You said you want a revolution?

This week, we had email exchanges with some colleagues about Harvard undergraduate students walked out of Mankiw's introductory economics class. The discussion was not so much about the walk-out (and much less, or nothing, about the reactions, as in here, here and here). The colleagues were talking about limitations of economic theory in explaining many phenomena, the need to give more room for multidisciplinary analytic framework, and to call for a revision for, even revolution in, economic curriculum and to another revolution in economic thinking.

Here's the summary of my response. First, no one would disagree that economic theory is limited. It provides a framework of analysis, not the framework. All economic models are based on certain assumptions. Not that we believe that the assumptions would (should) hold. But it serves as a benchmark condition to argue what would happen if the assumptions hold.

Second, no doubt that multidisciplinary analysis is good. Economists, and economists, would benefit from talking to, or collaborating with, scholars from other disciplines. But multidisciplinary requires each scholar have solid background on his/her own discipline. Imagine two people, an Indonesian an American, discussing their cultures. If the Indonesian doesn't have a solid understanding about Indonesian culture, the dialogue would be a lecture on American culture, not a cross-cultural one.

Third, while the curriculum and teaching methods should always be revisited to reflect current developments, we need to ask how much information we can (should) feed the students. Besides, the purpose of education and teaching is not to provide answers. The purpose is to make students asking the right questions (and find the answers) by providing analytic framework.

I am not sure about how much revisions we could have in microeconomics. It basically tells us that resources are scarce, so we need to make choices, which imply opportunity costs and give us trade-offs. Then there is demand and supply analysis, which, under a certain assumptions of how the market works, will define the prices. But we don't assume that market works all the time, so there is a substantial discussion of market failure in externality, public goods, uncertainty and game theory chapters. That's usually what we covers in 2 semester of microeconomics. There are more applications, such the agricultural household model, different game theoretical analysis and many more, which we usually teach in more advanced classes.

On the other hand, macroeconomics is a very dynamic subject. To be honest, I am not really catching up with the subject. But to catch up with the current state-of-the-art, including to criticize some mainstream theories, still you need to have the solid fundamentals. You can not, for example, argue for divergence in growth without starting from the basic Solow model which implies convergence. To criticize efficient market hypothesis you need to start from the AD-AS, Keynesian-cross and IS-LM models. No short-cut to do that.

Yes, Keynesian was a revolution in economics. Prior to Keynes, economists did not think of national income, and the relationships between money, interest and employment. In short, people never thought economics as a macro system, hence the term macroeconomics. But since then, (macro)economics have evolved, leaving us few rooms for revolutionary thoughts. Even Keynesian was at one time in a crisis, when excessive government's intervention in the economy led to high inflation without growth in production.

Honestly, the room for another revolution is getting much and much smaller now. Most big ideas have been delivered. The frontiers have been pretty much explored. Of course, there are still many unexplored spots in the forest. That is the real call: to fill the missing puzzles through new theoretical and empirical researches.