Ronald Regan said economists can give 3,000 answers to 100 questions.
The social sciences are so tricky because people are so gosh darn peculiar. That’s why I’m so drawn to when economics nears a consensus. That work can improve public policy, and helpfully the work has lessons for those across the political spectrum.
One long-central wellspring of debates: The role of government. As Australian economist Andrew Leigh writes in his short, snappy 2024 book How Economics Explains the World: “Capitalism doesn’t guarantee the well-being of those who lack capital.”
Elsewhere though, his breezy look through the discipline reminds there are times to avoid intervention. Below I share my notes for future reference.
My notes:
- “Economics can be defined as a social science that studies how people maximize their well-being in the face of scarcity”
- Thomas Carlyle called economics “the dismal science” because he wanted slavery back
- Elinor Ostrom: Nobel research on cooperative environments
- Thomas Thwaite’s project to build a toaster from scratch
- Author: “Hobbes was right. Rousseau was wrong.” (Look at Dawn of Everything)
- In ancient Kalibangan (in India), they hit right brick proportions at 1:2:4
- But Indus River valley didn’t have “a monumental problem” because it was relatively equal — pantheon, pyramids, acropolis were built in more unequal societies
- “Consumption smoothing” : farming allowed a food surplus , so consumption is less volatile than income (production)
- Fertile crescent’s 8 founder crops
- Gender dynamics are more equal in places where (stronger male dominant) plough use was less common (Rwanda, Madagascar), than more common (Mauritania , Ethiopia)
- Eurasia had more plant/animal species domestication, and was wide, which allowed more similar harvest patterns: Jared Diamond influentially argued this is why colonizers were European
- Farming technology allowed Indus Valley to become more equal but it also allowed autocrats (look at Harari in his Nexus book noting that technology isn’t deterministic but it creates chances to reset)
- Agricultural Revolution was initially bad for health (heights declined), but innovation rebounded
- Why didn’t Egypt create the wheel? Labor costs were low. Likewise ancient China didn’t export its innovations for economic gains
- Money is a unit of account, a store of value and a medium of exchange
- “Comparative advantage, not absolute advantage: “even a country that produces everything more efficiently than its neighbors can gain from trade.”
- The Great Gatsby Curve illustrates a relationship where countries with higher income inequality tend to have lower intergenerational mobility
- Economist Gregory Clark: surnames over multiple generations show social mobility too
- Rivalrous vs non rivalrous goods
- The Venetian Patent Statute of 1474 is considered the first codified patent system in Europe, establishing a legal framework for granting inventors exclusive rights to their inventions
- Black Death: boost wages and reduces land costs: “the plague killed feudalism”
- Spain’s earlier colonial success was a resource curse, collapsing its domestic industries and driving inflation
- Why did Europeans build in Canada, United States, Chile and Australia, but extract in Nigeria, Congo and Angola? The mortality rate of them were lower in the former (malaria) — the Mayflower was considering Guyana as an alternative
- Dutch East India company vs British East India
- As a rule of thumb, economists teach that you should only insure items that cost more than a month’s income.
- Between 1820-1900, living standards in Europe more than doubled, but Asia and Africa did not rise at all
- Economist Robert Allen: industrial revolution is actually several interlocking revolutions: highly productive agriculture created urban revolution, which created commercial revolution
- Alfred Marshall: “in the air” about urban ideas exchanged
- Adam Smith: it is not from the benevolence of the butcher do we have dinner
- “Never in history have two fully democratic countries gone to war”
- Jeremy Bentham: the greatest happiness of the greatest number (utilitarianism)
- Jevons paradox: diminishing marginal utility
- John Stuart mill shaped homo economicus, included opportunity cost
- Frederic Bastiat: candlemakers could lobby against the sun, but there are unintended consequences; workers are also consumers, they would spend their money somewhere else
- In the 1840s, The Economist was launched because of anti corn laws, notably David Ricardo part of it
- Corporations Played a role — in 1855, UK’s limited liability act gave a reason for investors to chip in by limiting downside risk
- The Tolpuddle Martyrs were a group of six English farm labourers who, in 1834, were arrested, tried, and sentenced to transportation to Australia for forming a trade union. Their case became a rallying point for the nascent trade union movement and is now seen as a key moment in the fight for workers’ rights.
