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Economics professors are training virtual reality gamers.

Professor Mark Thoma, who hosts the best economics blog on the web, writes this:

Congress and the executive branch have, to a considerable extent, been devoted to business interests in recent years. In essence the argument is that what's good for business is good not just for America, but for the whole world. The ideological basis for this approach is that the interests of business and of greater society always coincide so that maximizing business interests maximizes social benefits at the same time, and that a hands off approach from government is the best way to allow those coincident interests to express themselves.

Unfortunately, however, this ideological foundation incorporated a flawed understanding of the interaction between market structure and social benefits, particularly the ability of markets to self-correct when the market structures deviate from the socially optimal structure. The result of this, particularly as it came to be applied in the political arena, contributed to the existence of cronyism, rent-seeking, institutions that became too big, interconnected, and too powerful to fail, and other problems. Political power combined with rigid ideology built upon a false premise - the doctrine of immediate self-correction by markets - gave us a result that was far from the competitive ideal presented in textbooks, a world that was far from the ideal competitive model that produces such large benefits for society.

I think there is some understanding that the approach of the past did not work, with the current state of the economy it's hard to argue that it did, and that we need to go in a new direction. And I'm sure we will try. But I wonder, when all is said and done, will anything really change?

There are millions of citizens and public officials who graduated from college believing that what they were taught in two semesters of economics was "true." That's how the text books are written, and teaching the current standard model may be the easiest way to cover a lot of material. For the rest of their lives, most of these graduates will start their thinking about every economic issue from these same core beliefs--including beliefs that professional consensus later finds objectively false or rarely relevant in the real world. Pete Peterson is an egregious but typical example.

In a little while, the standard model in economics texts will be revised, and some different set of "truths" will be instilled into the next generation of collegians. Whatever they are, these new truths will eventually be spectacularly contradicted by the real world and will be replaced, leaving millions of angry and distrusting believers unable to adjust. So updating the standard model does not get at the fundamental problem that economics is often taught, and even more often received, as a secular religion. Professors, you're more responsible for this than your alumni.

Perhaps if the first (for most students, the only) year of economics were taught as history of economic thought and political philosophy, professors would portray less certainty and, thus, do less long-lasting damage. Or teach the course by the case method in which students are exposed to a full range of conflicting arguments and materials and come to the realization that we don't know for sure why what happened happened, that subtle differences in the facts might have led to different outcomes, and that there is a lot more uncertainty in the real world than in the virtual reality models of economic "science." Perhaps graduates of such programs would be more apt to analyze unique real world problems with the tools of economics rather than to thoughtlessly apply the same "solution" to every problem.

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