Podcast Summary

Pitchfork Economics with Nick Hanauer

Episode: Back to Basics Series: Is Econ 101 a Lie?
Air Date: July 15, 2025
Guests: Eric Beinhocker (Executive Director, Institute for New Economic Thinking at Oxford), James Kwak (Law Professor, University of Connecticut, author of Economism)

Main Theme

This episode interrogates the foundations of “Econ 101” — the introductory neoclassical economic theory that underpins much policy and public discourse — and asks if it's just a flawed model or actively misleading. The conversation explores the gap between academic economic thought, its real-world application, and the resulting social narratives that underpin inequality, power, and economic policy. Through a critique by leading heterodox economist Eric Beinhocker and author James Kwak, the episode advocates for a paradigm shift from “trickle-down” neoliberalism to a more cooperative, “middle-out” view of economics.

Key Discussion Points & Insights

1. What is 'Econ 101' and Why Should We Care?

• Econ 101 as Social Control:
  • In politics, "Econ 101" is often invoked to silence debate (e.g., claims like "raising the minimum wage will kill jobs" are bolstered by the aura of economic law).
  • Nick Hanauer (02:42): "What the writer James Kwok calls economism, is best understood, really as methodology for social control...bludgeoning people into believing that what they get is what they deserve."
• Myth of Rational Selfishness:
  • Hanauer (04:54): Mainstream economics assumes people are "perfectly selfish, perfectly rational and perfectly calculating." This underpins models and policy but doesn’t fit reality.
  • The truth about human prosperity: Reciprocity, cooperation, and justice form societal trust and economic flourishing—not selfish competition.
  • Hanauer (07:21): "Bad theory leads to bad narrative, which leads to bad policy, which leads to bad outcome."

2. Origins and Flaws of Neoclassical Economics

• From Dynamics to Equilibrium:
  • Early economists studied systems in motion, but in the late 1800s, economics adopted static, equilibrium math borrowed from physics.
  • Eric Beinhocker (10:48): "Economists...used those tools to apply to the economy...But what it missed was the fundamental issues in the economy, that the economy rarely is in a state of rest. It's constantly in motion."
• Main Limitation:
  • Equilibrium models can't explain real phenomena (booms, busts, crashes, or transitions such as moving to a green economy).
  • Beinhocker (13:44): "If your baseline assumption is that the economy is an equilibrium system, a boom or a bust...can't happen. It's not supposed to happen."
  • This logic leads to policy paralysis (e.g., calls to “do nothing” during crises like 2008).

3. The Persistence of Outdated Economic Models

• Changing Academic Economics vs. Practice:
  • Many cutting-edge economists are moving beyond simple models, but policy and applied academia often lag.
  • Beinhocker (16:10): "Economics is in a real state of flux...lots of economists are doing work on behavioral models...But...academic work on issues like the minimum wage...is in this kind of fairly narrow neoclassical framework."
  • Central banks and policy-makers show more readiness for new models than much of academia.

4. Economism – The Rhetoric and Politics of Econ 101

• James Kwak's Critique:
  • Kwak (19:27): "Economism is the misuse of very simplistic models from first year economics to try to make claims about the world, claims that are politically convenient to some people."
  • (20:47): "It invokes the power of economics, which many people are just intimidated by."
• The Minimum Wage as Example:
  • Conservatives and elites use simple supply-and-demand logic to argue against the minimum wage, legitimizing inequality as “natural.”
  • Industries fund think tanks and studies to further entrench these messages.
  • Hanauer (26:35): "Why is it that they only seem to release papers about...how raising wages will be bad for workers and never...for owners and shareholders? …they're trying to advance a moral argument that they think can win the day."

5. Economism as the New 'Religion'

• Kwak (28:21): "In a sense, economics has become the religion of our time, or at least the religion of the kind of policy and political elite."
• Hanauer (27:23): Drawing on Yuval Harari: framing Econ 101 precepts as natural law is an “intimidation tactic masquerading as economic theory.”

6. Power, Policy, and Who Gets What

• Role of Power in Economics:
  • Wages and outcomes are more about negotiating power than what someone "deserves."
  • Hanauer (32:06): "People are not paid what they're worth. They're paid what they negotiate. And...the role of government in any democratic society, is to try to balance the power of elites versus non elites."
• Kwak (33:19): "When you say...paying people more will necessarily cause unemployment, you're drawing on a picture of the world in which power just doesn't exist..."

7. Why the Narrative Persists and Who Benefits

• Hanauer (36:32): "It was simple...And...if you measure things in a particular way that benefits a particular group of people...the people in charge of the output are highly rewarded."
• Economics masks itself as objective law, but is deeply entwined with reinforcing existing power structures and status arrangements.

Notable Quotes & Memorable Moments

• "Bad theory leads to bad narrative, which leads to bad policy, which leads to bad outcome."
  — David Goldstein (07:21)
• "Economism is the misuse of very simplistic models from first year economics to try to make claims about the world—claims that are politically convenient to some people."
  — James Kwak (19:27)
• "It's not a law of nature. It's an intimidation tactic masquerading as an economic theory. It's a way to negotiate wages at scale."
  — Nick Hanauer (26:35)
• "Economics has become the religion of our time, or at least the religion of the kind of policy and political elite."
  — James Kwak (28:21)
• "People are not paid what they're worth. They're paid what they negotiate."
  — Nick Hanauer (32:06)
• "If your baseline assumption is that the economy is an equilibrium system, a boom or a bust...can't happen. It's not supposed to happen."
  — Eric Beinhocker (13:44)

Timestamps for Key Segments

• 01:56 – 04:49 – Defining “Econ 101”: academic vs rhetorical model
• 04:49 – 07:21 – Why the false assumptions of neoclassical economics matter
• 10:25 – 15:38 – Beinhocker explains equilibrium models and their flaws
• 16:10 – 18:43 – Why applied economics/policy lags academic innovation
• 19:19 – 22:46 – James Kwak on Economism and its rhetorical power
• 24:30 – 26:31 – The politics of the minimum wage and think tanks
• 26:35 – 28:21 – Economism as “new natural law”, intimidation tactics
• 29:36 – 31:55 – Why Democrats struggle with economic messaging
• 32:06 – 33:48 – Wages, negotiation, and the ignored reality of power
• 35:07 – 36:32 – Was neoclassical econ a lie, or an honest mistake?
• 36:32 – 38:32 – Who benefits from the way we measure/define prosperity

Conclusion

The episode suggests that neoclassical “Econ 101” models are not just academically outdated but have become tools of political narrative and social control, reinforcing inequality and stifling progress. The hosts and guests argue for rejecting the myth of “laws of economics” akin to physics and embracing models rooted in reciprocity, morality, and an honest reckoning with power. Ultimately, the episode calls for a shift away from neoliberalism’s market fundamentalism to an economics that genuinely serves the common good.