Economics 1: Now More Important Than Ever

Two weeks from today, I start teaching Economics 1, Stanford’s introductory economics course, and the namesake of this blog and my twitter account.   I am looking forward to it, and for the same three reasons that I gave years ago when I started teaching the course: (1) “I love to teach.” (2) “I love to do economic research” and teaching is “a natural extension of research.” (3) “I love economic policy—the application of economics to government as well as to decision-making in business.”

But things have changed dramatically since I started teaching this course decades ago.  In many ways, it is like a whole new course. And that’s exciting for me and for students.  Economics 1 is more important now than ever as the world becomes more computerized and quantified. The course now shows how ignoring economics as we consider the latest ideas in artificial intelligence, machine learning, deep learning, or big data is a recipe for disaster.

The course also shows how it’s possible—as never before in history—to make economic ideas work better in practice to improve people’s lives. Of course, we continue, starting in the first lecture, to stress the central idea that economics is about making choices with limited resources and about people interacting with other people as they make these choices. We show why free competitive markets can improve people’s lives and how such economic systems have removed millions of people from poverty, with many more, we hope, to come; we also discuss market failures, remedy to these failures, and government failure.  And as I wrote ten years ago on this blog severe set backs such as the global financial crisis are a vindication rather than a failure of economics, or more generally, we will see why good economics leads to good policy and good outcomes, and bad economics leads to bad policy and bad outcomes.

And now, and this is another big change, there’s a renewed interest in alternatives to market economics, whether you call it market socialism or more simply highly interventionist economic policy. These issues came up years ago when central planning was still used around much of the world including in Russia or China. With the demise of the Soviet Union, some case studies that showed the harms of central planning are forgotten and are not as relevant. It was helpful then to discuss, for example, how Soviet production plants could fulfill centrally imposed plans by producing, for example, one 500-pound nail rather that 500 one-pound nails, even though the giant nail was useless. Now we need new stories that take new ideas seriously.  The overall goal is to use the latest ideas in economics to understand the reasons for rising living standards and to deal better with inequality, crises, and unemployment.

In addition to the large lectures, I am happy to say that there will also be small discussion sections. There are also exciting special guest lecturers this term including Caroline Hoxby on the economics of education, Susan Athey on artificial intelligence and economics, Chad Jones on the latest ideas on economic growth, and even The Best Economics 1 Lecture Ever.

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