What should students learn in their introductory economics courses? Are we, as Mike Konczal argues, “teaching economics backwards” (HT: Justin Wolfers via Twitter)? I’m sympathetic to Konczal’s argument that we need to focus more of our attention on the institutions that make markets possible in the first place, but I think starting with a complex economy operating below it’s potential would be a mistake. Here are a few thoughts.

1. I borrow from Peter J. Boettke and many others: there are macroeconomic questions, but there are only microeconomic answers. James Buchanan once exhorted economists to focus their attention not on optimization but on “the institutions of exchange, broadly considered.” The trade is the fundamental unit of analysis in economics, and without a thorough understanding of why people trade to begin with and what the implications of those trades are, we won’t be in a position to actually understand the macroeconomic questions.

2. In his criticism of Keynes, F.A. Hayek argued that before we understand how something can go wrong, we must first understand how it can go right. It’s obviously worth mentioning that things aren’t what they could be, but assuming involuntary unemployment as an analytical starting point begs the question. We have to first explain how those resources came to be involuntarily unemployed in the first place. Along these lines, W.H. Hutt’s The Theory of Idle Resources is an excellent (and challenging) read that deserves to be taken more seriously than it is.

When I arrived at Samford, I was puzzled as to why principles of macro is the first economics course. It’s also a university-wide social science elective, so I get a lot of students for whom this will be their only exposure to the economic way of thinking. In its current incarnation, we spend a lot of time talking about supply and demand, trade (including international trade analyzed using supply and demand), and the institutional foundations of economic growth before we start talking about business cycles. I do this imperfectly, but I work hard to make sure that “people respond to incentives” is applied to people who work for the government, as well. When all is said and done, students should leave my principles class with a clear understanding of how markets work, why some places are very rich while other places are very poor, and what (if anything) can be done about business cycles. I don’t mind if principles of macro comes before principles of micro, but students should definitely know how competitive markets work before they’re asked to consider why we have business cycles.