Economics has historically been referred to as “The Dismal Science.” Economists may bristle at the suggestion our subject is “dismal”, but people outside of economics often seem to regard the discipline as dry, abstract, and not entirely useful.
In recent years, though, an effort has been made by economists to change our collective reputation. Freakonomics – the New York Times best-selling book by Steven Levitt and Stephen Dubner – was a book that applied economics to the study of sumo wrestling, abortion, children’s names, and a host of other “interesting” topics.
Freakonomics was followed by a collection of books that sought to offer more “interesting” economics. This list of books would include (among others)
The Undercover Economist by Tim Harford
The Wages of Wins by David Berri, Martin Schmidt, and Stacey Brook
Knowledge and the Wealth of Nations by David Warsh
Discover Your Inner Economist by Tyler Cowen
The Baseball Economist by JC Bradbury
One will note a few things about this list.
1. There are other books I could have listed, but these are all books I have read (and enjoyed).
2. This list includes The Wages of Wins, so clearly I am not above shameless self-promotion (not surprising if you read the Wages of Wins Journal).
3. Two of these titles are on sports economics, which is obviously the quintessential “interesting” subject in economics.
4. These books were either written by economists trying to be writers, or writers trying to explain economics.
It’s this last point I wish to expand upon. But before I get to that, let me discuss the latest book to be added to our list of “interesting” tomes on economics.
The Logic of Life in One Sentence
One of the neat perks about writing a book – and having a blog – is that publishers send you books to be reviewed. And they do this for free.
A few weeks ago I received in the mail an advanced copy of Tim Harford’s “The Logic of Life.” Harford has certainly studied economics, but he earns his income as a writer. In addition to writing the aforementioned “Undercover Economist” , Harford writes for Slate.com and the Financial Times. In essence, he’s a writer trying to explain economics.
His latest book does just that. “The Logic of Life” can be described as a book that takes the standard assumption of rationality in economics for a ride. In essence, Harford examines a whole collection of diverse stories – most of these outside the standard topics covered in economics – by assuming first that people are making choices rationally.
To understand this book, it might be a good idea to understand how “rational” is defined by economists. Perhaps much to the surprise of non-economists – and frankly, many economists – there is more than one definition. Before I get to Harford’s definition, I think it’s a good idea to consider an alternative specification.
To see the alternative, we need to go back in time to the 19th century. In 1898, Thorstein Veblen offered a critique of economics in the Quarterly Journal of Economics (“Why is Economics not an Evolutionary Science?” originally printed in Quarterly Journal of Economics (1898), pp. 373-397.)
In this article is the following observation:
In all the received formulations of economic theory, whether at the hands of English economists or those of the Continent, the human material with which the inquiry is concerned is conceived in hedonistic terms; that is to say, in terms of a passive and substantially inert and immutably given human nature. The psychological and anthropological preconceptions of the economists have been those which were accepted by the psychological and social sciences some generations ago. The hedonistic conception of man is that of a lightning calculator of pleasures and pains who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift him about the area, but leave him intact. He has neither antecedent nor consequent. He is an isolated definitive human datum, in stable equilibrium except for the buffets of the impinging forces that displace him in one direction or another. Self-imposed in elemental space, he spins symmetrically about his own spiritual axis until the parallelogram of forces bears down upon him, whereupon he follows the line of the resultant. When the force of the impact is spent, he comes to rest, a self-contained globule of desire as before.
This is one of my favorite paragraphs from 19th century economics. And although one might suspect that no one today would think human beings are “lightning calculators of pleasures and pains”, such a suspicion would be incorrect. As Martin Schmidt and I walked around New Orleans a few days ago – at the recent American Economic Association meetings – we saw many economists who were trying their best to be “lightning calculators.” At least it looked like a few people were trying to explicitly utilize their own utility functions for each decision made (should I cross the street here?; should I sit here?; should I say hello to this person?). Yes, some economists treat rationality and utility maximization as not just a model, but a lifestyle.
