I was sitting with a bunch of economists the other day when I mentioned something that had occurred to me in writing my Defending the History of Economic Thought. The book has to be at the publisher on New Year’s eve which is why blogging is now at a virtual standstill. Anyway, I said that one of the main differences between the way we teach economics “today” (ie, since about the 1930s) in comparison with previous eras is that we today depend on diagrams rather than logic and reasoning. We therefore manipulate these diagrams up and down, back and forth without ever learning the economic logic that lies behind. It is therefore easier to teach and learn but superficial and usually indefensible if someone tried to explain the actual economic logic and relationships, which no one does. Micro, macro – all the same. Everything of importance is explained using some kind of diagram. Keynesian economics was to me the most obvious case in point. It is impossible to tell a coherent story about how the goods and services materialise from an increase in the mere spending of more money. The Y=C+I+G+(X-M) diagram did not even attempt to explain the economics. It just showed the result in a kind of before and after way without really explaining what went on underneath.
So, I was asked, don’t you think that those chaps who did all the work on the national accounts were right? Yes, of course, the national accounts are exactly right since the equation is then an identity, Y≡C+I+G+X-M, true by definition. But with Keynesian economics you cannot simply raise G and assume that Y goes up by the same amount since the elements, C,I,G,X and M are not independent of each other. If you raise G there may well be an increase in M so then where are you, same with the increase in any of these? And you know what, the conversation died right then and there, instantly. My point proved in two different directions, that using diagrams stops people from understanding the logic of the economics and that Keynesian economics cannot be defended and explained in words.