Arnold Kling  

Two Things

Cuba's Economy... Domestic Policy Issues...

Tim Worstall points to Glenn Whitman's post about the "two things" that can summarize a profession's wisdom. For economics, he nominates:

One: Incentives matter. Two: There’s no such thing as a free lunch.

I don't think I like this game. Without disagreeing about the importance of incentives and opportunity costs, I would say that economic growth matters a lot, and that people should know how much higher our standard of living is today than it was two hundred years ago. And they should realize how much of the increase is due to the accumulation and application of knowledge.

Furthermore, people should know that international trade is a positive-sum game. And that markets alleviate shortages, while price controls cause them. And...

For Discussion. How many things belong on the list of "two (or more) things" that everyone should know about economics?

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CATEGORIES: Economic Education

COMMENTS (6 to date)

People should also know that in a market there is no way to control both supply and price at the same time. If you decide to sell (or buy) at a particular price, market will set the quantity exchanged at that price. And vice versa. Understanding of this principle will prevent people from arguing that minimum wage controls do not reduce employment.

walker writes:

The two Glenn Whitman cited are pretty good actually. With respect, the others cited seem to me less fundamental.

Scott Gustafson writes:

It’s not so much that the two things summarize a profession’s wisdom as it is that from the two things everything else that matters can be derived.

If you have incentives and recognize opportunity costs, then gains from trade, economic growth, accumulation of knowledge and the reason price controls fail can all be derived.

Jason Ligon writes:

How about: "You can't see the whole picture?"

That may fall under the opportunity cost thing, I guess, but it is an important nuance.

Skip Sauer writes:

Our "wisdom" is not limited to a narrow set of principles, as Arnold's list of findings conveys. But if one wants to constrcut a short list of principles (I surely have), replace Arnold's international trade example with the more general voluntary exchange generates gains from trade, and add the concept of equilibrium as the absence of profit opportunities. Those are two on my list. The others re-phrase Whitman's.

dsquared writes:

I would suggest "Bygones are bygones" and perhaps "marginal utility decreases with consumption"

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