What interests (macro)economics learners, but not economists?

    Perhaps not many economics learners are aware that economists may not like to teach what learners want to learn. First, economists may not think some problems are important but students think that they are. Second, economists may not think some parts of the theory are interesting but students think that they are. These discrepancies matter to the learning experience of students. Let me share with you some of my observations here. I'll concentrate mainly on macroeconomics examples in this post (probably I will give examples in microeconomics in future if I can identify some good examples). 

   First, what will be counted as GDP or a specific component in GDP, and what won't be? 

   I found many students are interested in this question. They often ask me if a specific item should be counted as private or public, consumption or investment, etc. Of course, I will try to answer their questions. But let me tell you that I and, no double, many other economists are not quite interested in these questions. The reason why is that these questions are not of too much theoretical interests in economics. Yes, national income accounting, or GDP accounting, is not simple. Its foundations were laid down by the great economist Simon Kuznets. Yes, from 0 (none) to 1 (presence), inventing GDP accounting is a great achievement in economics. But accounting in itself is not normally something economists would be interested in. Some knowledge is necessary (for macroeconomics) but the detail is not very interesting. 

   Furthermore, practical stuffs in the accounting is sometimes quite arbitrary. It is hard to explain why or why not. For example, durable consumer goods (e.g. automobiles) are counted as an item in private consumption. But (new) residential properties are counted as private investment though the goods are essentially also durable goods. Should the good be considered as consumer or capital good? I don't think there is a very clear-cut line. Yes, properties cost much more to the users and it conforms more with our daily-life perception of what "investment" means (we say we invest in a property but not invest in a car). But perception is often not reliable. If residential property can be considered as a good not for consumption, why can't a car? 

   Yes, I have written some posts about GDP accounting. But that's because I think some blind spots in learning can be identified, not because I am interested in GDP. 

   Second, why is the general price level sometimes assumed to be fixed, say, in the short run?

   In macroeconomics, short-run models are quite different from models for longer time horizon. A key element that makes the difference is that price is fixed or stable in short run. But why price is fixed in the short run? 

   In general, economists are not very interested in this question. They are interested in the consequences of price stickiness but not the causes of it. Well, when I was a student, I am quite curious about why price may be fixed. For example, at the time when I learned macro, books or teachers often said that Keynesian models assume price is fixed while the Classical models do not. They would emphasize that this makes a big difference between the two schools but they did not say much about why price may or may not be fixed. 

   In fact, this "empty space" in fact was "used" as a criticism of one school to another. Classical school indeed criticized Keynesian school for its fixed-price assumption as arbitrary or ad hoc, accusing that Keynesian couldn't explain why price is sticky when adopting an assumption inconsistent with the economics tradition (classical assumption of flexible price). Keynesian school, at that time, didn't have serious studies on price stickiness but accused the Classical school of turning a blind eye to the fact that price is sticky in the real world. 

   So, you see: the fixed-price assumption is of importance. But still, not much serious investigations have been conducted on it. At that time, as a student, I wondered why there was no better justification for which assumption is more right if it is such a crucial assumption. 

   Perhaps the most famous explanation for price stickiness is Gregory Mankiw's menu cost, the cost of adjusting prices (such as printing new menus). But menu cost is more an idea than a product of extensive empirical researches.  

   As far as I know, only Alan Blinder, a Princeton economist, and his co-authors have done something more serious in exploring the question. They have written a book "Asking About Prices: A New Approach to Understanding Price Stickiness". This is an interesting book. But I doubt how many economists have ever heard about it. Well, as mentioned, they are not quite interested in this question. I do make use of some findings from this book to introduce the fixed-price assumption in my class. I think my students may also be like me: they will be curious about why the assumption is true and when it will be true. 

   Third, what is the process that brings about an outcome (in equilibrium)? 

   Most students know that economics emphasizes equilibrium analysis and treats equilibrium as a description of what happens in the real world. But most students don't know that economists often ignore the process that leads the economy to move towards the equilibrium. 

   In elementary courses, students learn the demand and supply analysis. The equilibrium is learned as the intersection point of demand and supply curves. They also learn that if price is higher (lower) than the equilibrium level, quantity demanded is smaller (larger) than quantity supplied and so price will move down (up). The impression is that economists have already explained to students the process leading to equilibrium (price adjusting up or down). 

   This impression is wrong. 

   Economists are often simply concerned with the existence of the equilibrium in a system (such as in demand-supply model), but not the process. Even for demand and supply analysis, it is notorious that the model lacks a description for why price will move as described so that equilibrium can be achieved. Earlier economists assume that there is an auctioneer who performs the job. It asks bidders and sellers to submit their wanted quantity and quantity on offers. It revises prices up or down based on information collected. No deal will be struck until the offers and bids are equal. As such, the auctioneer can ensure that an equilibrium is resulted. 

   But the existence of an auctioneer is, for most goods, a fiction. Of course, it exists in some formal exchanges but certainly not in most commodity markets. 

   Other ideas about the process were raised. For example, someone may act as an intermediator when demand does not equal supply. They will buy and sell for an arbitrage profit. Alternatively, goods may be re-traded even after a contract has been signed between buyers and sellers. The re-contracting activities leads the economy to move towards the equilibrium. 

    Do students, or the readers of this blog, have ever heard these ideas before? I think most of them haven't as textbooks will not cover them and so do most teachers. Without exaggeration, I would say economists are normally not quite interested in these ideas about process. Perhaps they may know the auctioneer idea but mostly likely they don't know other ideas. But they also don't want to emphasize the auctioneer idea as they know that it is unrealistic in most cases. 

   Basically, economists want only to make sure an equilibrium exists, and at most also the stability of it (whether the economy will return to the equilibrium when encountering a small deviation from it). 

   There may be a reason for economists to ignore process. But my teaching experience leads me to believe that students want to know the process. They may not even understand the whole analysis if they are not told how the equilibrium will be achieved. That's why I always try hard to tell them something about the process. 

   For example, in Keynesian goods market model (Keynesian cross), some students may find it puzzling if I simply tell them that Y=C+I+G+NX=Z in equilibrium. You need to tell them how the equilibrium is achieved. You may need to explain that Y (output) > Z (demand) leads to unplanned inventory accumulation (so producers will produce less) and Y<Z leads to unplanned inventory decumulation (so producers will produce more). 

   Similarly, you can't simply say, under imperfect (perfect) competition, price is the cost together with a (zero) markup. You need to describe the process: if the price is higher than the cost by too high (small) a markup, firms will enter (quit) the market and push down (up) the price. 

   Yes, I think in quite a number of occasions, economists don't provide the answers students want and students are not interested in the stuffs economists teach them. In a way, I think this is due to students' and economists' different ways of thinking. Students are more story-based. They need to know the stories behind when you claim that something will happen. Economists are more mathematical based. If the math works, they are satisfied. 

   I will not say the economists are wrong. I am also an economist. But if they (and I) want to teach, and convey their messages to students, they may need to reflect more on how to teach.