Economics in Two Lessons: Draft Outline

by John Quiggin on February 20, 2018

At the suggestion of a reader , I’m posting a draft Table of Contents for Economics in Two Lessonshere

Outline of the book
Further reading
II.Lesson 1
Chapter 1 What is opportunity cost?
Production cost and opportunity cost
Fixed cost, variable cost marginal cost and sunk cost
Labour and wages
Households, prices and opportunity costs
The intellectual history of opportunity cost*
Further reading Chapter 1
A.Chapter 2 Markets, opportunity cost and equilibrium
Gains from exchange
Trade and comparative advantage
Competitive equilibrium
Adam Smith and the division of labor*
Further reading Chapter 2
Chapter 3 Time, information and uncertainty
3.1Interest and the opportunity cost of (not) waiting
3.1.1 The production side
3.1.2 The consumer side
3.1.3 Which rate of interest?
3.2 Information
3.2.1 Information economics and Robinson Crusoe
3.3 Uncertainty
Further reading Chapter 3
B.Optional section
Applying Lesson 1
Chapter 4 Market applications of Lesson 1
Tricks and traps
The cost of (not) going to college
Optional extra
TANSTAAFL: What about “free” TV, radio and Internet content? j
Further reading Chapter 4
Chapter 4 Policy applications of Lesson 1
To help poor people, give them money
Road pricing
Fish and tradeable quota
5.4.1 The creation of property rights
A license to print money: property rights and telecommunications spectrum
Further reading Chapter 5
Lesson 2
A.Chapter 7 Property rights and income distribution
7.1 What Lesson 2 tells us about property rights and income distribution
7.2 Welfare theorems
7.3 The starting point
7.4 Property rights and natural law
7.5 Conclusion
7.6 Pareto and inequality*
Further reading Chapter 7
B.Chapter 8 Unemployment
Chapter 8 Intro
8.1 Macroeconomics and microeconomics
8.2 The business cycle
8.3 The experience of the Great and Lesser Depressions
8.4 Are recessions abnormal?
8.5 Unemployment and opportunity cost
8.6 The macro foundations of micro
8.7 Hazlitt and the glazier’s fallacy
Further reading Chapter 8
C.Chapter 9 Market failure: non-competitive markets
Chapter 9 Intro
9.1 Economies of size
9.2 Monopoly
Natural monopoly
Unnatural monopoly
One Lesson defenses of monopoly
9.3 Oligopoly
9.4 Monopsony and labor markets
9.5 Bargaining
9.6 Monopoly and inequality
Further reading Chapter 9
Chapter10: Market failure: Externalities and pollution
10.1 Externalities
10.2 Public goods
10. 3 Pollution
10.4 Climate Change
One Lesson Economists and Climate Change
Infrastructure: possibly to be added later
10.5 The origins of externality (optional)
Further reading
Chapter 11: Market failure: Information, uncertainty and financial markets
10.1 Market prices, information and public goods
10.2 Speculation
10.3 Risk and insurance
10.4 Financial markets, bubbles and busts
10.7 (Optional) Bitcoin
Further reading
IV.4. Applying Lesson 2: What can governments do?
Chapter 11: Income distribution
Chapter 12 Macro policy
Fiscal policy
The multiplier
Automatic stabilisers and destabilisers
Monetary policy
Zero lower bound
Labor market policies
Chapter 12 Financial markets
Chapter 13 Environment and externalities
Chapter 14 Market failure
Monopoly, monopsony and regulation
Public ownership, nationalisation and privatisation
Further reading
Chapter 15 Knowledge and information
Chapter 16 Public Goods
Chapter 17 Conclusion



Mike Huben 02.20.18 at 1:51 pm

This is going to be awesome.

But what I now think is needed is a big-picture view of what economics IS that is not only careful not to give away the store, but denounces Hazlitt’s blinkered idea. Given that view, it will be possible to show how Hazlitt ignores the real world and misleads in every chapter.

Some ideas for the big picture might include:
* economics is a study of ALL human choices for activity and inactivity and human motivations
* economics is not only about monetary value: that is only a favorite simplifying tool
* much economic activity is non-monetary
* economics is study: prescription is politics, and politics is inevitable
* economic activity creates all our social environment, and our social environment creates the opportunities for the Berlin values
* all economic activity is fundamentally based on coercion, the coercion used to create property, retain freedoms, etc
* economics activity, by humans, must be modeled with characteristics of real humans, including limited rationality, cognitive biases, motivation by basic needs, development, etc.

The truly scary thing is how all-encompassing the ideology of Hazlitt has become, how hidden assumptions about all aspects of life serve to thoroughly blinker the views of ideologues. For a brief example, see this page of mine: Libertarian Framing.