For such people, the assumption of rationality would be stated as follows: “people choose efficiently the means that advance their goals.” Such a definition – as noted in The Wages of Wins – is specifically called “instrumental rationality.” Instrumental rationality indicates that people not only consider costs and benefits in making decisions, but they evaluate the relevant costs and benefits “correctly.” In sum, people are lightning calculators.
There are plenty of examples in sports – and outside of sports – where people fall short of the “lightning calculator” ideal. It’s important to note, though, that the instrumental rationality definition is not the only way one can state the rationality assumption.
This past quarter at Cal-State Bakersfield I taught the Economics of Religion. This field applies the rational choice framework to the study of religion. In this class we read Acts of Faith, a book by Rodney Stark and Roger Finke. Stark and Finke argue that religious people are rational – where rationality is defined as follows:Within the limits of their information and understanding, restricted by available options, guided by their preferences and tastes, humans attempt to make rational choices.
This definition argues that people have limitations when it comes to processing information. Nevertheless, within these limitations, people consider costs and benefits in making choices.
It’s this conception of rationality that Harford employs in The Logic of Life. Specifically, Harford argues
Rational people respond to incentives: When it becomes more costly to do something, they will tend to do it less; when it becomes easier, cheaper, or more beneficial, they tend to do it more. In weighing up their choices, they will bear in mind the overall constraints upon them: not just the costs and benefits of a specific choice, but their total budget. And they will also consider the future consequences of present choices. As far as my definition goes, that’s pretty much it.
Evaluating the Logic of Life
With this definition in hand, Harford proceeds to tackle a host of issues and questions. The list includes
– the market for marriage
– addiction to drugs and gambling
– why your boss should be overpaid?
– segregation of neighborhoods
– the economics of crime
– one million years of economic development and eventual growth
In sum, this is a wide-ranging book that demonstrates how immensely versatile economics can be.
Of course other books have attempted to do the same. How does The Logic of Life compare to the books I noted at the onset of this discussion?
As I noted, some recent books are like The Wages of Wins. This was a book by economists trying to offer interesting writing. And then there are books like Freakonomics, Knowledge and the Wealth of Nations, and The Undercover Economist. Although Levitt is listed as the lead author on Freakonomics, one suspects that much of the writing was offered – or at least assisted by – Stephen Dubner. What do Dubner, Warsh, and Harford have in common? All three are professional writers.
At this point I am going to say something that might get me in trouble. I have personally read The Wages of Wins about 10 times (in the course of editing the hardcover and paperback). I have also read The Baseball Economist and Discover Your Inner Economist. All of these are excellent books written by economists. As books go, I would definitely consider each a “Kobe Bryant.”
As I have noted in this forum in the past, Kobe is a great player. But he is does not compare to the most productive players in the game. The most productive players – like Michael Jordan, Kevin Garnett, Dwight Howard, Jason Kidd, and LeBron James – offer much more than Kobe.
And just like Kobe is no Jordan (or Garnett or LeBron or Kidd), the books written by economists don’t read quite as well as the books written by the professional writers. The Logic of Life is simply a page turner. I am not a particularly fast reader and I was still finished with this book in a couple of days. This book managed to keep my interest and attention. And when it was over, I was already looking forward to Harford’s next book.
Although The Logic of Life kept my interest, I was left somewhat befuddled when I was finished.
What exactly made Harford’s writing so effective? Or to put it another way, what does Harford do in his writing that I am not able to do in mine? The professional writers who explain economics seem to do better job than the professional economists.
But I really don’t know why this is the case. We are all telling “interesting” stories. I even think the stories on sports are more “interesting” than Harford’s stories on the economics of crime. But when I read Harford I am more entertained.
Hopefully a reader of this review can shed some light on my question. My hope in writing our next book is that we can imitate Harford, Dubner, and Warsh. But for us to do this, we need to know what they are doing that’s so effective. And although I have read all their writing, I still don’t know why they are so good. Or, to put it another way, why my writing seems to comes up a bit short?