Economics in Two Lessons: Chapter 1

“Absence of a specific government policy…”
It is too simplistic to put all regulation in one “bad/evil” category, as absence of regulation can just as effectively have a negative impact on the overall “fairness” of an economic system. We can easily see how control of the ability to regulate can result in huge economic advantages for those in control, and huge disadvantages for everyone else.
Well written. Looking forward to the second lesson.

It seems bizarre to me that labor and wages is conceived as a matter of opportunity costs for producers. “The workers who produce a given good or service could have spent their time on another job (assuming other jobs are available), or at home, working around the house or enjoying leisure.” Why do we assume there is a home? Or that leisure automatically includes eating?

The notion that a genuine “producer” (which here actually means capitalist I think,) has the option of closing down production is correctly cited as one of the choices in judging opportunity costs. It is true that occasionally workers will immediately shut down production, so to speak, (commit suicide, to speak otherwise,) and forego all sunk costs of their previous “production,” (life.)

Opportunity costs that can be measured will guide economic life in a way that inconsistent, transitory and personal non-monetary evaluations will not. The Ben Franklin anecdote does highlight that in modern economy, it is all money, even if the text immediately walks it back. In particular, though this may be anticipating, when the opportunity costs to be measured are foregone profits, these have a significance to social life of a magnitude and nature vastly different from those opportunity costs to workers. The text says producer/capitalist=producer/workers, so far as I can tell.

Almost everything here is clear and beautifully written. But I have a problem with the organization. Allow me to make a few recommendations.

You should start the chapter and each of its subheadings with a clear statement of intent. This chapter could start with:

“In this chapter, we will begin with a careful exposition of the core idea. Next we will consider the relationship between opportunity cost and more familiar measures of the cost of production. Finally, we will examine opportunity cost in relation to the choices we face, as consumers, workers and households”

Instead, you charmingly talk about why opportunity costs are important and underappreciated for two paragraphs, when that would actually make another very good subheading.

Starting with good topic paragraphs may not feel as gracious, but it helps the impatient. THEN give them the choice bits of interesting stuff, such as how economists disagree.

“Time at home can be allocated to household work, childcare or leisure. The wage that could otherwise be earned in the market is the opportunity cost of this time.”

I think you have omitted an important part of the lesson about opportunity cost here. If work is chosen, then the opportunity cost is the subjective (and sometimes monetary) value of the household work, childcare or leisure.

But even more basic to this argument is the opportunity costs to the other VALUES of real people. As Isaiah Berlin said, “Liberty and equality, spontaneity and security, happiness and knowledge, mercy and justice – all these are ultimate human values” Unless you recognize these as possible costs, you are giving away much of the game.

“Market prices (including wages) tell us about the opportunity costs we face as consumers and workers”

This needs to be denounced much more firmly and clearly, not the passive “But market prices are only one side”. It would also be good to declare its source: are you saying it, or is it something you oppose?

“Hazlitt, like other advocates of the free market, assumes the allocation of private property rights to be preordained and natural, while treating government programs as an arbitrary intervention. In fact, all property rights are constructions of government and law. ”

This is a thing of beauty, and one of the greatest criticisms of Economics 101 arguments. But it really needs its own subsection (or chapter) and it needs to be explained at greater length in terms of opportunity costs. For example, should we rely on individual efforts of billionaires to reshape society, or by redistributing part of their wealth enable the people as a whole to choose their own destiny? Examples good and bad could include the Carnegie libraries vs. modern education deform through charter schools and vouchers, pushed by the DeVoses.

“1.4 The intellectual history of opportunity cost ”

This is terrific, but it may be boring to non-enthusiasts. I recommend that you identify side excursions such as this as unnecessary to the major theme of the book, encouraging the impatient to skip on ahead to the next chapter. Something like a TLDR unless you are interested marker. The same for the further reading. Maybe some icon meaning optional reading would help.

“The idea of opportunity cost is a natural consequence of modernity”

More explicitly: The idea of opportunity cost is a natural consequence of the increase in choices in modern society.

But is that really true? People have always had to make enormous numbers of economic choices. While they may plant the wheat at traditional times, they may have to choose which crops to plant where and how much.

I also beg you to reconsider (or explain) the use of the term “Free market”: it gives away too much to Economics 101 thinking. Forgive me if I am wrong, but there are ideal “free market” economics models, but there can be no such thing as a real free market: only markets unregulated to some degree. Free market is a political propaganda term outside of its use in economics theory.

“Mainstream economists largely accepted Robbins’ dictum that interpersonal comparisons of wellbeing should be rejected as ‘unscientific’, and sought to rebuild welfare economics without reference to such concepts as marginal utility (another term coined by Wieser). By the time theorists such as Peter Diamond and James Mirrlees returned to the problem of optimal tax in the 1970s, the link to Wieser’s work and to the concept of opportunity cost was lost.”

This is a very important subject, but this paragraph is not very clear without a great deal of background. Can you relate it to opportunity cost?

“Wieser’s students Hayek and Mises pursued a far less fruitful aspect of his work: the sterile 19th century controversy over the “theory of value”. By subordinating economic analysis to dogmatic ‘market fundamentalism’, Hayek and Mises drove the Austrian school of economics into a blind alley from which it has never escaped.”

Once again: need clarification on “theory of value” for this to make sense.

Mike Huben @ 5…
+ 100
One of the best comments I’ve ever read.
I hope you agree JQ.

John, which is the audience of this book?
a) an undergraduate student?
b) somebody already versed in some economics?
c) a layman (educated or not)?

In ch. 1 the first page is about comparing your approach to what other books do. If the audience is b), then this makes sense. If a), not so much. If c), maybe, maybe not.

Likewise, at the end of ch.1 you talk about the history of the concept of opp.ty cost. Again, this is interesting for b), but not sure how much for the other audiences who may feel a bit lost there.

Time is not money. A nation can print more money. One with good credit can borrow someone else’s money. One can steal more money. One can make too much money, more than they can spend.

Time can neither be printed nor manufactured. One can pay for someone else’s time to do some chore, but our own time is all and only our own even if we give others the use of much of it. One cannot really steal time despite our freedom to choose how we spend it. There is never too much time for any of us and we will always spend all of it.

Of course my point should not be taken to undermine the importance of opportunity costs in making economic decisions, but rather to underline the importance of using realistic and non-contradictory semantics in expressing economic ideas. Economics is a methodology of understanding the operations of commerce and not an alibi of meritocracy for the pleasure of privilege.