Sunday, July 10, 2011

The Problem of Pop Economics

I like books and I love economics books.  So I'm regularly going to used book and antique stores.  Occasionally I find something worth picking up.  A few weeks ago I was in Williamsburg, Virginia and purchased Social Values and Individual Choice which is Kenneth Arrow's (Stanford University) major work.  I started out by going to new book stores.  That's where I bought my first economics book, The General Theory of Employment, Interest and Money by John Maynard Keynes.  The problem is that outside of that work and Adam Smith's An Inquiry Into the Nature and Causes of the Wealth of Nations, there really isn't any serious scholarship in that section.  It is filled with what I call Pop Economics.

I wish I could say some book stores are better than others, but chain book stores are so dominant now on the market and their selection does not vary very much between stores.  It also does not help that the economics section is often mixed in with the business section, which is a similar but definably different type of book.  Business books can be good or bad, but they are generally much more practical rather than theoretical oriented.  Both can be good, but their approaches are different.  The result of this mix, and the prevalence of these pop economics book is a very confusing book shelf at our local book stores.  This causes problems for the individual who simply wants to start learning the basics of economics.

The economics section of the book store is generally littered with Pop Economics books.  At times serious economists write these books, which make it even more difficult for the lay person to discriminate.  One of my personal heroes, Milton Friedman, can be considered guilty of this.  He mixes politics and economics rather freely.  Perhaps his most famous book, Free to Choose, mixes these two almost completely.  Milton Friedman is one of the most important monetary economists ever to live.  He and Anna Schwartz wrote some of the defining statistical abstracts of monetary history, for which he was awarded the Nobel Prize in 1975.  He also is a social theorist has a whole string of books starting with Capitalism and Freedom that run in that vein.  He always admitted in interviews that these were different types of books, scientific and political.  In both genres, he was very good, but to the lay person it is difficult to tell them apart.

So what is the problem?  The problem is that if a lay person decides that they want to learn a bit about economics, but is not willing to invest enough to take an economics class, they will likely head to the economics section of their local chain book store.  And what should they purchase?

This section will feature attractively covered books, just like any other section of the book store.  The same principles that make a book more likely to be bought by Joe Q. Public apply to the Business/Economics section as they would to the Self Help, Memoirs, Historical Romance, or any other section of the library.  With titles like Freakonomics, Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, and The Rational Optimist: How Prosperity Evolves, how would one choose a book to introduce them to economic ideas?

There may be one obvious choice: Economics in One Lesson by Henry Hazlitt.  This book is as political as any book in the entire section.  Mr. Hazlitt's "lesson" is actually one sentence followed by applications of the lesson.  This is the lesson: "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups." (Hazlitt, 13)  Even his lesson is shortsighted and wrong.  Economics is the study of human choices amongst scarce resources.  The rest of the book is practical applications of that lesson.  A buyer of this book will have been duped if the he thought that he was purchasing an introductory economics book as the name suggests.  Economics in One Lesson is a fine (political) book.  I do not mean to disparage it, but anyone mistaking it for an introduction to economics will be sorely mistaken.  The title is so misleading that it is hard to believe that this was not the intent.

On the other side of the political spectrum, The Shock Doctrine, by Naomi Klein is an indictment of free-market economics.  She suggests that tactics used by modern day globalists including the United States government use exogenous shocks such as war to introduce radical economic changes.  Her main target of the book is Milton Friedman.  She attempts to link human rights violations from the Augusto Pinochet regime in 1980's Chile to Friedman because Friedman gave Pinochet economic advice.  Friedman was a free market capitalist, but he also believed that the only way to achieve free-markets was through voluntary, democratic means.  There are other examples of shocks that coincide with economic changes given in the book such as the Iraq war, the Falkland Islands war, and somehow she manages to sneak Hurricane Katrina in there too.  Somehow she doesn't cover the shocks that don't lead to free-market capitalism such as the revolutions in Cuba or Russia.

What led me to this subject was a video that I watched on YouTube about Henry George's Progress and PovertyThe video is below and it shows a man giving an introduction to the book.  The book is a mess of an economics book, but it's important because it was the first Pop Economics book.  It was one of the best selling books of the entire 19th century and it has significant parts of economics wrong.  First of all, it uses the labor theory of value, which is wrong.  George wrote this book in San Francisco in 1879.  The "marginal revolution" happened in 1871 in Austria and England which George would possibly had read of if he were actually an economist.  Henry George was never trained as an economist, but rather he was a journalist.

A confused man speaking about what he believes is economics because of reading Progress and Poverty.

This is the common thread of many (not all) of these Pop Economists: they are journalists or general writers.  Henry George didn't learn about the subjective, marginal theory of value and possibly didn't even know about the water-diamonds paradox.  Henry Hazlitt was an individual that was passionately interested in economics, and likely would have attended school for the subject but for financial difficulties.  Does that make his efforts worthless?  Hardly, but his book is misleading just the same.  It is a title written to sell books rather than give the reader an idea of the contents of the book, which is dishonest.  Naomi Klein is simply a reporter that observes inequality and correlates that with injustice and seeks to engage those she perceives as responsible for that inequality.  Never mind if her facts are wrong or if her economics are wrong.

There are many academic economists that engage in this as well.  Generally, their economics are much more sound but they still make mistakes such as Steven D. Levitt (University of Chicago) mistaking correlations for causations in FreakonomicsTyler Cowen (George Mason University), Paul Krugman (Princeton University), and Nouriel Roubini (New York University) all have written books in this variety and all are respected within the economics field.  Is there anything that should preclude them from writing?  No, definitely not.  They should be encouraged to write.

Then, again, what is the problem?  The problem is the lay person consumer walking up to the business/economics section at the Barnes & Noble and staring at that section and walking out with a book like Hazlitt's that they think will help them... only to get a political lecture.  I think that every book store should keep a copy of a basic economic book on the shelf.  N. Gregory Mankiw (Harvard University) has written a widely used book, Principles of EconomicsThomas Sowell (Stanford University) has written a good and clear book titled Basic Economics, which is intended for the lay person.  I have occasionally seen this book on the shelves at the chain book stores, which is very good.

The business and economics section should be less confusing for the lay person because economics is an important subject for everyone to know.  If the marginal effort of them trying to find a basic book on economics is larger than their expected marginal value, then we as economists can predict that the consumer will not bother.  That would be a sad outcome.  Economics can make a confusing world less so and once the basics are learned further lessons about Freakonomics, Discover Your Inner Economist, and other such books can be more useful and enjoyable.

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