David R. Henderson  

Cents and Sensibility

Two new picks for the Fed?... Trade Deficit or Stuff Surplus...

Princeton University Press has recently published Cents and Sensibility: What Economics Can Learn from the Humanities. Chapter One is on line here.

The book is by literary critic Gary Saul Morson and economist Morton Schapiro. Their basic message, as the title implies, is that economists can learn from the humanities. I'm open to that message because I already agree with it. The issue will be how they pull it off. Unfortunately, the publisher has made it very clear that I may not quote from it without permission. It's Saturday night as I write this, and so I think permission will be hard to get.

In one section in Chapter One, I think they do pull it off to some extent. It's where they lay out how narrow economists can be in seeing The Merchant of Venice as being about government regulation and the legal and social framework for markets. But in the same paragraph, they write that one should "wince" at seeing The Road Not Taken as being about choice and opportunity cost. It's not? That's what I got out of it in high school long before I had heard the term "opportunity cost." It's clearly about choice. And when you have just two choices, the value of the road not taken is the opportunity cost of the road taken.

In the rest of the book, will the authors explain why The Road Not Taken is not about choice and opportunity cost? I don't know.

There is one section that I found particularly disturbing. It's where Schapiro, the economist, criticizes the famous memo written by Lant Pritchett and co-signed by the World Bank's chief economist Larry Summers in which he argued that it made sense to move toxic waste from rich countries to poor ones. The memo was brief and didn't lay out the reasoning clearly, but that make sense given that it was being distributed internally among, I presume, mainly economists. The missing reasoning is that there were gains from exchange: the rich countries' value of getting rid of the waste exceeded the poor countries' disvalue of living with the waste. Both sides could gain from the transfer of waste. If I were being demagogic, I would respond to Summers' critics: why do you hate poor people? Preventing that transfer prevents them from making themselves better off.

Now it could be that Schapiro's criticism is that the poor people in the poor country don't get to choose and their government chooses for them and imposes it on them. That's a legitimate criticism. But Schapiro doesn't make that criticism: at least, he doesn't make it in Chapter One. Indeed, the criticism that Schapiro does make doesn't sound like that of an economist. He argues that most policy decisions involve situations where some people lose and some gain. True. But here was a case where, if it were done right, there would have been just winners.

This story by Schapiro makes me concerned that either (a) he doesn't understand basic economics, or (b) he does understand basic economics but is playing to people who are hostile to, or ignorant of, economics.

There is a third alternative: that he has a good criticism of this memo, one that will show up in later chapters. But it isn't in this one.

Comments and Sharing

COMMENTS (19 to date)
Oliver Sherouse writes:

It seems to me that an economist of literary bent might have more to say on this subject than a literary man with economic aspirations.

blink writes:

Admittedly distracted by a side comment... The publisher fails to grant permission to quote a book? Huh? First, how is this even possible -- legally or feasibly? Second, why would one wish to impose such a bizarre restriction?

blink writes:

One more comment on interpreting Frost: Yes, the received view in high school is something about opportunity cost; the trouble is that the poem flatly contradicts this interpretation. John Kilgore has an excellent take-down of this faulty interpretation. (The essay, "Why Teachers Can't Read Poetry," originally appeared in the Vocabula Review and can now be found in the book Vocabula Bound. I It begins on page 30, and I found it available in entirety via Google Books.) Kilgore concludes that Frost is "lamenting life's choices and the relentless one-way march of time in a wistful, quiet, lonely little poem whose speaker has no idea whether he took the right path or not..."

Matthias writes:

Review copy might come with strings attached.

And the strings might also be more enforced in a social way than anything else: they probably wouldn't sue, but give our author here a look of disapproval and no more review copies of future books.

(All just speculation.)

john hare writes:

The thing that jumps out at me in this post and many others is the idea that if there is a winner, there must be a loser. I think this is one of the most destructive memes prevalent in our society. It is continuously bolstered by sports and politics which is winner/loser in each contest. In the real world of jobs, trade, education, or relationships, winner/winner is the goal instead and is achieved a majority of the time.

I think one of the most important memes to spread is that winners don't necessarily create losers in the real world.

Brandon Berg writes:

I don't understand. Doesn't quoting fall under fair use? You said they already published it, so I assume this isn't just a condition of receiving an advance review copy.

Brandon Berg writes:

Sorry about the double comment and asking a question that had already been asked. Had some caching and connection issues.

[Don't worry about the doubled comment. I've already removed it. I try to remove these occasional doubled comments when they occur. They happen mostly because of what you say--a kind of caching. We can probably reduce the occasional double-commenting at our end, but it would be at a cost: commenters wouldn't easily be able to go back a page to look at their own comments, and, say, copy and save their own copy for their own records. There are other pros and cons. If our readers would like to weigh in on this tradeoff, please email me at webmaster@econlib.org. --Econlib Ed.]