Each section should show explicitly and firmly how Hazlitt’s views are wrong and misleading in important ways because of his blinkered viewpoint.


steven t johnson 02.20.18 at 2:52 pm

Think there should be a chapter on rent. It may be hidden under either “natural monopoly” or “unnatural monopoly,” but it seems to me that macroeconomics of development and technological innovation have much more to do with location than is commonly acknowledged. So far as opportunity costs are concerned, ignoring the asymmetry between mobility of capital and labor seems to miss too much of the picture.


Kurt Schuler 02.21.18 at 4:36 am

Mike Huben: Henry Hazlitt’s book was explicitly an introduction, not a treatise that claimed to cover all of economics. Hazlitt often referred people who wanted a treatise to Ludwig von Mises’s 800-plus page treatise Human Action–which, by the way, he helped Mises turn from German into more or less readable English. Hazlitt also wrote more detailed works in economics (The Failure of the “New Economics”) as well as a treatise on ethics (The Foundations of Morality), so he was well acquainted both with the difference between writing an introductory work and an advanced work, and with the limits of narrowly economic analysis. Moreover, the idea that Hazlitt placed at the center of his treatment was an extremely important one. The pile of a hundred million dead bodies in socialist regimes from Albania to Zimbabwe that ignored Hazlitt’s lesson attests to its importance.

The longer the book, the more comprehensive it can be. There is however a tradeoff in terms of the reader’s time and the importance of what is covered. John Quiggin, I would be interested in a rough word count of your book versus Hazlitt’s. If you can convey two lessons in the space Hazlitt took for one, kudos for your ability at compression. If you take more than twice as long to convey your two lessons as he did his for his one lesson, then it will likely not be a productive use of a prospective reader’s time compared to what’s already available in textbooks and I suggest that you ruthlessly pare your manuscript.


Stephen Frug 02.21.18 at 4:45 am

I’d suggest cutting the Robert Frost quote. It’s clichéd, its arguably untrue to the spirit of the (darker than most people think) poem, and it doesn’t add anything.


Sandwichman 02.21.18 at 6:18 am

TWO lessons in 17 chapters?

If I am not mistaken, Henry Hazlitt’s success was due to the fact that he pandered to prevailing prejudices in a way that flattered the intelligence of the dim reactionaries he was pandering to. You seem to be trying to EDUCATE some imagined audience. Who is that? Those of us who already realize that market fundamentalism is a crock of shit? And what power do we have to alter the ruling doxa?

I’m beginning to think that economics is WORSE than astrology. The best economics dresses up a fair bit of common sense in a fog of technical jargon to prove to the zombies that it is “legitimate” economics. To my mind this only legitimizes the zombies. Yes, one legitimizes when one criticizes. The gatekeepers for the plutocrats then pick and choose whatever analysis is tailored to their clients’ needs. Surprise! It won’t be John Quiggin’s. (it also won’t be Sandwichman’s but I already know that.)


J-D 02.21.18 at 6:28 pm

Mike HubenYou’ve used the term ‘economic activity’ four times, but if what you’ve written in your first point about the scope of economics is correct, doesn’t it mean that all human activity is economic activity? and if it’s correct that all human activity is economic activity, is it then also correct to write, as you have done, that all economic activity is fundamentally based on coercion?

In practice, what percentage of the time in economics classrooms, and what percentage of the space in economics journals, is spent on human activities not involving money? if I suggested a definition of economics as ‘the study of what people do with money’, how much of economics would I be leaving out? (I have never studied economics and am genuinely unsure of the answer to this question.)


Mike Furlan 02.21.18 at 7:01 pm

“If I am not mistaken, Henry Hazlitt’s success was due to the fact that he pandered to prevailing prejudices in a way that flattered the intelligence of the dim reactionaries he was pandering to.”

Yes, agreed. Hazlitt is a typical running dog lackey. Typical being the important part. Since he is already “legitimate” John Quiggin’s is unlikely to make any provide any addition support or notoriety for the zombie.

There will be, as always those who read “Do Not Eat” and then proceed to bite down on the Tide Pod. But I can’t think of a solution for that problem.


Mike Huben 02.22.18 at 1:36 am

Kurt Schuler @ 3:
Hazlitt’s book was not an introduction: it was a work of propaganda. “The pile of a hundred million dead bodies in socialist regimes from Albania to Zimbabwe that ignored Hazlitt’s lesson attests to its importance.” That’s propaganda too, starting with your use of “socialist”. You may be interested to read my page on democide for rebuttals.

Sandwichman @ 5:
Hazlitt’s book is ONE lesson in 175+ pages and 24 chapters. Quiggan might be pithier. And it doesn’t matter that the plutocrats won’t pick Quiggan: their opponents will.

