David R. Henderson  

How Don Boudreaux Got Hooked on Economics

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In a previous post, I praised Don Boudreaux of Cafe Hayek for spreading economic wisdom to people in letters to the editor. This is the story Don told me about how he got hooked on economics. I tell this story whenever I teach the economics of price ceilings, for reasons you'll see shortly.

In the winter of 1977, Don was distinctly unimpressed by his experience as an undergrad in Louisiana and was about to drop out. He came from a working-class background and his mother persuaded him to stick it out for one more quarter [semester?]. He looked around for classes that seemed interesting and signed up for principles of economics.

In the northeastern United States, the winter of 1977 was particularly harsh. I remember it well because it was my second year on the faculty at the University of Rochester. Seventy miles west, in Buffalo, an elderly couple froze to death that winter because their natural gas had been cut off. The reason for the shortage: price controls. Both the fact of price controls and the couple's horrible fate made the national news. But virtually none of the reporters put the two facts together.

One day in class, his professor showed how a price ceiling causes a shortage. Don grokked it immediately and said to himself, "Oh my gosh, that's why that couple in Buffalo froze." He saw the power of economics to explain the otherwise mysterious world around him. He was hooked. He later told me that those three lines--the supply curve, the demand curve, and the price ceiling--are the most important three lines in economics.

BTW, in my introductory lecture in economics in my distance learning class, I "sell" economics by telling them that they'll understand a lot about the world that is otherwise a mystery. At the end of each break, I play music to bring them back into the room. The first song I play is always Norah Jones, "Come Away With Me."

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COMMENTS (9 to date)
Socal Bill writes:

My eyes were opened to the wonders of economics after reading 'Basic Economics' by Thomas Sowell. I'm still very much a novice but going to sites like Cafe Hayek and Econlog I learn something everyday.

david writes:

I've had the experience of teaching the concept and effects of price ceilings to groups new to economics before.

It is entertaining to see who walks away with "gee, we shouldn't have price ceilings" and "gee, we should force sellers to keep selling, even at a loss".

And as more and more concepts are introduced the former group becomes ever more libertarian and the latter ever more statist.

(and then we start on market failure, at which point almost everybody abruptly abandons their nascent libertarianism. Moving the three lines around on the graph encourages people to think that the government can do so just as easily, I think)

liberty writes:

This would be a much better blog post if you would update it to explain how the price ceiling caused the couple to freeze to death--was the whole town in shortage? Did gas companies go out of business because they could not make a profit--did that cause the shortage? Or did supply go to an unregulated market? Why, a progressive might ask, didn't government give them a subsidy to keep them able to provide gas to all customers at the lower price (and a mandate if necessary to stop them selling their gas elsewhere)? Perhaps the company should have been nationalized so that government could do a better job getting this necessity to all citizens?

Furthermore, the progressive might ask, how many couples have frozen to death when their gas got cut off *because they couldn't pay the bill*? Isn't it possible that this was national news because it was due to something unusual, a gas shortage, rather than something commonplace--that someone didn't pay their bill? Even if it hasn't happened often, this was an unusually cold winter, it certainly *might* have happened if there weren't price controls in place making gas more affordable for the very poor.

In short: the story isn't that convincing, at least from the point of view of a non-economist progressive, I imagine.

Lewis writes:

One of my profs in college was a big fan of Tom Petty's "Refugee".

"Yeah, you can have price controls if you want, but "you don't have to live like a refugee.""

Snorri Godhi writes:

The comment by "liberty" is quite challenging, but it makes a good point: if there was a shortage, why is it that only one household froze to death?

A personal note: I got interested in economics when I found a used copy of Toward Economic Understanding, by Heyne and Johnson, on sale for 50 cents, on a stand outside a bookshop in Ithaca, NY. I thought that was a fitting way to get started in economics.

That was also about the time I decided to take a subscription to The Economist. I am not sure how much economics I understand, but I am sure that The Economist seemed to make more sense after reading Toward Economic Understanding.

Joey Donuts writes:

Great story but ironically it contrasts sharply with an article mentioned by D. Boudreaux in a recent post. That articleFound here shows that causal density (multiple causes for an event) is very important and a limiting constraint on experiments. After reading it you will have less inclination to attribute any event to a single cause.

Liberty has a point that the story would have more impact on progressives if you acknowledge causal density. Of course, the progressive may (will?) react by claiming that the government can deal with causal density better than markets. Questioning how a progressive reaches that conclusion can lead to a better discussion and perhaps conversion.

Doc Merlin writes:

For me it was David Friedman's "Hidden Order The economics of Every Day Life." .... it was the chapter that showed why busses all seem to arrive at the same time... Interestingly, I found the book on a buss and started reading it.

Tim writes:

I like to use music, as well. I think many of us would love to see your "play list".

Daniel Kuehn writes:

Could mention the nature of the price ceiling?

Are we sure it was the price ceiling that caused these shortages and not a supply shock?

I ask because the fact that it was cut off in the middle of the storm suggests a supply shock.

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