Foundations of Real-World Economics

The course explains complex economic processes in straightforward terms so that they can be understood without mathematics or prior knowledge of economics. The emphasis is on understanding the way the economy actually works in the real world, rather than relying on unrealistic assumptions, abstract models, or excessively formal theories. The course uses the inductive approach: we examine the empirical evidence first and then infer from the data how people really behave in economic settings shaped by asymmetric information, bounded rationality, transaction costs, and unequal power relations. Concepts developed in the course are applied to contemporary controversial issues, including the minimum wage legislation, the role of labor unions, and why unregulated markets systematically overcharge for health care. We examine why Noble Prize-winning economists such as Paul Krugman and Joseph Stiglitz have been sharply critical of the current economic situation—highlighting its extreme inequality, chronic underemployment, massive trade and government deficits, stagnating real wages for many, lack of affordability, the lack of inclusive growth, and most of all, the failure to provide a dignified standard of living for tens of millions of its citizens. A central theme of the course is that mainstream economists have struggled to address the challenges of globalization, inequality, and technological unemployment because they often lack the imagination to think creatively about new institutional structures. Instead of focusing narrowly on production and consumption, the course explores what it would mean to move toward a full-employment economy in which quality of life, social stability, financial security, and human dignity take precedence—in a capitalism with a human face. To that end, the course integrates insights from history, psychology, sociology, and political science into a common-sense economic framework in order to explore these issues from a humanistic perspective. We also discuss the achievements of Nobel Prize-winning behavioral economists, the economic lessons of the financial crisis of 2008, the COVID-19 pandemic, and conclude by examining the economic roots of the recent rise of right-wing populism.