Illustration by Tim Chiu

Econ 101: The Illusion of Economics

In contemporary discussions of politics and lawmaking, it is common for people to refer to principles from what is considered “Econ 101”. But are all of these commonplace beliefs rooted in reality?

Sep 19, 2021

Few things are as pervasive as Economics 101 in vernacular discussions of politics. Concepts such as “supply and demand”, “equilibrium” or “deadweight loss” have entered the public discourse as evident facts of existence. “Basic economics” has become the shibboleth of the pragmatists and the realists.
All around, both well and ill-intentioned sophists invoke its name as they tip their hats to each other and laugh away the stimulus-heavy New Deals, minimum wages and taxation schemes of the naive idealists. Econ 101 is an orthodoxy whose veneer of certainty has ensorceled the masses.
Here, I want to chip away at that veneer — by showing how Econ 101 was applied over Economics by vain economists and mobilized by certain segments of the political spectrum and, perhaps most importantly, illustrating how it often breaks down when held up against reality.
The appeal of Econ 101 probably has a lot to do with its simplicity. Concepts such as supply and demand rely on mechanisms that appear commonsensical: as the price of a commodity goes up, producers will want to produce more of it, consumers consume less of it and vice versa. The supply and demand model is also ubiquitous. When using the model, one graph is seemingly enough to study phenomena as diverse as taxation, rent control, minimum wage and many others. This simplicity is not only appealing to laypeople; it also fits in nicely with the aspirations of certain economists and the political goals of certain classes.
For mainstream economists like the late Lionel Robbins, a prominent professor at the London School of Economics, the laws of economics follow squarely from “deduction from simple assumptions reflecting very elementary facts of general experience.” Simple, elementary assumptions are key because they are more likely to fulfill their role of being the undoubtable basis of more complex theories and a trusty jumping point from which to attain grander ideas. They also have the attractive quality of being a method shared by physics. Indeed, thinkers like Sam Haselby have referred to a “physics envy” in the field of economics: a willingness — no, a desire — to treat the findings of economics as immutable as those of physics.
As for the standard bearers of Econ 101 in the public sphere, their commitment to the cause probably stems from its coincidence with their own. The link between the popularity of an economic theory and its palatability to the dominant classes was not lost on John Maynard Keynes. In “General Theory of Employment, Interest and Money,” Keynes expressed his puzzlement at the prevalence of a patently false economic assumption in neoclassical economics: David Ricardo’s belief that aggregate demand can never be deficient. However, he had a few ideas as to why this might be the case, the most important among them “That [Ricardo’s theory] could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress and the attempt to change such things as likely to do more harm than good, commended it to authority.”
It would not be absurd to apply a similar logic to Econ 101’s popularity. In fact, some, like James Kwak, even go as far as to call Economism, defined as a belief in Econ 101, an ideology.
Such enthusiasm for Econ 101 would perhaps be tolerable only if it were based on empirical evidence. According to the principles of Econ 101, minimum wages increase unemployment, taxation breeds inefficiency and rent control decreases both quantity and quality of rental housing. However, empirical studies have provided evidence of the opposite. To name a few, Arindrajit Dube, T. William Lester and Michael Reich found that the employment elasticity of the minimum wage — the extent to which a minimum wage policy would affect employment — was close to 0 and Robert A. Moffitt & Mark Wilhelm discovered that decreased taxes on the more affluent did not lead to increased productivity.
Even in studies of rent control, the tenets of Econ 101 muddy the terms of the debate more than they clarify them. Of course, these studies do not fall outside the field of economics. Rather, they reveal the inadequacy of Econ 101 in designing and debating policy, such as President Biden’s increase of the national minimum wage, criticized by the Congressional Budget Office on some quite shaky grounds. At the very least, Econ 101 and its illusions have very little to do with actual economics.
Karim Mohamed Boudlal is Opinion Editor. Email him at
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