Bryan Caplan  

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An Institutional Check on Fina... Guest Post by Yoram Bauman...
Volume 2: Macroeconomics of Grady Klein and Yoram Bauman's Cartoon Introduction to Economics ships this week - a great last-minute stocking stuffer. 

Volume 1 was good (see here and here); volume 2 is better.  Chapter 2 ("Unemployment") does a swell job of explaining the Keynesian-Classical debate.  Wage flexibility is front and center, free of obscurantism.  Why would wages be sticky?  Bauman cites both long-term contracts and fairness norms - the latter in a great panel with a worker on a psychiatrist's couch.  "Not all macroeconomists agree that sticky wages are important... but without them it's hard to combine theory and evidence," he writes.  And as the panel clearly shows, the decisive Keynesian evidence comes from introspection:
Classical Economists: You think unemployment goes up during recessions because of sticky wages?  Come on, get real.

Keynesian Economists: What's your alternative?  That the Great Depression was really a Great Vacation?
Chapter 14 ("The End of Planet Earth?") thrilled me by (a) making Julian Simon* a character, and (b) fairly presenting Simon's case for resource optimism.  Bauman's pessimistic about the ability of markets to fix environmental problems (like global warming) that stem from externalities, but optimistic about environmental problems (like resource scarcity) where the price mechanism is ready to work its magic.  Unfortunately, as in volume 1, he gives public choice short shrift.

The highlight of the book, though, is chapter 7: "Trade and Technology" - an elegant exercise in intellectual seduction.  Bauman leads with three big facts about technological progress:

1. Technological progress creates losers as well as winners.
2. Technological progress is pretty awesome.
3. Technological progress and trade are essentially indistinguishable.
Only then does he share his three big facts about (international) trade:
1. Trade creates losers as well as winners.
2. Trade is pretty awesome.
3. Technological progress and trade are essentially indistinguishable.
Chapter 9 ("Complications") bends over backwards to consider objections to free trade, but ultimately grants them very little.  Once the protectionist blithely accepts the lethal blow the automobile dealt to the horse-drawn buggy industry, he really doesn't have a leg to stand on.

If I'd written either of the Cartoon Introductions to Economics, they'd have a different tone and content.  Pedagogically, I'm a big fan of bluntly telling intro students the approximately right answers, and leaving complications for subsequent coursework (if any).  Bauman's squarely in the two-handed economist tradition.  And substantively, I would focus more on labor regulation and especially immigration.  In particular, I'd emphasize that immigration policy shows that popular "efficiency-equity trade-off" stories about the welfare state are wrong.  Laissez-faire is vastly fairer and more efficient than the status quo.  If we really face a choice between open borders and the welfare state, virtually every ethical theory urges us to kiss the welfare state goodbye

Still, I'm happy to give credit where credit is due: volume 2 of The Cartoon Introduction to Economics is largely correct, a joy to read, and just in time for the holidays.

P.S. Amazon's bundling Bauman's books with Larry Gonick.  High praise indeed.

* For whom my son Simon Caplan is named.

Update: Don't miss Yoram in the comments.  And while we're on the topic, here's why I'm presumptively skeptical about disastrous externalities.



COMMENTS (6 to date)
Yoram Bauman writes:

Gosh, Bryan, thanks for the generous review! We practically have nothing to argue about (unlike last time). But I will chime in on two points: First, you failed to mention that public choice gets a whole page (p82) in this book... which is a whole page more than in the micro book. Second, like you I'm very fond of the "Trade and Technology" chapter, but it's worth giving credit where credit is due (which is often impossible to do in a cartoon book): the inspiration here comes from this story in James Ingram’s International Economic Problems (1970).

Richard Allan writes:

I've often thought that technological progress is just changing the terms of trade with a place called "the realm of possibility". If only I could think of a better name for it!

Steve Roth writes:

"And as the panel clearly shows, the decisive Keynesian evidence comes from introspection:"

Oh c'mon. We know you've read Kahneman and Tversky, et al. They didn't come by their findings via "introspection".

True: Keynesians don't seem to have incorporated those findings into their models in a systematic and rigorous way, that I know of, so you could say that they're just using them "intuitively." But neoclassicals don't seem to have incorporated them at all.

UnlearningEcon writes:

'You think unemployment goes up during recessions because of sticky wages?'

No, we don't!

Read Chapter 19 etc.

Yoram Bauman writes:

On second thought, I miss arguing with you, Bryan, so I'll pick some bones:

1) What did you think of the page on public choice (p82)? Buchanan got his own Nobel Prize joke, and I thought that was pretty good!

2) Regarding Chapter 9 ("Complications"), you write that it "bends over backwards to consider objections to free trade, but ultimately grants them very little." Do you really see it as that simple? When you read articles about foreign countries and child labor or unsafe working conditions or human rights or environmental pollution, do you just shrug and say (as the character does on p112) "as long as we can buy bread from them cheap, who cares?!"

3) #2 above also makes me curious about your take on the history of labor laws in the USA. When you read about, say, the 1911 Triangle Fire, do you really just get a hop in your step from thinking about the joys of an unregulated market? If you could go back in time and eliminate laws in the U.S. about child labor and workplace safety &etc, would you?

John Cunningham writes:

I ran across your review of the Larry Gonick set of cartoon histories. I have never read those, but I can put a strong recommendation on his Cartoon Guide to Statistics. I had a couple of pals who needed to pass business statistics to get their business degrees, but each of them had been flunking twice and had dropped the class. I suggested the Gronick guide, and they reported they finally understood stats. they both got B's, I think.

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