How Economics gets "is/ought" right, but "is" and "ought" wrong.

In Economics education, the prevailing methodology draws a distinction between "positive" economics (how things are, and why) and "normative" economics (how they ought to be). In this view, the economist's key contribution is objectivity: the ability to see how things are, without allowing one's own desires to colour their interpretation. Many observers (frequently on the "left") do not believe that such objectivity is possible; a researcher's views on how things ought to be will inevitably and unavoidably affect their view on how things are, and the researcher may as well abandon any pretense of objectivity and shamelessly promote their preferred viewpoint. These people tend to see modern economics as bearing a "right wing" agenda, and to them, the ostensible "objectivity" of economics makes its right wing influence all the more pernicious.

I have a foot in both camps. I believe objectivity is possible, and that the vigorously enforced positive/normative distinction is one of the very few things that economics gets right.* But the devil is in the details: while economics includes many of the correct ingredients when it teaches about "is" and "ought", it includes these ingredients in proportions that are so skewed as to appear intellectually negligent, if not downright sinister, to the thoughtful observer. The net effect is to leave economists with a much more "right wing" viewpoint than is warranted or healthy.

Starting out in economics, students are taught a model of perfect competition in markets ("is") and then taught that this is economically efficient in the Pareto sense ("ought").

From this foundation (and it's not a bad one), various avenues can be explored:
A) The model of perfect competition can be applied to various problems in macroeconomics, trade, etc (this is still "is"). It should be noted that solutions suggested in the framework of perfect competition and Pareto efficiency will pretty much always be market-based... any form of government intervention in a perfectly competitive market can easily be shown to be inefficient in the Paretian sense.
B) Departures from perfect competition (externalities, imperfect information, public goods) can be explored (more "is"). These are technically more difficult than the simple perfect competition model, but more "realistic", and government intervention often has a role to play.
C) The implications of these departures in B can be applied to macro, trade theory, etc. (still more "is")
D) A richer array of moral choices than those offered by Pareto optimality can be explored and quantified (like equality, justice, etc), and policy settings can be evaluated in the light of these various choices (here at last, we revisit "ought" and move it beyond utilitarianism). Exploring this richer array of market choices might also tend to lead one away from utilitarianism.

In my view, markets are rife with significant departures from perfect competition described in 2 above - perfect competition is not the rule, it is the exception. That's just the way things are: information is costly and some things can't be bought or sold in markets**. Also, I think it is self-evident that Pareto optimality is morally inadequate to guide economic policy.

If I'm right, then we can derive some good advice for economics from these observations. The first piece of advice is that economics should spend a great deal of time in economics on avenues B and C, and pay relatively less attention to A. The second conclusion is that economics should spend a great deal of time thinking about D, since this is what 80% of policy debates are really about, and economists presume to offer policy advice.

One might imagine that a first course in economics would concern itself largely with a perfect competition/Pareto efficiency framework while acknowledging the many possible limitations of that model, while more advanced courses would largely abandon the seductive ease of perfect competition and Pareto efficiency in favour of the realism and usefulness of imperfect markets and richer behavioural assumptions and moral viewpoints.

Sadly, this is not even remotely what happens.

What ACTUALLY happens is that the underlying paradigm (perfect competition and Pareto optimality) remains largely unchanged as the student progresses, but the mathematical rigour with which it is applied increases almost exponentially (especially in graduate school). The dead horse of perfect competition is beaten to a bloody pulp, and so are any critically minded, curious, and imaginative students. By the time a critically minded and curious student of economics gets to graduate school, the education process has become a nightmare.

Now, nobody *says* that Pareto efficiency is the be all and end all, nobody explicitly *denies* that departures from perfect competition exist, and your professors don't really *believe* in the completely selfish and unlovable people who inhabit our models. However, the relentless emphasis on technique*** occupies all available time and renders consideration of any broader criteria or approaches completely impossible.

When I started graduate school, I felt torn, as there were so many courses that I wanted to take. Trade looked interesting. Public Economics looked interesting. Environmental looked interesting. So much choice! So much variety! I felt like a puppy let loose in a public park. I soon learned that my "choices" were largely illusory: all the courses were the same shit with different labels on the buckets.

WHY this happens, I do not know. It might be institutional (perfect competition is simply easier to teach cf. Blaug). Partly it is because economics professors really believe that teaching you the high end stuff is really the best way to learn the low end stuff, even if they admit the low end stuff is better for you (cf. Solow). There might be something sinister at work, a shadowy cabal of capitalists wants it this way. I believe that this is just an example of accidental evolution: the profession didn't have to become this way, it just did. Those who don't want to get with the program leave, and the new leaders of the discipline end up creating little clones of themselves.

That this all does incalculable ruin to the world, as "ruin" is generally understood by most people, goes without saying.

* I might be wrong. In doing positive economics, one must inevitably describe what happens in terms of models. The economy is simply too complicated to describe or explain otherwise. But models include assumptions: behavioural assumptions about people and institutional assumptions about how the world works.

** Here, I am not alluding to the notion that some things "shouldn't be" bought or sold in markets. That's not an unworthy idea but it lies firmly on the normative side of the ledger. I'm saying that for technical reasons, they CAN'T be.

*** Economics professors claim that the emphasis on technique is necessary to do "cutting edge" research in the field, but what is "cutting edge" (ie what impresses the closed profession of academic economists and allows advancement in their insular little world) and what is actually useful are two different things.