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tybris & philwelch: I am new to economics, your comments make me feel I am started with the wrong book! Can you recommend some places to start learning ? Thanks

tybris & philwelch: I am new to economics, your comments make me feel I am started with the wrong book! Can you recommend some places to start learning ? Thanks!

philwelch 17y ago
Keep in mind you're getting one side of the picture from Hazlitt. Hazlitt's a libertarian--he thinks less government is better. So he's not very prone to give you much evidence that sometimes, governments can do desirable things, just because that's not his bias. The best advice I can give you is to try and separate facts from judgments. Take the minimum wage. It's well understood that minimum wage laws cause unemployment. It doesn't necessarily follow from this that you don't need a minimum wage, though. Without a minimum wage, you might have twice as much unskilled labor working for half the pay, but all of them are below subsistence level and require government assistance. Whereas a higher minimum wage means some people can be dropped from the rolls entirely while others have to collect more. Or maybe you change the welfare system. It's a judgment call which tradeoffs you want to make, just like engineering. There are obvious things (command economies are pretty crap, just like bubble sort is a crap algorithm) but there are more subtle things (like time/space tradeoffs that dictate different algorithms for different applications) that depend on what you're trying to do. Likewise, consider health care. Some people think it's a moral imperative that a wealthy society provide health care to everyone. Economics asks some tough questions--at what cost, what level of care do we provide--but it also provides answers--what are different ways of doing this, and what are the cost-benefits? Economics at its best is a science. It doesn't dictate your goals to you, it just warns you of some natural constraints. You might say, "I believe in minimal taxes and don't care about poor people who need housing and health care but can't afford it." Well, economics tells you that's very feasible. You might say, "I believe in minimal taxes and a robust welfare state." Economics tells you there's no free lunch. You might say, "I believe everyone should have health insurance that meets these requirements." Well, economics says, you could give everyone health insurance, or you could have a market in health insurance and give people vouchers to pay for it, or do any other thing you can think of, but here are the effects and tradeoffs of those policies. In terms of what in economics to study? Microeconomics seems better grounded than macro. Behavioral economics seems promising. Austrian is a mixed bag--there's some stuff that promotes good economic reasoning but then there's also gigantic apologias for anarcho-capitalism based upon some moralistic conception of natural law that totally mix up the science of causes and effects with the moral aspect of goals and intentions. I find that separating causes and effects from goals and intentions is a big problem not only in economics but also in ecology. There's a difference between saying "I want to sustainably maintain an environment that is good for human life" and "I want to preserve the environment mostly the way it is without human tampering", and an environmental scientist will recommend different policies based upon which goal she implicitly has in mind. Maybe some endangered species can go extinct if there's a better tradeoff for humans, or maybe not. Likewise with economics: there's no such thing as "economics says policy X is bad", only "economics says policy X has effects Y".
- Empact 17y ago
  > Whereas a higher minimum wage means some people can be dropped from the rolls entirely while others have to collect more. You're falling prey to the fallacy that Hazlitt describes, focusing on some specific group, and for the short run, when in fact they harm the people generally and the poor substantially and indefinitely via forced unemployment. In the minimum wage case, with people forced out of work by a policy essentially making it economically untenable to hire certain low-skill workers, or as many of them, you have fewer people engaged in productive labor. Society incurs a loss to its productive capacity, and our general level of abundance is reduced, including for those on the margin who aren't forced into unemployment. Meanwhile, those who would be gaining skills and experience in the course of work are instead unemployed and idle. This too detracts from our human capital over time, by reducing the skills and thus earning power of the poor, the ostensible benefactors of minimum wage laws. This isn't a judgment call, it's exactly the sort of thinking Hazlitt warns against.
  - philwelch 17y ago
    Economics is great for telling us about these hidden costs, and I agree the minimum wage example is a good example where the costs outweigh the benefits. But it's not a clear-cut libertarian case of "all things that cause economic inefficiencies are bad policies". All economics can tell us is approximately how much inefficiency, for instance, would be caused by subsidized food stamps. It's up to everyone to learn what that cost-benefit is and decide whether we can afford to subsidize some folks' food purchases. (Food stamps, and voucher schemes in general, seem to work well in my opinion.) Or conversely, if we come down and say we want to reduce sulphur dioxide emissions, we might say, "Oh, let's inspect and license all the smokestacks in the US and write each of them permits every year." Economists will shake their heads and say that's an inefficient allocation method, and then they will invent cap-and-trade, where we sell them permits and let them trade the same fixed number of permits, so that SO2 emissions stay under a determined scarcity, but that scarcity is market-allocated. We've been doing that with SO2 for years and it's one of the great recent triumphs of economics.
    - Empact 17y ago
cschwarm 17y ago
If you're really serious about learning the science, the best way is to use a textbook. Back in my days, the most recommended one was "Economics" by Paul Samuelson and William Nordhaus, I believe. In fact, it's been in print since 1948, so that it's probably the most successful economic textbooks of all time. However, it seems to have lost some traction in recent years. My impression is that "Principles of Economics" by N. Gregory Mankiw took its place. If Mankiw's "Principles" is written as clearly as his Macroeconomics textbook, it's certainly worth to start with it. Of course, both are quite expensive and -- depending on your math education -- demanding. So, as a test whether textbooks are something you could like, you may like to start with the free textbook by R. Preston McAfee's "Introduction to Economic Analysis". It's available here: http://www.introecon.com/ http://www.introecon.com/ As an alternative, you may like to look for smaller textbooks that mix formal and applied economics. They may be demanding but also somewhat practical. The later part may make it easier to get the former part. As a disadvantage, they don't provide much overview. Among those I've read and can recommend, are: * "Managerial Economics" by Ian Dobbs, and * "Games for Business and Economics" by Roy Gardner. Of course, if you're interested in something more entertaining and less formal, there are quite a few books that have been published after the success of "Freakonomics" by Steven Levitt and Stephen J. Dubner. Unfortunately, none of them are really introductions to the field. They all try to make the point that economics, in general, is interesting by presenting random collections of interesting ideas or stories. Most of them also concentrate on the author's own research which is hardly a good start. That said, they are still entertaining to read. So, you may like to look at the following ones: * "The Undercover Economist" by Tim Harford * "Naked Economics" by Charles Wheelan I've read the first one and he covers a rather broad selection of topics. I didn't read the second one but the reviews at Amazon made me put it on my wish-list. So, Henry Hazlitt's book is still unique and worth reading, since it covers one of the more basic idea of economics without using any formal means. Just beware that it's outdated (since it's been written much research has gone into the problem of market failure), and that it's somewhat opinionated. Of course, the later is a general problem in economics: researchers usually assume a rather simple utility function of public decision makers, namely to maximize public welfare. This is hardly the only possible one, just the only one people can agree upon.