- Alfred Marshall: Marshallian cross of supply and demand; fixed and variable costs
- Marshall famous for popularizing economics with examples: “burn the mathematics”
- David Galenson on creatives: “conceptualists” bring a breakthrough idea at a young age (Van Gogh, Picasso; ee Cummings, Sylvia Path; James Joyce and Herman Melville; Orson Welles); “experimentalists” master a process (Rembrandt; Michelangelo, Cezanne; Wallace Stevens; Charles Dickens; Virginia Woolf; Clint Eastwood) https://www.wired.com/2006/07/genius/
- Migrants are a source of both demand and supply
- Elinor Ostrom: tragedy of the commons research shows not that management of resources is inevitable but possible
- Irving Fisher’s legendary claim of a “permanently high plateau,” days before Stock Market Crash
- Keynes: depression was like a bee colony in which all the bees decided to live thrifty — spending related, and so government investment made sense
- Hayek more saw recessions as necessary forest fires to clear out underperformed (Keynes saw them as natural disaster that could strike)
- Hayek: invisible hand; Keynes: animal spirits
- Smoot Hawley Acts and depression austerity: migration from Europe was lower in 1830s than the Mid 1800s
- Hayek critic: his guidance is like denying a blanket to a drunk who fell into an icy pond because that wasn’t his initial problem
- Frances Perkins: workers rights
- Joan Robinson: economics of imperfect competition, introduces monopsony
- Olimpiy Kvitkin, the chief of the Soviet Census Bureau, was arrested and executed by firing squad in 1937 following the results of the 1937 census.
- Sadie Alexander: UPenn, full employment reduced “fears of economic rivalry” between whites and blacks
- Civil war, and both world wars: the bigger economic power won eventually but military tactics extended all three — and how much of their economies they put to the war
- Abraham Wald: his famous ww2 airplane insights
- Marshall plan ($13b then, more like $130b in today’s money)
- Bretton woods
- Bill phillips MONIAC
- Paul Samuelson: “ I do not care who writes the nation’s laws, so long as I can write its textbooks”
- Beveridge: five evils
- There are tax limits: the Beatles song Taxman written as The Rolling Stones left the UK because of high taxes
- One theory of inequality: relative growth of technology and education
- Another theory: economic growth and return on capital assets, as Piketty argued when r>g inequality grows (which he argues is normal state of affairs)
- Les Trente Glorious
- “air-conditioning literally rearranged the world”
- Gary Becker: crime and punishment: an economic approach, “ deterrence depends on both the penalty and the odds of detection” — whether police force or jail sentences should be increased
- Malcolm McLean shopping containers
- The early training project in Tennessee and the Perry preschool project in Michigan did early randomized control tests on high-quality early childhood education
- George Akerloff’s “market for lemons” on used cars research was turned down by journals but eventually won Nobel prize
- Hindu rate of growth post WW2: more Soviet inspired nationalism that (like China) held a great big country back from development
- But why didn’t India have famines? Amartya Sen argued famines aren’t only food production but also distribution and free information helps. Not just freedom from (interference) but freedom to (get an education). Democracies with free press less likely to have a famine
- East/west Germany, north / South Korea
- “The danger of famine now comes from political risk more than agricultural risk”
- Xiogang’s 1978 mud hut secret output contract to farm privately (despite height of Communism)
- “Societal changes tend to be driven more by technology and policy than social norms”
- Milton Friedman tho
- Mark Carney: “Just as there are no atheists in fox holes, there are no libertarians in financial crises”
- Bork and Posner: consumer welfare standard
- Michael Porter’s five forces: good for profits, bad for consumers
- Privatizing government goods that were effective monopoly (eg railways) may have an upfront sale price but were effectively longterm tax on residents