Pajser writes:

"The missing reasoning is that there were gains from exchange: the rich countries' value of getting rid of the waste exceeded the poor countries' disvalue of living with the waste. "

It is interesting. Yes, "waste export" is clearly win-win situation, but it is not maximization of total utility. The maximization of total utility would be reached if rich countries wealth is transferred to poor countries without waste. Political decision in wealthy countries is necessary to do that. If wealthy countries are not willing to do that, some ways around are possible.

If rich countries simply ban export of waste, then poor countries will be little poorer but little cleaner as well. As such, poor countries will attract investment faster, spend less on health, and in long terms, poor countries will be better off. Therefore, in long terms, waste export ban creates value in poor countries.

Only problem left is to transfer some of these long term gains in poor countries to short terms gain in poor countries. It is the problem, but not unsolvable one, I think.

Onanumyos writes:

[Comment removed pending confirmation of email address. Email the webmaster@econlib.org to request restoring this comment. A valid email address is required to post comments on EconLog and EconTalk.--Econlib Ed.]

Jon Murphy writes:

If rich countries simply ban export of waste, then poor countries will be little poorer but little cleaner as well. As such, poor countries will attract investment faster, spend less on health, and in long terms, poor countries will be better off. Therefore, in long terms, waste export ban creates value in poor countries.

That outcome is possible, but not probable. Given that the poor countries do accept waste, we can reasonably assume that this is the best-case option available to them. If having a cleaner environment did attract more investment and wealth than accepting the waste, then the country would not accept the waste. The fact that they do must mean (assuming rationality, of course), that the accepting of waste generates more utility than not accepting it; it is the utility-improving solution.

Weir writes:

The butt of the joke to begin with was a friend of Frost's called Edward Thomas.

They'd be out walking and Thomas would make a big to do about whether one way might have been better than another way. To Frost, this was silly. He wasn't interested in what might have been.

So you could use the title as a way of teaching opportunity cost, but not the poem. The poem has to do with deceiving ourselves, and imagining we're making choices, making decisive decisions, like big men, when that isn't what's happening at all.

Frost had a joke about learning to read in college, "in case you didn't learn in the high school," which seems relevant to a lot of his poems. If people couldn't puzzle them out, that was more than fine by him. It was where his fun was.

But Frost definitely isn't teaching opportunity cost. When you read his poems, he's teaching you how to read. Making mistakes is part of it.

Pajser writes:

Jon Murphy - "Given that the poor countries do accept waste, we can reasonably assume that this is the best-case option available to them. "

True. However, I think I addressed that in last paragraph. Poor countries need short term gains; food, schools, housing, basic health. They cannot afford to think in long terms, even if long term gains are large. Rich countries can think in long terms. They can calculate long term gains from lack of waste import in poor countries, ensure that it happens (by ban of waste export) and help poor countries to transfer some future gains to present. For instance, through low-interest long-term loans or something else. So poor countries can have their cake and eat it.

Theoretically, poor country can ask low-interest long-term loans on the base of its own decision not to allow waste import. However, there is little reasons to leave that responsibility only to poor countries governments, that are due to incompetence, corruption and instability less likely to be able to make and maintain good decision.

Jon Murphy writes:

They cannot afford to think in long terms, even if long term gains are large.

Rationality does not depend on income.

John hare writes:

If the poor countries supply nothing of value, they get nothing of value in return.

In trying to help people, I have discovered that you can help those that are trying, but those not working their own problems cannot be assisted. Countries seem to follow the same logic.

Philo writes:

"[T]here would have been just winners" in net. There would have been a salient gross loss to the people in the poor countries, which was outweighed by their gross gain. Schapiro may be playing fast and loose with the *net/gross* distinction.

[Spelling corrected for commenter--Econlib Ed.]

Tom West writes:

Perhaps it's not considered win-win because many poor countries do not have particularly equitable political representation.

The gains from accepting waste can go to a very narrow group of individuals who then proceed to dump it amid individuals with very poor representation.

Unlike manufacturing, where the value provided depends primarily on a workforce that must be paid something, the value for being a dumping ground consists primarily of finding land that can be cleared of its current inhabitants and neighbours without any effective veto (along with a few transport jobs).

It's not that such a trade *can't* be done in a away we would consider acceptable, but the nature of the value provided makes it less likely.

I don't know if that's the argument being made here, but it's the common one I've heard against the trade of toxic waste.

