 90% in the short-medium and long run for developed economies such as the US. Tax cuts for the top 10% may increase GDP in the long run however this increment is largely inefficient (Zidar O., 2019). In 2018 households making upwards of $158,002 were categorized as top 10% according to the Economic Policy Institute. For the progression of disparity in various income of income brackets see the figure.


I have sympathy for individuals who believe that a gentle introduction to the subject matter is critical to understanding of the subject matter at a more advanced level. However I believe we must take into account that if the purpose of the core curriculum is to equipe undergraduates with working knowledge of the world, it is critical that introductory economics classes involve the failures of expected utility theory, an introduction to emperics based alternate theories such as prospect theory, and empirical evidence to test the validity of the said theory. For if we do not incorporate actual evidence and continue dogmatic education we shall continue to produce undergraduates who believe in the myth of homo economicus the ever rational being which unfortunately does not exist.


References

Zidar, O. (2019). Tax Cuts for Whom? Heterogeneous Effects of Income Tax Changes on Growth and Employment. The Journal of Political Economy, 127(3), 1437-1472.



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