- Dan Hammermesh: attractive people earn 10% more than less attractive
- 1980s central bank independence movement
- Why did two regions perform so differently? Justin Lin’s East Asian economic policy argued to focus on key strategies; Raul Prebisch’s Latin America Strategy was a full wall of protectionism
- Mariana Mazzucato’s “entrepreneurial state” concept argues that the state should take a more active, mission-oriented role in driving innovation and shaping markets, rather than simply reacting to or fixing market failures
- In 1797, Thomas Malthus famously said food couldn’t outpace population growth, just as the Industrial Revolution picked up; in 1968 Paul Ehrlich predicted a population bomb, as the green revolution picked up
- Justin Woofers: economics is no more about money than architecture is about inches
- Since market reforms in the 1990s, most growth in India and Russia have been for the richest, an even more pronounced version of “the elephant chart” of inequality (a visualization of global income inequality trends between 1988 and 2008, created by economists Branko Milanovic and Christoph Lakner)
- Putin’s Russia today is probably more unequal than under Tsar Nicholas II (1868-1918)
- “In general, countries tend to be more equal if education keeps pace with technological developments, if unions are strong, and if taxes are progressive. Equality is also improved if the economic growth rate (g) keeps pace with the rate of return on capital (r)“
- Iron triangle of healthcare: cost, quality and access — American system is great for those with coverage; European is universal
- Galbraith (1908-2006): “private opulence and public squalor”
- Kahneman : system one (fast) and system two (slow) thinking
- Arthur Pigu (1877-1955) argued that the existence of externalities is sufficient justification for government intervention.
- Nicholas Stern’s 2006 “Stern Review on the Economics of Climate Change” called climate change a market failure; carbon pollution a massive unchecked externality
- How much should future life be discounted? (Another book on longtermism)
- Kyle Macdonald traded 14 times to go from paperclip to a house: using “consumer surplus” and “producer surplus”
- Gender pay gap: motherhood penalty, Claudia Goldin’s greedy jobs
- Goldman Sachs: selling mortgage backed securities, while making The Big Short against the housing market
- Of the 43 “America’s best-run companies” profiled in the 1982 bestseller “In Search of Excellence,” one third were in financial trouble
- Warren Buffett: Jack Bogle (Vanguard founder and passive index fund proponent) deserves a statue
- Tinbergen rule: with one tool, you can only target one objective
- Ronald Coase: boundaries of the firm suggest size depends on information and transaction costs — platforms could be shrinking the size of companies
- Zuboff’s surveillance capitalism
- Raj Chetty research: friendships predict economic mobility (I’ve written about this)
- Forensic economics: personal finance magazines, wine spectator, fashion magazines all treat their advertisers more kind
- How much we would pay for each free online resource: $17k for search, $1k for streaming video
- Unpaid labor: housekeeper versus stay at home parent (in contrast, we do have owner equivalent rent)
- “Unpaid work may account for most of the world’s work” author notes: Marilyn Waring has critiques
- Max Roser: News frequency shapes news coverage
- Easterlin Paradox was overturned in the 2000s: Rising income does increase happiness, percentage wise (10% more is likely less in real dollars for a poor person or a rich person)
- Income gaps between countries higher than within countries
- Akerlof: economics of identity, we ask what you do, not what you buy
- Tail risk of runaway AI, climate and nuclear / bioterrorism
- After the Soviet Union breakup, the legend has it that a Soviet official asked a British economist: who is in charge of bread supply for London?
- Henry hazlitt: market prices reflect opportunity costs
- John Quiggin: and a wedge is sometimes between market prices and true value —
- “Capitalism doesn’t guarantee the well-being of those who lack capital”
- Income contingent loans
- His Law of the few; the power of context and the stickiness factor