The Biased Lens of Micro 1 at ANU

As many first years will happily (or unhappily) tell you, Microeconomics 1 is a prerequisite for almost everyone studying something that is not arts, law or science – this semester, it has a cohort of 900. However, insofar as their economic studies, many students will only take Microeconomics 1, and not Microeconomics 2 or 3 (heaven forbid that they take macro), and it will therefore be their last taste of formal economics at university. Hence, for many graduates of the ANU and their economic opinions, Micro 1 will be quite influential.

Unfortunately, what is increasingly clear is that this foundational view of economics is not apolitical, nor is it objective – it projects a certain perspective, and selectively omits much of the evidence that would contradict it. Take, for instance, the teaching of deadweight loss (which is effectively just the amount of inefficiency in the market). Deadweight loss can occur in a number of ways, two of which are taxation and monopolies caused by patents. Put simply, it is taught that both government taxation and monopolies damage the efficiency of the market in the short term – a less than efficient amount is produced, and it is sold at a higher than efficient price. In the prescribed reading, however, it is taught that inefficiencies due to patents are not always bad; given that patents drive innovation and creativity, they may cause inefficiency in the short run, but in the long run they can be condoned, as the innovations will boost productivity. None of the above is untrue. The issue is what is left unsaid.

It is noteworthy that companies may well use patents in the long term to boost economy-wide productivity. They equally may well use them (as we see in the pharmaceutical industry) to create scarcely improved products sold at exorbitant profits, incurring barely significant, if any, increases to productivity. This is not mentioned. Likewise, just as patents can in the long term be good for the economy, so can taxation. If the government spends taxation effectively on important infrastructure projects, it can boost productivity by a sufficient degree to offset and exceed the original inefficiency of the taxation. This is not mentioned. The examples and sidenotes told throughout the course are not strictly inaccurate, but rather selectively chosen. Thus, unless a student is reading critically (which we can probably assume most first year Micro 1 students are not), they will be sold a narrative that government is generally harmful, that corporations are generally beneficial, that short-term economic efficiency is all that matters and that markets generally achieve the best outcomes when undisturbed. None of that is inherently true. All of that depends on a given set of assumptions, the choice of model, the school of economic thought, etc.

The students who take Microeconomics 1 will often be those doing PPE, or commerce; they will be those who enter graduate programs with the public service, or go on to be influential in the private sector. Moreover, these will be the students who often have no other economics courses to challenge this specific presentation of economics. They will keep this narrative with them for a long, long time, as it is unlikely that anything will seriously challenge it – when are most people likely to read economic theory again?

University is intended as a means of opening students’ eyes to the plurality of perspectives in a field – it is intended to equip us with a multifaceted lens with which to view the world. But when the narrative sold is selective, many graduates of Microeconomics 1 will only ever see things from a specific perspective. Thus, the question is whether we want those who influence our public policy to see the economic landscape clearly, or through the biased lenses acquired in Theatre 1 of the Manning Clark Centre back in Semester 1, 2015.