Sunday, April 24, 2005

Economic illiteracy

Even though I was a good student, economics was my nemesis. I passed it, but it was a slow slogging grind, and it didn't quite stick. And, although I've made an effort to learn more about economics since then, every time I try, my eyes seem to glaze over and I find myself nodding off over the book.

It's not something I'm especially proud of, but at least it keeps me from writing a whole lot of claptrap on the topic.

However, lack of economic acumen doesn't seem to stop many (probably many on both sides, to be fair) from spouting off on economic subjects. Blogger Dennis the Peasant isn't too keen on these folks. He is a bona fide tax expert and CPA, as well as being a very funny guy--that's funny ha-ha, not funny strange. (Oh, well, maybe just a little funny-strange, if you look at his photo--although, come to think of it, who am I to talk on that score?) Dennis takes to task those who write about economic matters while being economically uninformed.

I have a strong feeling that I have a great deal of company in my relative economic illiteracy. I've been struck by how many people know enough to get by--keep their bank accounts in order, do a little investing, pay their taxes--but don't really understand the ramifications of specific proposals designed to affect the ecomony. And yet we need good information in order to make decisions on issues that matter: what to do about the deficit? What about tax cuts vs. tax hikes? Who--if anyone--is right in the battle of the dueling experts? Do they even know? After all, economics is not exactly a science on the order of chemistry or physics. How can the vast majority of us who aren't tax attorneys or CPAs wade through the vast quantity of information-- and misinformation, deliberate or otherwise--out there?

To a certain extent, of course, that's true of any topic that has technical aspects--which is most topics. But I have a hunch that the subject of economics is a particular sticking point for many, whether they'll admit it or not.


At 7:50 AM, April 25, 2005, Anonymous Anonymous said...

If you take another look at economics, you might discover that your mind has changed in more ways than just its political inclinations and that you are more capable of understanding it than you think.

Like you, I never felt that I understood economics at all. Back in college, I tried to take a basic course, but the textbook language seemed as impenetrable as barbed wire, and I gave it up. Long years later I found myself teaching an interdisciplinary course that required me to cover some basic economic ideas. Yikes! I sat down with a few textbooks and fought down my automatic fear reaction because I had to. As I kept reading, I discovered that much of the frightening jargon, not to mention all those scary graphs, just cover up some basic, accessible, common-sense ideas -- rather like psychology! At least on the more fundamental levels, the subject is really not as difficult as it looks. Anybody who can write as fluently and thoughtfully as you do is capable of "getting" it. You might want to check out "Economics in One Lesson" by Henry Hazlitt -- I found it very helpful.

At 9:10 AM, April 25, 2005, Anonymous Anonymous said...

"Economics in One Lesson" is available for free .pdf download. The URL is, curiously enough:

It's an excellent book, but since it's written as defense of classical economics against Keynes, it's probably not the best place to start. Landsburg's Armchair Economist is a wonderfully readable general text. It's more about economic reasoning than economics, but that might be a good way to get over your phobia. It's in the same vein as Levitt's Freakonomics (which I haven't read yet, but has gotten some good reviews).

Then, of course, there are the econobloggers. Brad DeLong, Jane Galt, and Marginal Revolution are my favorites, but there are plenty out there - just start clicking through their blogrolls.

At 10:09 AM, April 25, 2005, Anonymous Anonymous said...

Some years ago, for a professional development course, I had to study basic econ--again. The college course I'd had was gone.
As I went through the thing, I kept getting the feeling that this is really conservative.
But I discovered that it is what happens when people make free choices.
What messes up the study of econ is when they throw in the Fed, the banking system and other items.
Basic econ has, as one poster put it, a good deal of psychology. Trouble ensues when people forget that.
What messes up the economy is when choice is restricted. What messes up the folks who want to restrict choice--because they know what's best--is that the people still want what they want and will figure out a way to get it.
Sociology, as somebody pointed out, is the discipline devoted to telling planners why what they tried didn't work. Unfortunately, the sociologists are rarely consulted in advance.

Richard Aubrey

At 12:40 PM, April 25, 2005, Blogger Tom Nally said...