tybris & philwelch: I am new to economics, your comments make me feel I am started with the wrong book! Can you recommend some places to start learning ? Thanks!

philwelch 17y ago

Keep in mind you're getting one side of the picture from Hazlitt. Hazlitt's a libertarian--he thinks less government is better. So he's not very prone to give you much evidence that sometimes, governments can do desirable things, just because that's not his bias. The best advice I can give you is to try and separate facts from judgments. Take the minimum wage. It's well understood that minimum wage laws cause unemployment. It doesn't necessarily follow from this that you don't need a minimum wage, though. Without a minimum wage, you might have twice as much unskilled labor working for half the pay, but all of them are below subsistence level and require government assistance. Whereas a higher minimum wage means some people can be dropped from the rolls entirely while others have to collect more. Or maybe you change the welfare system. It's a judgment call which tradeoffs you want to make, just like engineering. There are obvious things (command economies are pretty crap, just like bubble sort is a crap algorithm) but there are more subtle things (like time/space tradeoffs that dictate different algorithms for different applications) that depend on what you're trying to do. Likewise, consider health care. Some people think it's a moral imperative that a wealthy society provide health care to everyone. Economics asks some tough questions--at what cost, what level of care do we provide--but it also provides answers--what are different ways of doing this, and what are the cost-benefits? Economics at its best is a science. It doesn't dictate your goals to you, it just warns you of some natural constraints. You might say, "I believe in minimal taxes and don't care about poor people who need housing and health care but can't afford it." Well, economics tells you that's very feasible. You might say, "I believe in minimal taxes and a robust welfare state." Economics tells you there's no free lunch. You might say, "I believe everyone should have health insurance that meets these requirements." Well, economics says, you could give everyone health insurance, or you could have a market in health insurance and give people vouchers to pay for it, or do any other thing you can think of, but here are the effects and tradeoffs of those policies. In terms of what in economics to study? Microeconomics seems better grounded than macro. Behavioral economics seems promising. Austrian is a mixed bag--there's some stuff that promotes good economic reasoning but then there's also gigantic apologias for anarcho-capitalism based upon some moralistic conception of natural law that totally mix up the science of causes and effects with the moral aspect of goals and intentions. I find that separating causes and effects from goals and intentions is a big problem not only in economics but also in ecology. There's a difference between saying "I want to sustainably maintain an environment that is good for human life" and "I want to preserve the environment mostly the way it is without human tampering", and an environmental scientist will recommend different policies based upon which goal she implicitly has in mind. Maybe some endangered species can go extinct if there's a better tradeoff for humans, or maybe not. Likewise with economics: there's no such thing as "economics says policy X is bad", only "economics says policy X has effects Y".

