Foundations of Real-World Economics

The course is devoted to analyzing complex economic processes in straightforward terms so that they can be understood without the use of mathematics and without prior knowledge of economics. The focus is on understanding the way the economy works in the real world without relying excessively on assumptions, math, or abstract models of the economy. We use the inductive method, which is a scientific method that considers the empirical evidence first and then infers from the data how people actually behave in real markets where asymmetric information, bounded rationality, transaction costs, and uneven distribution of wealth and income dominates. We apply the concepts we learn to contemporary controversial topics such as minimum wage legislation, the function of unions, and why the free market overcharges for health care. We explore why Noble Prize-winning economists such as Paul Krugman and Joe Stiglitz are so critical of the current economic situation for its dizzying inequality, its endemic underemployment, the humongous trade and government deficits, stagnating wages for the less skilled, the lack of inclusive growth, and its inability to provide a dignified life for scores of millions of its citizens. Most economists do not have the answers to the challenges of globalization, inequality, and technological unemployment because they are unable to think creatively about new institutional structures that would enable the US to transition to a full-employment economy in which the focus is not on production and consumption as much as on the achievement of a high quality of life in capitalism with a human face. In contrast, this course weaves ideas from history, psychology, sociology, and political science into a common-sense economic perspective in order to explore these issues. We also discuss the achievements of Nobel Prize-winning behavioral economists and the impact of the financial crisis of 2008, and the main effect of the COVID-19 pandemic. The course ends by outlining the economic roots of the rise of populism.