Which economic ideas are hard to popularize?

Ryan, a loyal MR reader, asks:

1. What are the most important economic ideas that are not popularized, i.e. not accessible to laypeople in books and articles by credible authors? …Are there any theories that have gained traction over competing theories based primarily on their ability to be more easily conveyed to a layperson audience as opposed to their providing a better solution to a particular problem?

As for non-popularized theories, I have a few nominations. First, the sensitivity of many economic results to assumptions about Bertrand, Cournot-Nash, and other solution concepts is not easily popularized.  Second (until the Cowen-Tabarrok macro text), the Solow growth model was not easily popularized.  The difference between a "once-and-for-all" change and a "change in the rate of growth" is not well understood, probably not at any level, yet it is important.  Tax incidence theory is not easily popularized, although an incorrect version of it — "they'll pass it all along to consumers" — circulates.

Most behavioral economics can be easily explained in popular terms and that partially accounts for its broad influence.  Most people are also capable of grasping a crude version of Keynesian economics, albeit without the subtleties of Keynes ("we should spend more" resonates).  The insights of supply-side economics and monetarism have been popularized without much difficulty.

Most of all, it is hard to popularize "maybe" claims, agnoticism, uncertainties, confidence intervals, and contingencies.  The marketing process encourages excess certainty.

In terms of good but hard to popularize economic theories, what else can you think of?

Comments

Easy: "Dead-weight Loss"

You can draw the parallel lines and shade the little triangles and explain the concept of "net social welfare" all you want - and a small percentage "get it", a fraction just outright resist or dismiss the notion (depending on which policy preferences they wish and hope to be costless or "optimal"), but, depending on the sophistication of the crowd I suppose, a lot of folks are just going to tilt their head and blink.

I've had more luck with real numerical examples - going through a simple situation with a producer with a simple cost curve, a consumer, a "tax" or what-have-you, and showing the loss to the whole system. But even then, the induction step from particular to abstract is a leap for most people.

Comparative advantage:

Nobel laureate Paul Samuelson (1969) was once challenged by the mathematician Stanislaw Ulam to "name me one proposition in all of the social sciences which is both true and non-trivial." It was several years later than he thought of the correct response: comparative advantage. "That it is logically true need not be argued before a mathematician; that is is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them."

P.A. Samuelson (1969), "The Way of an Economist," in P.A. Samuelson, ed., International Economic Relations: Proceedings of the Third Congress of the International Economic Association, Macmillan: London, pp. 1-11.

The rate change/once and for all change dynamic is not well understood by the president. In august he claimed that 8 out of 10 new jobs would require college/workforce training, but the BLS report referenced only says that these jobs are growing at a faster rate (and that on-the-job training ones will continue to make up 60% of the economy).

"New" probably means not replacing someone, but the formulation seems like it was designed to scare up more money for subsidized student loans.

This idea may not quite fit, but I find that almost no one in the media really understands the difference between the mean and the median.

That whenever someone buys something, that requires someone else to have sold something.

One would think that this falls out of the definition of "buy", but at the moment I keep running into people who think that rising land values are a bad idea for the macro economy because it means that people tie their money up in land rather than spending it on something productive.

All of Marxian theory...institutionalism...overdeterminism...post-Keynesianism... everything we learn at UMass. After taking "layman" micro and macro, these ideas can turn one's brain to mush. And they are good theories, even if you do not agree with them, since just the debate instigated by heterodox economics likely improves the arguments of other schools of thought.

Arrow's Theorem and what that means for welfare economics and democracy.

Dare I say "Say's Law"?

While poorly understood isn't the same as not popularized, I'll still nominate the difference between "average" and "marginal"

Bayesian inference. Not an economics idea, but an idea used prolifically in economics. Famous mathematicians have been known to stumble badly on the simple Monte Hall problem.

On economic ideas that are non-trivial, "true", and transparently understood, tatonnement must be near the very top of the list.

The very simple concept of value. Most people confuse price for value. For that matter, understanding price as a signal of value is lost on most people. I've had hours of conversations with people about this. They have a hard time understanding that when they buy something they are intrinsically valuing it more than the money in their pocket.

The idea that higher-order beliefs matter is deep and important (beauty contests are everywhere!) and very hard to understand without a formal framework.

