Y=C+I+G

Steve Kates at Catallaxy Files and assorted other Austrian-influenced economists have been banging on about how it can be misleading   to drive policy based on the national accounting identity  Y=C+I+G (and extensions).

At its most banal the identity implies that – in theory – total income in an economy equals total expenditure. It’s the inferences about cause, effect and policy that follow from that identity that cause the problems.

I’m not going to buy into the broader arguments about the state of Keynesian and Austrian macroeconomics other than to say that they are well worth following. Many better qualified than I write on this. As a discipline, macroeconomics seems to be becoming less of a science by the day, and that’s a good thing, since it isn’t.

What is interesting is is how it fits with my short time tutoring undergrad economics at Sydney Uni in the early 2000s. This is a bit risky on my part, because I still haven’t finished off my M.Ec, politics and business having got in the way for the past 3 years.

Basically, first year Economics at one of our premier universities is Year 8 maths combined a rote-learned orthodoxy bereft of real intellectual or economic thinking.

Teaching young adults to solve simultaneous equations (Year 8 style) and announce an equilibrium value isn’t economics. Especially when, for example, the validity of the concept of equilibrium isn’t considered. Or any other central economic concept.

All is taken as given in a first year text. An intelligent 12 year old would ask more questions than are addressed in first year undergrad economics.

Very different from how I was taught in the early 1980s. Very different from how any serious discipline should be taught.

If the current turbulence in macro does anything, I hope it shines a spotlight on undergrad economics teaching. It needs it.

 

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