My favorite economist/blogger: The Angry economist (Russ Nelson) at

He seems to blog for the non-economist. Though he is capable of high levels of economic nerd-dom, I suspect, he doesn't really venture there.

He's also quite the tech geek. Elsewhere, I've seen where he said that he still writes packet drivers. How many of us out there have done that? Not too many.

---Tom Nally, New Orleans

At 2:56 PM, April 25, 2005, Blogger Alex said...

At the risk of being an economics snob, I'd like to argue that Dennis the Peasant's post isn't really about economics. It's about tax fraud, and auditing, and the internal workings of the IRS. Dennis certainly appears to know his stuff on these topics, at least more so than Drum. But is this economics? I don't think so.

An economist might ask, for example, under what circumstances will fraud increase or decrease? If, say, fraud increases with the tax rate (I have no idea if this is true, but it would be my guess) then how much of the expected revenue increase will it eat up? How will fraud affect the distribution of the tax burden? What is the optimal level and distribution of audits, given that audits themselves are costly? And so on. Dennis and Drum do not touch questions like these; Dennis is simply reaming out Drum for not knowing his figures, and not knowing how the IRS works.

Economics isn't specialized knowledge related to taxes (or the stock market, or business). Economics is a set of theories about decision makers and the way they interact with each other and with institutions. Money, taxes, firms etc. need not be involved (though of course they often are). But ideas such as constraint optimization, supply and demand, and risk aversion do need to be involved.

And to Richard Aubrey:

I can't say I agree with you. Every developed economy has many, many restrictions on choice, and indeed could not function without them. For instance, contract law and patent law, two things generally adored by conservatives, both restrict economic choice. The real question is what are the best institutions and the most wise restrictions.

At 9:31 PM, April 25, 2005, Anonymous Anonymous said...

Alex, apparently my economic illiteracy extends even to the definition of economics itself. On the first day of the course, where they put up on the blackboard "What is economics?", I guess I already wasn't paying enough attention.

Thanks, everyone, for the suggestions for some good books and blogs about economics for the beginner. One of these days I'll get around to of these days....

At 9:49 PM, April 25, 2005, Anonymous Anonymous said...

It is normal for people who specialize on a field to find it annoying when novices discuss that field and do not what they are talking about. Everyone here probably has a topic that is dear to one's heart and would find it offensive when people who know nothing comment on it.

I am an economic major, I used to think I know the definition of economic. But as I read more of the conservative economists (Von Hayek, Von Mise, or Sen), I am not sure that it is that easily defined. But I know NOW that it is not about number, equation, or GDP. Economic is afterall a social science.

At 9:56 PM, April 25, 2005, Anonymous Anonymous said...

Alex. I didn't say that there should be no restraints on choice. I said that when there are, economics gets complicated, not least because people would prefer not to be restrained and frequently work at getting their choice back by unforeseen means.
Hence the trouble, both in following the economy, and in making it work efficiently.
You will note the most efficient economies have the least restraint.

Richard Aubrey

At 2:10 PM, April 26, 2005, Blogger napablogger said...

I agree with Phan that experts often disparage non experts on subjects of their expertise. But the plain fact is that we have to make economic decisions all the time as voters, so it would behoove us to learn as much as we can. The current social security debate is a good example, it involves economics heavily and the American people through opinion polls are going to decide its fate. So it is better not to leave the subject alone, because you can't. I am frequently reminded of how little most people seem to know about it, yet make all kinds of political decisions based on it.

At 4:38 PM, April 26, 2005, Blogger Alex said...

Hi Richard,

Again, I don't agree that the most efficient economies have the least restraint. There are many reasons why unregulated economies may be inefficient, and why regulation may increase their efficiency. To take two quick examples of market failures, there is the problem of asymmetric information (the used car market is the most common example) and the problem of externalities (pollution is the common example). In both these cases, various interventions could be made (third-party credentialing and Pigovian taxes, respectively, to take two examples) to increase efficiency.

The general lesson to take away is that the free-market-is-panecea model won't get you much farther than Econ 101. There will always be debate over the optimal levels of regulation/taxation/etc., but it is wrong for even efficiency-crazed people to assume that less is always better. And of course there is always the issue of equity, which I haven't even touched.

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