How exactly are generations of really zaheen students indoctrinated through graduate programs in economics? How are obviously questionable ideas internalized by the best of the best at the best schools across the world? Many economists admit that there is something seriously wrong with the theories and ideas being taught and yet they continue to teach them. So where exactly does it go wrong? From my experience, it is usually at the beginning. Also, the indoctrination occurs sometimes as pedagogical oversight and not as deliberate deception. The particular oversight that occurs most frequently is the glossing over of the critically important introductory part of the textbook where the assumptions, history and context of the subject are introduced. What happens as a result is that ideas that were heavily debated and only believed by a small group of people at the time of inception are taught if they were “true without question” to large groups of students and the further away in time we get from the origin of the particular ideas in question, the more “generally acceptable” they become. I’ve had two different experiences at the beginning of courses in classrooms where I was attending lectures.

1. The teacher spends time at the beginning of the course explaining and clarifying the assumptions, the limits and the scope of the science of neo-classical economics and then moves on to the quantitative techniques and never returns.
2. The teacher skips the introduction and context goes directly to the quantitative techniques.

The second scenario is more common. A case in point is the current class I am taking in econometric methods. The teacher is using the textbook by William Greene and began teaching somewhere in the middle of chapter 2 although the precious little context and background that is included in the textbook is in chapter 1. I have made a practice of reading introductions to textbooks on my own and writing small responses to them. This helps me to stay focused during lectures and avoid falling into despair. Here is my response to the introduction by Greene. I have tried to frame it by including ideas taught during the lecture 1,2 and 3 of this course.

Econometric Analysis by William Greene: Response to Chapter 1

In the introduction, Greene outlines how a linear regression is brought into being. He says that “econometric analysis will usually begin with a statement of a theoretical proposition.” He then offers the following excerpt from Keynes’s (1936) General Theory of Employment, Interest and Money.

We shall therefore define what we shall call the propensity to consume as the functional relationship f between X, a given level of income and C, the expenditure on consumption out of the level of income, so that C = f ( X ).The amount that the community spends on consumption depends (i) partly onthe amount of its income, (ii) partly on other objective attendant circumstances,and (iii) partly on the subjective needs and the psychological propensities and habits of the individuals composing it. The fundamental psychological law upon which we are entitled to depend with great confidence, both a priori from our knowledge of human nature and from the detailed facts of experience, is that men are disposed, as a rule and on the average, to increase their consumption as their income increases, but not by as much as the increase in their income.

From General Theory of Employment, Interest and Money by John Maynard Keynes, 1936

The particular theoretical proposition that Keynes is making in this excerpt is that there exists a relationship between the level of income of an individual or society and their expenditure on consumption. He calls this relationship the “propensity to consume.” Keynes admits in part (iii) that this depends, at least partially, on the subjective attitudes and propensities of particular people. In this, Keynes is correct but he nullifies the effect of this admission of subjectivity in the very next line by asserting, without proof, what he calls a “fundamental psychological law” which states that men are disposed to increase their consumption with their income. This is a subjective judgment that belongs to Keynes and Keynes alone. He says that he knows this “a priori” from his “knowledge of human nature and from the detailed facts of experience.” It is his experience and the “facts” that he has gathered through it that is the basis of the theoretical proposition about propensities to consume. The entire exercise is based on this subjective judgment and all “objective” statements that are later numerically actualized through the regression are null and void if we separate them from this subjective foundation. The fact that Keynes does manage to demonstrate the “law” for the particular sample does not prove it in general. Counterexamples to this “law” can easily be found by casually observing the spending habits of even a small randomly chosen group of people. Any generalization to a larger group is rhetorical and the regression results are a part of that rhetorical device.

In a footnote to this, Greene adds the following:

Modern economists are rarely this confident about their theories. More con-temporary applications generally begin from first principles and behavioral axioms, rather than simple observation.

From Econometric Analysis by William Greene, Fifth Edition, pp 2

The first statement is saying that modern economists doubt themselves more than Keynes and this, by the Cartesian ideal of doubt as intellectual virtue, is suggesting that modern economists apply more rigor in testing their theoretical propositions. This maybe true and is definitely an improvement but it changes nothing about the way regressions work. They begin with subjective assertions, beliefs or conjectures of the analyst. While the results of the regressions can be shown to be ”mathematically correct,” they cannot be used to show the validity or the verity of the theoretical proposition that preceded the regression.

The second statement states that modern applications do not rely, unlike Keynes, on subjective observations but are based on axiomatic ”truths” or ”first principles.” This is a statement with enormous implications so it is puzzling that Greene chose a footnote as its resting place. What the statement seems to be saying is that there are such things as”first principles” or ”behavioral axioms” that must be taken to be true without empiricalevidence and must serve as starting points for the development of a statistical device thatwill provide empirical evidence. Is it not an axiom of modern science that nothing is takento be true without empirical evidence? If we have to violate this axiom to develop thestatistical device that will provide the empirical evidence needed to uphold the axiom, weseem to have a contradiction.