Empact 17y ago
> Whereas a higher minimum wage means some people can be dropped from the rolls entirely while others have to collect more. You're falling prey to the fallacy that Hazlitt describes, focusing on some specific group, and for the short run, when in fact they harm the people generally and the poor substantially and indefinitely via forced unemployment. In the minimum wage case, with people forced out of work by a policy essentially making it economically untenable to hire certain low-skill workers, or as many of them, you have fewer people engaged in productive labor. Society incurs a loss to its productive capacity, and our general level of abundance is reduced, including for those on the margin who aren't forced into unemployment. Meanwhile, those who would be gaining skills and experience in the course of work are instead unemployed and idle. This too detracts from our human capital over time, by reducing the skills and thus earning power of the poor, the ostensible benefactors of minimum wage laws. This isn't a judgment call, it's exactly the sort of thinking Hazlitt warns against.
- philwelch 17y ago
  Economics is great for telling us about these hidden costs, and I agree the minimum wage example is a good example where the costs outweigh the benefits. But it's not a clear-cut libertarian case of "all things that cause economic inefficiencies are bad policies". All economics can tell us is approximately how much inefficiency, for instance, would be caused by subsidized food stamps. It's up to everyone to learn what that cost-benefit is and decide whether we can afford to subsidize some folks' food purchases. (Food stamps, and voucher schemes in general, seem to work well in my opinion.) Or conversely, if we come down and say we want to reduce sulphur dioxide emissions, we might say, "Oh, let's inspect and license all the smokestacks in the US and write each of them permits every year." Economists will shake their heads and say that's an inefficient allocation method, and then they will invent cap-and-trade, where we sell them permits and let them trade the same fixed number of permits, so that SO2 emissions stay under a determined scarcity, but that scarcity is market-allocated. We've been doing that with SO2 for years and it's one of the great recent triumphs of economics.
  - Empact 17y ago

cschwarm 17y ago

If you're really serious about learning the science, the best way is to use a textbook. Back in my days, the most recommended one was "Economics" by Paul Samuelson and William Nordhaus, I believe. In fact, it's been in print since 1948, so that it's probably the most successful economic textbooks of all time. However, it seems to have lost some traction in recent years. My impression is that "Principles of Economics" by N. Gregory Mankiw took its place. If Mankiw's "Principles" is written as clearly as his Macroeconomics textbook, it's certainly worth to start with it. Of course, both are quite expensive and -- depending on your math education -- demanding. So, as a test whether textbooks are something you could like, you may like to start with the free textbook by R. Preston McAfee's "Introduction to Economic Analysis". It's available here: http://www.introecon.com/ http://www.introecon.com/ As an alternative, you may like to look for smaller textbooks that mix formal and applied economics. They may be demanding but also somewhat practical. The later part may make it easier to get the former part. As a disadvantage, they don't provide much overview. Among those I've read and can recommend, are: * "Managerial Economics" by Ian Dobbs, and * "Games for Business and Economics" by Roy Gardner. Of course, if you're interested in something more entertaining and less formal, there are quite a few books that have been published after the success of "Freakonomics" by Steven Levitt and Stephen J. Dubner. Unfortunately, none of them are really introductions to the field. They all try to make the point that economics, in general, is interesting by presenting random collections of interesting ideas or stories. Most of them also concentrate on the author's own research which is hardly a good start. That said, they are still entertaining to read. So, you may like to look at the following ones: * "The Undercover Economist" by Tim Harford * "Naked Economics" by Charles Wheelan I've read the first one and he covers a rather broad selection of topics. I didn't read the second one but the reviews at Amazon made me put it on my wish-list. So, Henry Hazlitt's book is still unique and worth reading, since it covers one of the more basic idea of economics without using any formal means. Just beware that it's outdated (since it's been written much research has gone into the problem of market failure), and that it's somewhat opinionated. Of course, the later is a general problem in economics: researchers usually assume a rather simple utility function of public decision makers, namely to maximize public welfare. This is hardly the only possible one, just the only one people can agree upon.