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Armchair Economist: Economics & Everyday Life ReviewIf you're remotely interested in economics, you should read this book; it's a hoot.
Not too many books on economics could be described as a "hoot." But Steven Landsburg, an economics professor at the University of Chicago when he wrote this book (now he's at the University of Rochester), has a delightfully sharp sense of humor and a gift for clear, logical exposition. He also doesn't in the least mind naming names when it comes to egregious economic fallacies and the people who commit them: he keeps a "Sound and Fury file" consisting of economic gaffes from the op-ed pages and he devotes a chapter to exposing the culprits.
His theme is easily stated, and he states it on the first page: the substance of economic science is that people respond to incentives. "The rest," he writes in deliberate imitation of Rabbi Hillel, "is commentary."
Landsburg fills the rest of the book with such commentary. His witty and occasionally sarcastic exposition deals neatly with such topics as why recycling paper doesn't really save trees; why certain statistics are not reliable measures of the "income gap" between rich and poor; why the GNP is not an especially accurate measure of national wealth; why unemployment isn't necessarily a bad thing; why taxes _are_ a bad thing; why real economists don't care about what's "good for the economy" or endorse the pursuit of monetary profit apart from personal happiness; and lots of other points that will no doubt be profoundly irritating to people who just _know_ he _can't possibly_ be right.
For example, Landsburg is delightfully allergic to the claims of the "environmental" movement and recognizes it quite clearly as a strongly moralistic religion. And contrary to the opinions of some not terribly careful readers, he does distinguish firmly between the actual harm caused by pollution and the psychic harm caused by (e.g.) the use of automobiles to people who object in principle to such technology.
Interestingly, Landsburg recognizes a problem here for his own cost-benefit approach: if economic efficiency with regard to utilitarian/consequentialist goods and bads were really the whole story, he notes, he should care about _both_ the physical harm and the psychic harm, and yet he doesn't.
Which leads neatly into the other notable feature of this volume: Landsburg is stunningly forthright about the nature -- and the limits -- of cost-benefit analysis. Unlike some economists who like to pretend such analysis is value-free and involves no commitment to any particular view of morality, Landsburg is clear that cost-benefit analysis is quite unambiguously committed to one particular moral outlook (which he characterizes and describes very neatly). And he is keenly aware of its limitations, though he is not at all confident about what should replace it.
The problem, roughly, is this (the following characterization is mine, not his). As Landsburg notes several times, cost-benefit analysis does not regard "theft" as a cost, since it merely transfers existing stuff from one person to another; society is no worse off on net after the theft than before it. (Of course theft entails _further_ costs that _do_ leave society worse off, but that's not the point here.) Economics, as Landsburg describes it, looks only at _outcomes_ and not at how we got to them. And even at that, it looks only at one abstract feature of such outcomes, namely, how much "good" there is in the aggregate.
And yet most of us would say that "society" _is_ somehow worse off after a theft -- that there is some sort of "moral cost" involved in the theft itself quite apart from its further consequences, and that it makes a difference whose "good" is rightfully achieved or acquired and whose is not. (Some of us might even say that there is something illegitimate in comparing the thief's gain to the victim's loss in the first place.) In ordinary moral discourse, it matters very much how we arrived at a given state of affairs.
If so, then economic science has two choices (this is still my opinion, not his). (1) It can throw those "moral costs" into the mix and deal with "rights and wrongs" in the same way it deals with "goods and bads." In that case, the total "good" will take account of the number and quality of right acts vs. wrong acts. (2) It can ignore those "moral costs" and continue as before.
In either case, economic science _as Landsburg presents it_ is simply insufficient as a guide to policy decisions. (Landsburg tends to acknowledge this, maintaining only that cost-benefit analysis is an important _part_ of whatever it is we need to make policy decisions.) And it is certainly not -- as Landsburg also recognizes in a wonderfully forthright chapter -- sufficient as a guide to personal conduct.
So this volume gets five stars even though Landsburg doesn't have much to say about what should supplement cost-benefit analysis. It's a terrific introduction to economic thinking genreally, and it's also a clear and frank recognition of the limitations of such thinking at least as practiced by many mainstream economists.
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