During the last century when I took my first course in economics, we were required to list both the advantages and disadvantages of capitalism.  Once done, it was almost always clear that capitalism had numerous advantages over socialism.  But, there were disadvantages!  First, Karl Marx was right that “the sins of management are visited upon the worker.”  In other words, capitalism can be cruel.  It is efficient but cruel.  Second, capitalism does not price-in social costs.  In other words, the price you pay for gas at the pump includes the acquisition cost and processing of oil, the distribution of the product, plus the marketing and corporate overhead.  It does not pay for the environmental damage, which has very real costs.  Society as a whole pays part of your cost whenever you fill up.  Why don’t you pay for the environmental damage your gas consumption causes?

To repeat, once this process of listing advantages and disadvantages of capitalism was completed, it was clear that capitalism was superior.  Facing the disadvantages did not change our conclusion!

John Komlos of the conservative University of Chicago just authored What Every Economics Student Needs to Know and Doesn’t Get in the Usual Principles Text.  He argues that capitalism is now presented as “God’s gift to humanity.”  It is not!  It is an economic system that allocates resources efficiently, despite certain shortcomings.  But, it has become more like “that old-time religion” than analytic economics.  For example, all taxes are bad and damage the economy.  There are no exemptions, not even for research, nor Social Security, nor healthcare, nor anything else.  No revenue extracted from taxpayers can ever have any multiplier impact on GDP.

I have written often about Hyman Minsky and his Minsky Moment, which is no longer taught to economics students.  Instead, they are taught mathematical models.  Even the admission of Greenspan that his model didn’t work — failed to reduce reliance on econometrics.  The Fed has 300 Ph.D. economists on its payroll and still failed to see the global financial crisis, because they were fine-tuning their mathematical models.

One million students take an economics course every year and are taught about super-rationality, where all consumers of all products have 100% knowledge and never make irrational decisions.  (This is mirrored in investment theory where it is called the “efficient market.”)  But, the world is not perfect.  Consumers/investors never have perfect information nor make perfect decisions.  Why teach a world that only exists in theory?