Stephen Kinsella sends us to a post on economics education by Paul Gregory, author of an Economic Principles text since the 80s, which is now in its seventh edition.  Gregory tells us in the post that "There is no need for a new Economics 101. What we have experienced over the past two years is nothing new. There is nothing unexpected that has happened. Events however should serve as “teachable moments." I think that he's right about some stuff, wrong about others and, more problematically, behaves inconsistently in his approach to different theories.  

First, I agree that Gregory's post is useful in telling us what is wrong with current policy, that is, that some of the theories that economists in the current US administration have about consumers and firms' preferences and behaviour have been falsified.  This is good theory.  However, Gregory then takes the behaviour of firms and consumers as confirming evidence of alternative theories. This is a bad theory.  You can't apply falsifiability to some theories and then use the data you used to falsify those theories as confirming evidence for theories that you prefer.  I could, equivalently, have found falsifying evidence for the theories that he proposes and confirming evidence for the theories that he argues are falsified.  This is bad economics and bad philosophy. I'd be differently inclined were he to take a Bayesian position and say that the evidence alters our priors about the theories that we have and that we should adjust our expectations and our probabilities accordingly, but he doesn't.  Consequently, I would have been more interested had Gregory said, 'These are Keynesian hypotheses that have been falsified' and 'These are Neoclassical hypotheses that have been falsified.' Then he could have said, 'Here are hypotheses (Neoclassical/Keynesian or otherwise) that have not (yet) been falsified.' I suppose he could have put in his comments about the behaviour of the theories in his text at this juncture, but he should have also looked for falsifying evidence of those theories.

Second, his claim that 'Nothing unexpected has happened' (emphasis on expected, that is in anticipation) is outright rubbish.  Many (most) economists did not expect what happened.  We can use economic theory to explain it in hindsight, but saying it was expected by those who learned from textbooks such as his is rather outrageous. They (we) did not expect it, did not anticipate it, and subsequently have bungled much of the management of it. In the future we shall be able to use the data from the crisis and the subsequent policy interventions to create a better understanding of extant theories, but the point would be to do so in a methodologically consistent and coherent manner.

Third, and nevertheless, he makes good points about the teaching of moral hazard, uncertainty and information asymmetry.  I strongly advocate teaching these ideas in economic principles courses and I suspect that we should give them more weight than ever before.  In fact, we should do almost all of our teaching in the understanding that information is almost never perfectly symmetrical, on the contrary it is almost always imperfect.  What would this do to our economics principles course if we assumed that imperfect information was the norm and not the exception.  Well, I would argue that, in opposition to Gregory, we would need a new Economics 101 and that, consequently, we could coherently take the past few years a 'teachable moment' in the understanding that economists themselves are victims of imperfect information and are not exempt from their own theories.