Textbook confessions: government failure.

Author:Eyzaguirre, Hugo
  1. Introduction

    The Principles of Economics course serves as an introduction to the discipline for economics majors. It is also likely to be the only encounter nonmajors will have with the field. What they learn may become the permanent lens through which they will observe and understand how the economy works. Therefore, the principles course needs to be simple enough to foster a solid understanding of different aspects of the economy, yet thorough enough to prevent a Pollyannaish view that solutions to complex economics problems are formulaic. This balance may depend in large part on the textbook the instructor selects.

    While most texts overlap in the topics they cover, there are a few areas where they differ. For instance, most if not all texts address market failure in some way; however, while markets may fail in the short run, the voluntary exchanges of the participants, enabled by well-defined property rights and well-functioning institutions, can correct those failures without government intervention. Yet, that same intervention can exacerbate problems and prevent market corrections. In the interest of teaching students to think like economists, this reality should be included in the principles classes and textbooks in a more consistent way than it currently is. Consider the following quotes from two widely used texts:

    It is tempting to jump to the conclusion that if the market fails to achieve economic efficiency, then the government can intervene and improve the situation. Indeed, even professional economists often make this error. But we must not forget that government directed by political decision-making is merely an alternative form of economic organization. It is not a corrective device that can be counted on to make choices that will promote economic efficiency. There is government failure, as well as market failure. (Gwartney et al. 2013, p. 106)

    When markets don't achieve efficiency, government intervention can improve society's welfare.

    That is, when markets go wrong, an appropriately designed government policy can sometimes move society closer to an efficient outcome by changing how society's resources are used. ... An important part of your education in economics is learning to identify not just when markets work but also when they don't work, and to judge what government policies are appropriate in each situation. (Krugman and Wells 2013, pp. 16-17)

    Both texts admit that markets have shortcomings. Yet the authors clearly disagree on the role government plays in correcting perceived market failures. In many texts, the implied assumption is that government intervention into the market is justified. In making this assumption, however, authors risk crossing the line from positive economics into normative economics, a position they claim they wish to avoid in the book's introduction. As this paper will point out, authors often fail to give credence to the consequences of government attempts to correct market failure, and when they do mention it, the coverage is minimal. If this is the case, are authors failing in their mission to encourage their readers to think economically? If they fail to do that, should educators consider adopting such texts?

    The current paper reviews twelve college-level principles of economics textbooks to analyze the treatment they give to government failure. The paper proceeds as follows: First, we identify what we are looking for in terms of government failure. Second, we discuss the methodology used in our analysis. Third, we present the data and analyze the findings. We conclude with some final thoughts on the matter.

  2. Defining Government Failure

    Research on what content should be included in collegiate Principles of Economics courses (Elzinga 1992; Lopus and Leet 2007) has been a concern of various groups, but much of the discussion is limited in scope, depth, and breadth. At the high school level, however, the focus on what content should be taught in economics courses is much more widely discussed and defined. In 2010, the Council for Economic Education published a revision to its Voluntary National Content Standards in Economics, first published in 1997. While voluntary, these twenty standards guide high school educators regarding what is important, from the perspectives of high-ranking economists and experts, for primary and secondary students to know about economics. According to the authors, "Each standard is an essential principle of economics that an economically literate student should know ... This knowledge includes the most important and enduring ideas, concepts, and issues in economics" (Council for Economic Education 2010, p. V).

    While we do not have a set of common standards for college Principles of Economics courses, perhaps the Voluntary National Content Standards in Economics are a reasonable substitute for us to follow. Miller and VanFossen (2008), in their review of the economic education literature, explain that the Standards have played an important role in influencing how economics is taught at the precollege level. Many states looked to the Standards for guidance on developing state benchmarks, and the content of national assessments, such as the National Assessment of Educational Progress in Economics 2006, an assessment of high school seniors, was influenced by the Standards. Thus, the Standards offer us a starting point to identify the "most important and enduring" topics for our students.

    While the Standards cover a range of twenty topics, we focus our attention on Standard 17: Government Failure. Standard 17 states:

    Students will understand that:

    Costs of government policies sometimes exceed benefits. This may occur because of incentives facing voters, government officials, and government employees, because of actions by special interest groups that can impose costs on the...

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