Fisking Samuelson & Nordhaus, Part 1 of ?

I recently went searching through my book collection to find my old economics principles book, and was unable to find it. I wanted it because I there was some tidbit that I was failing to recall fully that I thought might be in error. As it became obvious that continuing to search for it was worth less than the $100 or so a new textbook would cost, I hopped over to Amazon and purchased the latest edition of Samuelson's and Nordhaus's principles text, Economics. Samuelson's principles text is the standard for most introductory economics courses. Sometime between ordering the book on Wednesday and receiving it on Friday, I totally forgot what tidbit I was after. :???: Oh well. I had this nice shiny new college text written with middle school level grammar in my hands and not much else to do, so I opened it and started reading chapter one. It starts off with a bunch of hand waving then proceeds into fallacy after fallacy leading to compounding errors, and I'm only talking about the first 8 pages! At this rate the idea of a couple of quick blog posts pointing out what I believe to be the errors between basic "mainstream" economics and reality will become a re-write of the entire book. So be it.

As with most all principles books, the first chapter is the fluff of why we should want to study the subject, and a little about what we should expect in studying the subject. There is also a broad overview of what we are actually studying. Samuelson is considerate enough to warn the student that economic thinking may at times be counter-intuitive and this is due to common logical fallacies. He gives three here and promises more later on in the book. The first is the post-hoc fallacy, which his example is perhaps not as illustrative as some other examples might be. The second fallacy he gives is the failure to hold other things constant, which in his example he commits another fallacy by attacking a straw man. His example is the supply-side theory. Supply-siders point to J. Kennedy's cutting of tax rates and the subsequent increase in tax revenue as proof that cutting tax rates can increase tax revenues. Samuelson suggest that the supply-siders failed to hold growth constant while evaluating the effects of rates on revenue. Now I'm no fan of supply-side theory, but isn't the Laffer curve all about economic growth? That is, cutting taxes can increase tax receipts, because the economy will grow more? There are plenty of examples available to show the fallacy, he does not need to mis-represent ideas. He then points out the third fallacy, which together with another common fallacy he fills the rest of the chapter. The third fallacy is the fallacy of composition. . This is a very common fallacy that economics students and non-economists commit when discussing or thinking about economics. It has tripped me many times. And his examples are spot on. Why then does he combine this fallacy with anthropomorphism to fill out the remainder of the chapter? Because economists since Adam Smith have done the very same thing. Samuelson states:

Every human society - whether it is an advanced industrial nation, or an isolated tribal nation - must confront and resolve three fundemental economic problems. Every society must have a way of determining what commodities are produced, how these goods are produced, and for whom they are produced.

The very title of Smith's otherwise excellent work, The Wealth of Nations, suggest the error, and most classical and neo-classical economists continue in this error. Nations and societies are abstractions. As such, they do not have anthropological properties, nor do these sets necessarily have the same properties as individuals. Societies do not trade, they do not produce, they do not even think. Individual people do. Individuals may team up to create complex trades, such as at a grocery store, but it still boils down to a series of trades by individuals.

Why do I think this is so important? Let's consider David Ricardo's Law of Comparative Advantage. Comparative advantage states that even though one nation may be more productive in all areas than a second, it is still to both of their advantage to specialize their production and trade with each other. The problem is that one might think it best if all the English specialized in making cloth and all Portugese specialized in making wine. But this is absurd. What if John has the best vineyards in all of Europe? Shouldn't he specialize in making wine? What if Pedro has the finest wool in all the world? Shouldn't he be in the cloth trade? Ricardo's law of comparaitve advantage applies fully to individuals, but not to nations. The underlying math is simple and obviously true. If it is true for nations, then why are there new cars travelling onboard ships going both ways between Korea and the U.S.? Because the individuals at Hyundai and the individuals at GM have a comparative advantage (if not an absolute advantage) to the rest of the individuals in both nations. If we think in terms of individuals instead of nations, cargo ships carrying cars in both directions starts making sense.

Thinking in terms of individuals rather than nations compare the the following text from Samuelson:

By contrast, a command economy is one in which the government makes all important decisions about production and distribution.

and my rewrite:

By contrast, a command economy is one in which a few individuals make all important decisions about production and distribution.

Somehow the second one just doesn't sound as enlightened, though both say exactly the same thing.

I will leave you with one thing that Samuelson says that is absolutely correct, even though we completely disagree on actual implementation:

By using cool heads to inform our warm hearts, economic science can do its part in ensuring a prosperous and just society.
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I guess this would be part 1

I guess this would be part 1 of 1.000+. The fallacies in S&N textbook are just countless.

what basic econ intro book

what basic econ intro book would you recommend instead of Samuelson's textbook?

thanks

Jose, I *know* it won't be

Jose, I *know* it won't be 1000+, I'm cutting it off after a few more. :behead:

bima, that is not an easy question to answer. If you want a great introduction to economic thought that provides the best expanation of reality, I'd suggest Gene Callahan's Economics for Real People. If you want to learn neo-classical economic thought then Samuelson is probably the best. To the best of my knowledge all neo-classical principles texts have the same type of problems.

My own recommendations for a

My own recommendations for a good introduction in Economics (in addition to Callahan's book are:

Economics of the Free Society, by Wilhem Röepke,

Economics in One Lesson, by Henry Hazlitt

Carl Menger's Principles of Economics.

If you gather enough aim (and time), you can lead to

Human Action, by Ludwig von Mises and

Man, Economy and State, by Murray Rothbard.

Jose Any views on David

Jose

Any views on David Friedman's "Price Theory - An Intermediate Text" as a neo-classical alternative to the Austrian stuff?

Of Course. David Friedman's

Of Course. David Friedman's Price Theory is excellent within the neo-classical tradition. It is better than his father's Price Theory. I must also say that I think thar David Lindey's Textbookis better than Samuelson's.