Arnold Kling  

Another Intro Econ Book

Discussion Topics... Do Grad Students Really Swagge...

Eamonn Butler's The Best Book on the Market: How to Stop Worrying and Love the Free Economy gets right down to business, without any introduction explaining who is the target audience and what they should get out of it. Maybe the title (intended as a pun) and subtitle are enough of a clue.

It might be an airplane-read introduction to what Daniel Klein calls the Adam Smith/Friedrich Hayek view of economics. It might be something for the intelligent high school student. It might be a supplemental reading for a freshman college course.

If I were still teaching a first-year economics course for non-majors, Butler's book would definitely be required reading. This book and Russ Roberts' The Price of Everything would make a great one-two punch.

Standard textbooks present a picture of markets that is neat and antiseptic, but unrealistic and easy to dismiss. Instead, Butler is very forthcoming about human irrationality, imperfect information, and externalities.

On p. 41,

It's not a demand curve that sellers face. It's more of a demand fog.

On. p. 43,

And information is definitely not perfect. It doesn't grow on trees or float in the air. It's not obvious, nor even objective. The information that you need to navigate through the market exists only in the minds of the individuals who make up that market. It is personal and local. To act on it, you have to discover it.

On p. 44,

Price isn't some dead fact, the point where two curves on a graph happen to intersect. Price is alive. It's dynamic. It tells us things, and it changes things. When shortages occur...a rising price sends the message far and fast

On p. 68,

Why is American healthcare so expensive? Because the medical profession is the most powerful mediaeval-style guild in America.

Anyone can write a book praising the virtues of perfect markets. Books that praise imperfect markets are, sadly, rare.

Why isn't the Smith-Hayek outlook on the market taught as universally as, say, the adverse effects of racism? If the Senate is interested in having the NSF teach global warming, why aren't there proposals to teach how markets work?

a) The Smith-Hayek view is wrong, because ___
b) The Smith-Hayek view is right, but you can be more popular if you reassure people that markets can and should be managed by government; in the end, what is popular sells better than what is right. The market chooses Stiglitzians.
c) There is some sort of conspiracy at work between educators and government to keep the Smith-Hayek view out of the curriculum.

I vote for (b).

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COMMENTS (8 to date)
RL writes:

"Why is American healthcare so expensive? Because the medical profession is the most powerful mediaeval-style guild in America."

Obviously he hasn't been following the NEA...

Ajay writes:

How about this one?

d) The Smith-Hayek free-market proponents felt that they had to fight the econometric claims of socialists in the 60s and 70s with an overstated case of mathematical proofs of "perfect" competition. They were successful in infiltrating academic economics to some degree but it didn't take long before the socialists fought back by pointing out the obvious imperfections that exist in real life. By attacking the more extreme position of perfect competition, they were able to fall back and regroup for an attack, just as the intelligent design camp is a fallback for the anti-evolution camp. Either way, it doesn't mean that the evolution and free market camps aren't mostly right and that the old guard isn't rightly able to critique them, either, respectively, because of an overreach or by hiding in holes in the collected evidence. I'm not steeped in the intellectual history of perfect markets but that's my educated guess.

hsikwia writes:

Maybe it's just rhetorical flourish on your part, but neither Smith nor Hayek can be associated with econometrics or models that assume perfect competition. Quite the opposite.

There are many critiques of the free market that are actually based on models that assume perfect competition. In fact, my hazy recollection is that this was one of the main points of contention in the Socialist Calculation Debate waged largely by Hayek & Mises on one side, against Oskar Lange, Abba Lerner and others on the socialist side. The socialist side followed lines of reasoning, which they took from Walras, which seem to mistakenly assume that perfect competition exists and can easily be mimicked by socialist planners. Eamonn Butler is probably familiar with this old debate and is consciously emphasizing the Mises-Hayek side of the argument.

fundamentalist writes:

Interesting. Stiglitz places the market and the state opposite each other. When the market "fails" the state must rescue it, as if the market is a little child learning to ride a bike. But that requires the state to have knowledge and wisdom that the market doesn't have. Where does it get such knowledge? If the market doesn't have it, what makes Stiglitz think the state does? And if the state has it, why doesn't the market? It seems Stiglitz assumes perfect knowledge for the state, against all history and logic, but not the market. I wonder why?

Rich writes:

Sounds like the book makes the same point as this article:

At the University of Chicago, economists lean to the right of the economics profession. They are known for saying, in effect, "Markets work well. Use the market."

At MIT and other bastions of mainstream economics, most economists are to the left of center but to the right of the academic community as a whole. These economists are known for saying, in effect, "Markets fail. Use government."

Masonomics says, "Markets fail. Use markets."

Dain writes:

I currently own just two books from MIT on economics, granted, but I don't get the impression they are trying to shill for the government and the markets simply represent failure.

The books: Moral Sentiments and Material Interests and Economics and Psychology.

Kurbla writes:

fundamentalist, market failure is not just lack of the knowledge. Check the classical example of Dvorak vs Qwerty.

parviziyi writes:

Eamon Butler's 100-page introduction to Hayek is a fast and good way to learn Hayek's views of economy and society. It was published as short book in 1983. Now long out of print, it can be downloaded at:

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