Greg Ransom: Any of the economic concepts that can't be put into a math construct made up of mathematical "givens"
...
Try popularizing any of those things among economists -- there is no professional payoff, no hope of publication, no Nobel Prizes, etc. for any of it.

This is wrong. Hayek, Amartya Sen and Elinor Ostrom immediately spring to mind as Nobel Prize winners for their qualitative analyses.
Or, for that matter, Keynes, he died too young to get a Nobel Prize, but he got lots of professional pay-off.

An interesting question - why do so many critics of economists have zero interest in fact-checking their claims?

"It was several years later than he thought of the correct response: comparative advantage." That tells you all you need to know.

Tracy, I stand corrected. A couple of non-math jocks have snuck through the Nobel selection process.

Heckscher Ohlin trade theory is a concept the profession itself has a hard time getting its head around as evidenced by the great NAFTA and GATT debates in the early 1990's.

Ironically the average man in the street grasps the essential point intuitively: that when the comparative advantage consists of a relative abundance of low-wage labor, wages will fall in the high-wage country.

For Prof. Cowen to propose "the sensitivity of many economic results to assumptions about Bertrand, Cournot-Nash, and other solution concepts" only highlights how out of touch the profession is with the one issue that matters most: the distribution of income in a market economy.

When will the economics profession turn its attention to the problem of implementing of a graduated expenditure tax in conjunction with an efficient way to subsidize real hourly wages? The alternative would seem to be a return to protectionism -- or worse, the end of America as a middle-class society.

Samuelson and company have a lot to answer for in my non-professional opinion.

The insights of supply-side economics and monetarism have been popularized without much difficulty.

The trouble with the supposed insights of supply-side economics is that they have been popularized as "tax cuts always pay for themselves." It's easy to see why that's popular, but that popularity detracts from, rather than enhances, public understanding of economics.

Sweatshops are preferable to the alternatives.

Agreed on comparative advantage. I'd add sunk costs, though perhaps they are not so much hard to popularize, as resolutely opposite to the ways we like to think.

Actually, wouldn't any "economic fallacy" be a candidate?

I don't think supply-side is well understood at all. If you asked ten people what it is, nine would answer, "Supply-side is the notion that cutting tax rates will result in more tax revenue." Opponents of supply-side reforms have managed to turn the subject into a pure debate over the Laffer Curve, which they feel has been completely discredited.

Other than that, I think comparative advantage has to be the #1 misunderstood concept when grading by the importance of the concept in political debate.

B.B.: Maybe the hostility to corporations comes from the observation that they tend to lean on political favors, contradicting any claim to relevance when evaluating a "free-market" economy (because they clearly do not operate in one)?

I find it amusing that you bemoan the lack of nuance in understanding Keynes and follow that with (a deadpan?) " The insights of supply-side economics and monetarism have been popularized without much difficulty."

This may be personal bias, but I believe the single most misunderstood economic notion at this point in time is the Laffer curve.

General equilibrium effects are not that hard to explain but they have not been popularized. "Tax incidence" was mentioned as a candidate in a few posts, but even after you understand tax incidence you have to reconsider and amazingly often have to turn the story upside down in general equilibrium. A cute example is Marty Feldstein's paper on "A tax on pure rent".

My opinion is that even within the field general equilibrium is a neglected consideration.

To Abel Fernandez: Mankiw's intro text points out that trade can be considered a technology so I suspect more and more people will grasp this idea. IMHO he does a good job of explaining Solow too.

Surprised no one mentioned Coase.

Along with it, the communal stream.

No Free Lunch : everyone arouds hopes to make a living without even getting up her chair and keep talking.

Imputed rent. Try convincing your parents that the biggest tax benefit of owning a home is not the mortgage interest deduction, but the fact that the imputed rental stream of owner-occupied housing is excluded from the tax base.

Comparative advantage, definitely. Essentially everybody who thinks they understand it who is not at least a graduate student in economics, has it completely wrong.

They say stupid things like "The USA would be wealthier if we had no government regulation of business, imports or exports, regardless what any foreign government does.".

Dan H.,

I don't think supply-side is well understood at all.

What do you think the insights of supply-side economics are? I don't think the notion that taxes affect behavior is particularly revolutionary, myself. OTOH, the Laffer curve business seems to be widely touted by "supply-siders."

Nash equilibrium?

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