I enjoyed the CBC’s radio show, The Invisible Hand. Rather than take a Freakonomics-style “wow, isn’t this counterintuitive” take, they instead simply presented standard economic theory as it is understood by professional academic economists.
- Episode 1 covered price gouging, with a nice contribution from Mike Munger. (audio)
- Episode 2 takes on value theory. In the event of a zombie apocalypse, chickens rise in value relative to gold (as the Lannisters may yet discover when winter comes). (audio)
- Episode 3 explains why profit isn’t a bad word and shows that rather a few capitalists – people who make their living from investments – look rather more like our parents and grandparents than like Mr Scrooge. (audio)
- Episode 4 covers love, marriage and economics. (audio)
- Episode 5 explains moral hazard and insurance. (audio)
- Episode 6, on sweatshops, includes Ben Powell along with a former sweatshop worker. (audio)
- Episode 7 demonstrates that David Suzuki knows absolutely nothing about economics: we have ways of dealing with externalities. (audio)
- Episode 8 explains a bit of macroeconomics: the old Paradox of Thrift. (audio)
- Episode 9 walks through one of my favourite topics: perverse incentives (see the masthead). Frances Woolley helps out. (audio)
- And Episode 10 explores some of the behavioural economics literature. (audio)
- [Update: the audio at the CBC link isn’t working, but the (audio) link should take you to the podcast version. Thanks to Wobbly in the comments!]
We wanted to make a show that had a completely different perspective from the things most people hear. And our probably naive anticipation was that people would take it in that way. We didn’t honestly expect the angry backlash that we got. … Our agenda was to present how mainstream economists think about things.
He also tweeted:
There is a body of things that economists know about the economy. Sure there’s stuff we argue about, but especially in microeconomics, we kinda know what’s going on. And the basic set of things about which economists agree diverges wildly from how the public thinks the economy works. The profession attaches perhaps too high of reward for deriving the results of some model when you change a plus to a comma in a utility function when the first order welfare gains are in just getting the voting public to appreciate principles-level economics.
I get irritated when bog-standard economics is cast as having a “right wing” agenda. Mainstream economics helps you figure out what works and what doesn’t work for achieving any particular end and the trade-offs that are involved. If you want a fair bit of redistribution, that’s entirely consistent with mainstream economics so long as you set up the transfers appropriately; heck, it drops out of most models where you assume diminishing marginal utility of income.* But bog-standard mainstream economics in Canada says a lot of unpalatable things: ditch supply management to reduce milk prices; get rid of barriers to both interprovincial trade and labour mobility; get rid of all the zany exemptions in the GST and adopt New Zealand’s version instead.
Imagine a genie gave you a button. If you push the button, every voter in the country thoroughly and intuitively understands principles-level economics. At the same time, the most recent n issues of every academic journal in economics disappear along with all knowledge of their results: we would need to re-invent or rediscover every one of them, with some chance of never finding them at all. Up to what value of n do you leap to push the button? 5 years’ worth? More?
Imagine a world where the physicists and engineers spent most of their time figuring out how to get internal combustion engines from 20 to 22 percent efficiency but where, outside of the lab, everyone else is riding horses because they think engines are evil and witchcraft and tools of capitalist oppression. Maybe it’s not quite that bad in economics, but it isn’t far from it.**
SciBlogs addendum: This is far more an issue for economics than for the physical sciences, but you can imagine a similar deal for things like GMOs. Thinking about some measure of “is the world a wonderful place with happy, well-fed people and nice things”, how many years’ worth of GMO research would you burn in exchange for getting everybody up to a Science 101 level of understanding of GMOs so that they stop trying to regulate science out of existence and stop trying to ban things that make people better off? People are a problem.
* But be careful! Cowen points out that utilitarian theories may be less egalitarian than you’d like. I asked a couple years ago about appropriate egalitarian policy when we start opening up the margins:
Pity the borderline Asperger’s investment banker who, despite his financial success, seems at a bit of a disadvantage in dating. Reddit posted the 1600 word email that the would-be suitor sent to the woman who dumped him after the first date; it’s since shown up all kinds of places. But folks snickering at it seem an awful lot like a rich one-percenter laughing at a pleading email from a starving man.
If I can play armchair psychiatrist, the same Asperger tendencies that helped this poor guy in investment banking have killed him in dating.
If you’re an egalitarian, what is appropriate policy? Is this guy better or worse off than the poor musician who dates easily? With whom would you rather trade places, taking both their positions and their characteristics? If we redistribute income because the investment banker’s last dollar is worth less to him than it would be to the poor musician, think too about the marginal utility of the musician’s last date relative to the banker’s.
** See, for example: