David R. Henderson  

Robert Litan on Microeconomists' Contributions

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Robert Litan gives a nice 15-minute speech in which he highlights some of the main contributions that microeconomists have made that have generated, over 30+ years, hundreds of billions (and possibly trillions) of dollars in consumer and producer surplus. (These are my estimates, by the way: he doesn't give estimates in his talk.)

It's misleadingly titled "An Economist Walks Into a Bar."

Of all the stories he tells, the one that I have some connection with professionally is the deregulation of airlines story.

I would have missed this talk had Alex Tabarrok over at marginalrevolution.com not highlighted it. If you want to see some pretty upset people, though, most of whom missed the point, go and look at the comments. The one legitimate complaint in the comments is that Litan attributes Billy Beane's strategy in the success of the Oakland A's to economists even though Bill James is not an economist. James probably could have been a good economist, but he's not.

I was disappointed by this comment from Kent Guida:

Is every marketing innovation to be attributed to some economist? Is that what economics has come to -- the desperate attempt to take credit for marketing?

Of course, Litan did not credit economists for "every marketing innovation." Instead he credited economists for specific innovations: he gave specific examples, named the particular people involved, and told the specific story. Guida doesn't gainsay any of this.

By the way, speaking of airline deregulation, Tyler Cowen at marginalrevolution.com links to a great explanation, by Amy Cohn, of the cost to airlines of canceling flights. It's well worth reading.

Note: Bob Litan wrote the article "Regulation" for The Concise Encyclopedia of Economics.


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CATEGORIES: Microeconomics , Regulation



COMMENTS (10 to date)
Tom West writes:

A fascinating talk. I think the spate of new businesses that can have an entirely new business model has allowed innovative approaches that really allow economics to shine.

It must be a fascinating time for economists. How often does one get a "blank sheet of paper" in which to create whole new approaches?

I've often wondered how Varian went from Berkeley textbook author to Google's chief economist. Now I know it was a fortuitous accident.

paul writes:

its interesting to note that none of the economists actually started a business.

and if you credit "them" for deregulating the trucking and airline industry who gets the credit for the increased regulation and advocating monetary and fiscal silliness?

happyjuggler0 writes:

Julian Simon invented the idea for airlines to pay people who got "bumped" from an overbooked flight instead of randomly kicking someone off without compensation.

David R. Henderson writes:

@paul,
its [sic] interesting to note that none of the economists actually started a business.
I find that less interesting than you do.
and if you credit "them" for deregulating the trucking and airline industry who gets the credit for the increased regulation and advocating monetary and fiscal silliness?
As I’m guessing you noted if you read my post or actually watched the video, Litan and I credit specific individuals with specific accomplishments. As to who gets credit for increased regulation and advocating monetary and fiscal silliness, different economists from those mentioned in the video and many politicians.

Enial Cattesi writes:
As to who gets credit for increased regulation and advocating monetary and fiscal silliness, different economists from those mentioned in the video and many politicians.
It is rather doubtful that deregulation could happen without many politicians. What's next? The draft was ended because an economist wrote a book? Really?
paul writes:

David, for a discipline that studies human action, markets, prices, the nature of the firm etc. economists are surprisingly ineffectual in the business world. I think the video makes that point clear.

David R. Henderson writes:

@Enial Cattesi,
It is rather doubtful that deregulation could happen without many politicians.
True. Nor did Litan deny it. He did mention two politicians, although, for some reason, he didn’t name them. They were Ted Kennedy and Jimmy Carter.
What's next? The draft was ended because an economist wrote a book? Really?
Obviously not. But economists were very important in the intellectual battle against the draft. Of course, if you think ideas don’t matter, then you probably won’t give them any credit. For the view that they did matter, though, see my “The Role of Economists in Ending the Draft."

David R. Henderson writes:

@paul,
Well-played, paul: change the subject.

Economists are ineffectual in the business world? Well, I personally have known some who were quite successful in business.

Since David is in California, Ready Pac Produce of Pasadena comes to mind. Wayne Gertmenian--one of whose Phd advisers was Milton Friedman--took his family's roadside fruit stand and turned it into a multi-million dollar business in the 1980s.

Among other people who have taken their economics studies and used it for worldly success, is New England Patriots head coach Bill Belichik. Fred Smith, founder of FedEx, turned an econ paper into a fairly successful delivery company.

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