Jon Murphy writes:

I should be more clear in my response to Pasjer when I said "Rationality does not depend on income."

Pasjer, in objecting to my comment that it is not probable that a waste export ban creates more value in importing poor countries than allowing them to accept the waste in exchange for money, wrote: "[The poor countries] cannot afford to think in long terms, even if long term gains are large."

If poor countries cannot "afford to think in long terms," then that is necessarily the case that the short term costs are significantly higher than the long term gains.

Why is it that poor countries cannot afford to consider the long term? Most likely, because the short term is about survival. No point planning for the future if you'll die doing it. For example: Imagine one is on the brink of starvation. S/he needs 3 figs to keep them alive to tomorrow. They only have 3 figs. It wouldn't make sense to eat 1 and plant 2 since the person wouldn't be alive to reap the benefits. So, the long term gains would have been higher with the long term planning (the fruit of the fig trees or lack thereof, in my example), but the short term costs of such planning (death) were considerably higher.

If a country becomes wealthier, than the short term costs become relatively lower or disappear altogether, and the decision-making calculus changes. Going back to figs, if one is on the brink of starvation but has 300 figs, s/he can eat 3 and save/invest the other 297. The short term costs no longer outweigh the long term benefits.

In both cases, the actor is acting rationally (that is, operating at the point where marginal revenue = marginal costs, where net benefits are maximized). Thus my comment that rationality is not dependent on wealth; one doesn't become more rational as one becomes wealthier. His/her situation changes, and thus so do their decision-making calculations.

It is probable that, without some form of additional support, that a waste export ban would make poor countries worse off. Since the country is accepting such a transaction, we can reasonably assume that it is the best option available to them; that is, it has the highest net benefits.

Without additional information (which is not provided thus far in the online chapter), we cannot be sure of the reason why Schapiro criticizes the memo, but hopefully it is not on solely "that memo never should have been written."

William B writes:

The part about Frost is really weird, because the poem *is* commonly misunderstood, just not in the way the authors say. Most often you will hear "the road less travelled" as a message about forging one's own path in life, which it isn't.

But the poem definitely *is* about opportunity cost, and thus I find it very strange that the authors claim to encounter and wince at the (uncommon but correct) interpretation more often than the (common but incorrect) interpretation.

Now I'd really like to know what they think about the line "good fences make good neighbors," which is *particularly* easy to take out-of-context.

Jesse writes:

I think one of the big language barriers between economics and some of the other humanities is misunderstanding each other's concept of depth. This is probably especially true for writers, like yourself, who stay attuned to the basic insights of the discipline. In the economist's mind, including my own*, concepts like opportunity cost are extremely deep. Deep here means it explains a lot, but also that it's elegant. These concepts provide economists endless fascination and are therefore more than merely conceptual tools. They take on a profound quality, being human truths that link the basic realities of our nature to very high levels of abstraction. And for those economists who see these basic, abstract forces as forces for overwhelming good and development and all of that humanistic fulfillment, the profound can even tip into the cosmic. For all our social scientific empiricist pretensions, sometimes a platonic impulse can peek through, a little.

The problem I find is that when (for example) I'm waxing mystical to my sociologist or critical theorist or political scientist friends about the mystic time-linking properties of interest rates, they hear facts, and might even admit to their importance, but will still look for something else, something "real" or "deep" that underlies the phenomenon. So too with me, when they place "institutional racism" on top of a causal/interpretative chain of reasoning. Which to them is profound, and to me begs not just the question but the entire discipline its priorities. However! While my first instinct is to dismiss someone else's insight as uninteresting (for example, if they say that "it's uneconomist like to focus on the idea that most policies create winners and losers" or "it's just about opportunity cost and choice." It is much, much better to consider what the other person finds so insightful, what they find profound in it, and what way it could be understood like that even in my own schema, and even if that schema has to grow another little dimension. At my yeshivah, we called this "reading with charity." In economicsland, it's distantly related to the idea that often seemingly irrational behavior isn't at all, you just first need to assume rationality and then the insights start coming.

What we find profound is fundamentally aesthetic, largely a matter of temperament and personality. When explaining the beauty of a core concept to someone without your personal tastes in interests, we should be more attentive to making it seem genuinely relevant and interesting to them on their own terms. This has mostly failed me as a strategy for applied interdisciplinary dialogue -- econ 101 really is a mindshift too far for a lot of people. But it's been a huge help thinking through some economics concepts, since the profound logic of other sets of interests can sometimes provide a new or, depending on the concept and the lens, even insightful way of thinking through my own economics.

*I'm working on it, I'm working on it. I'm still just a research assistant...I'll get the phd eventually I promise...ok now you sound like my mother.

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