J-D @ 6:
Yes, all human activity and inactivity is economic because it (and human lifetime) is scarce. All human activity and inactivity is also based on coercion simply because without coercion, you would be dog meat. You can’t take freedom, self-ownership, self-direction, life or any of that for granted: it is preserved or created though coercion of others who might otherwise view you as an unnecessary competitor or a resource.


J-D 02.22.18 at 3:28 am

Mike Huben
I just scratched my head. I don’t understand what it means to say that that activity is ‘fundamentally based on coercion’. Also, what does economics have to say about my scratching my head?

Life is created through coercion of others? Whose coercion of whom created my life?

I notice that you didn’t answer the other question in my original comment.


Robert 02.22.18 at 11:20 am

A worthwhile perspective on coercion in economic activity can be found in:
Hale, Robert L. (1923). “Coercion and Distribution in a Supposedly Non-Coercive State”, Political Science Quarterly, V. 38, N. 3 (Sep): 470-494

I am out of sympathy with mainstream economics. But I agree with them that economic activity is not exclusively about money. A feminist economist might point out all the unpaid caring activities that go on in a household. And these are needed to sustain the laborers that are paid and produce the commodities that allow the community to go on.


Mike Huben 02.22.18 at 1:38 pm

J-D @9:
Ah, the argument from incredulity. Allow me to “scratch my head” that you didn’t understand. :-) It’s really very simple, though not much mentioned in polite society. You, for example, cannot do anything without relying on coercion to prevent others from interfering. Interference might be as simple as others commanding you not to, up to others consuming your body. All rights are based on coercive threats: it would be very hard to do anything without the basic protections of enforced rights. Even “let me alone” has to be enforced with coercive threats.

As for your second question, I happen to have a few notes.

“The value of household services was equal to about 37% of GDP in 1965, but is currently equal to about 23% of GDP.”

The value of the world’s ecosystem services and natural capital
by R Costanza, R D’Arge, R De Groot, S Farber, M Grasso, et al.
The services of ecological systems and the natural capital stocks that produce them are critical to the functioning of the Earth’s life-support system. They contribute to human welfare, both directly and indirectly, and therefore represent part of the total economic value of the planet. We have estimated the current economic value of 17 ecosystem services for 16 biomes, based on published studies and a few original calculations. For the entire biosphere, the value (most of which is outside the market) is estimated to be in the range of US$16-54 trillion (1012) per year, with an average of US$33 trillion per year. Because of the nature of the uncertainties, this must be considered a minimum estimate. Global gross national product total is around US$18 trillion per year.

Speaking of microfoundations, conspicuously missing from the foundations of any economic theory (including Austrianism) is the fact that individuals have three economic choices for production: self-provision (home production), production for exchange, and production of force to affect others. (One of my past statements.)

“Classical liberalism” (Classical Political Economy) confiscated the resources
needed for self-provision. Modern high liberalism finally compensates the
people for that confiscation, by providing government services.
See: “The Invention Of Capitalism”, Michael Perelman


Mike Huben 02.22.18 at 2:00 pm

Oh, another resource:

“For development is fundamentally about being able to set great value on human beings and the labor power and human capital they embody, not just for an elite few, but for many, most, or ideally even all.”
“As already noted above mothers (and wives) play a huge role in this largely overlooked sector of the economy [human capital cultivation]. They are still the central providers of prenatal and early childhood nutrition, language acquisition and socialization of children, the maintenance of labor market participants in a state fit for work, and end of life care and comfort. In most historical settings wives and mothers, or their female surrogates in form of sisters, daughters or servants, were responsible for all household maintenance and nursing services for the young, the old, and the infirm. It would be difficult to overestimate the value of all this invisible work (for human welfare but also for the formal economy as measured by output), but in fact we have mostly erred in the opposite direction of ignoring it altogether. With a few notable exceptions, those of Nancy Folbre, Joel Mokyr, and Jan deVries in particular, most economic models work from the assumption that people arrive either to school or work ready to learn or produce without any thought to including the true cost of making that possible.”
Anne McCants (a friend of mine)

Most economic activity occurs outside of markets: within firms, households, and government functions. Add in ecological services and non-profits, and then markets play an even smaller role. Important, yes, but small.


steven t johnson 02.22.18 at 5:34 pm

The idea that “economics” is some sort of natural science about the choices between ends, and the efficiency of means to those ends, is grossly ideological, in the most pejorative way. There was once a distinction between home economy and political economy, which went by the wayside. Home economics is not a part of modern economics, claims above notwithstanding.


John Quiggin 02.25.18 at 9:33 pm

@4 @16 This point was made in the thread on the outline also. I don’t think the ironic/dark interpretation is a problem for the way I want to use the quote. I’m not saying that “the path less travelled” is a better choice, just that it *is* a choice and forecloses the opportunities that might have been found on the other path.

But, I’ll ask for thoughts on whether an opening quote for the chapters is a good idea

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