Another extract from my book-in-progress, Economics in Two Lessons. You can find a draft of the opening sections here. To recap, the idea of the book is to begin with the idea that market prices represent opportunity costs for the households and business who face them (Lesson 1), and then go on to explain why market prices won’t in general equal opportunity costs for society as whole (Lesson 2). A lot of the book will be applications of the two lessons, and this section is an application of Lesson 1. The title of this section is self-explanatory, so I’ll throw it open for comments. Praise is welcome, useful criticism even more so.
From the category archives:
Books
One of the big benefits of blogging for me is the chance to try out my ideas on an audience I couldn’t easily reach (or at least hear back from) in any other way. That’s particularly true when I’m writing a book, which is always a difficult process for me. My last post, on the opportunity cost of war produced a great comments thread. Particularly useful was a discussion, started by Chris, of the oft-heard claim that war stimulates scientific and technological progress. I’ve used my response, along with points appropriated from commenters to draft a new section for the book, pointing out how this claim ignores the problem of opportunity cost.
As always, comments of (nearly) all kinds are appreciated, and useful ones may be recycled.
What is true of natural disasters is even more true of the disasters we inflict on ourselves and others. Of these human-made calamities, the greatest is war. The wars engaged in by the US, Australian and other governments come at the opportunity cost of domestic programs that could save thousands of lives every year. The cost of war, in terms of American (and Australian) lives, is many times greater than battlefield casualty counts would suggest.
That’s the theme of this extract from my book-in-progress, Economics in Two Lessons. You can find a draft of the opening sections here.
What if the people who made super-popular, insanely adorbs anime K-On made an anime of Harry Potter? In which they skip around from era to era so that everyone can be a student (and this is very much what they would do, if you think about it)? Then, it would look like the following video, which you must promise me you will watch to when you burst out laughing at the face of Severus Snape–himself as astonished as you are–after which you will find it mere child’s play to continue to the end to get a glimpse of Helga Hufflepuff in a miniature top hat. The Weasley twins are perfect. They could be like the twins in Ouran High Host Club! (The girls and I, hearing the premise of that anime–HS students run gigolo-type host club as one of the school clubs, and blackmail an androgynous girl into participating, in drag–thought it would be awful. But last summer we were bored at my mom’s and succumbed to the magic of Netflix, only to find it’s hilarious. It sends up shojo manga tropes a lot.)
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Yes. This has been the latest in our series “Short Answers to Misconceived Questions”.
Actually, there’s a longer answer over the fold, another extract from my book-in-progress Economics in Two Lessons. You can find a draft of the opening sections here.
This extract is a subsection of Part 2, in which I explore the implications of Lesson 1:
Market prices reflect and determine opportunity costs faced by consumers and producers.
The conclusion is
if the damage bill measures the cost of restoring assets to their pre-disaster condition, it is also equal to the opportunity cost of the disaster, namely the goods and services that would otherwise have been produced.
I’ll be interested to see whether readers’ reaction is “That’s obvious” or “That’s obviously wrong”, assuming of course that you have any reaction at all. As always, civil comments of all kinds are welcome, particularly constructive criticism.
I’m now coming up to (what I hope will be) the most challenging part of my book-in-progress, Economics in Two Lessons. The core theoretical point the first part of the book (Lesson 1) is that, under a set of ideal assumptions, competitive equilibrium prices both reflect and determine the opportunity costs faced by consumers and produces. This means that there is no way to rearrange consumption to make someone better off unless someone else is made worse off. (I’ve already mentioned my reasons for avoiding the term “Pareto-optimal” in this context.
What I’m trying to do here is to spell out the logic underlying these results in a way that foreshadows the discussion of market failure and income distribution, in Lesson 2, but still shows the power of market mechanisms. I’ll probably need a few goes at this, and this is my first try. Critical comments on everything from the underlying theory to editorial nitpicks are welcome. Sincere praise is also welcome of course, but constructive criticism is best of all.
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Ruth Rendell died in May. I never exactly loved the Wexford novels (I did love George Baker as Wexford on TV, though), but her non-Wexford novels were great, especially the mature Barbara Vines. I stopped reading her altogether in the late 1990s, only on the very sensible grounds that at some point I would have a lot of her novels to read (I started devouring them about 8 months ago, co-incidentally). She is the last to die of what I thought of as the post-Julian Symons triumvirate of great English crime writers — her, PD James, and Reginald Hill.
But in the past few years I’ve been discovering a host of fantastic successors to recommend to you [1]. Here’s the first.
William Shaw. Of my candidates, Shaw is the one you are most likely to have missed. I can’t even remember how I came across the first book She’s Leaving Home 
An aside: also well worth reading is his other book, Spying in Guru Land: Inside Britain’s Cults
[1] Warning: as will become clear later on, not all of these successors are English, I’m including Scots and Irish, and will include Welsh if anyone can either recommend a good Welsh one, or convince me that one of my candidates is, in fact, Welsh.
Another excerpt from my book-in-progress, Economics in Two Lessons. To recap, the Two Lessons are
Lesson 1: Market prices reflect and determine opportunity costs faced by consumers and producers.
Lesson 2: Market prices don’t reflect all the opportunity costs we face as a society.
In this section, I’m working on Lesson 1, leading up to the point (my restatement of what’s usually called the First Fundamental Theorem of Welfare Economics) that an ideal competitive equilibrium is one in which there are no unexploited potential gains from technical improvements or mutually beneficial exchange. For reasons I’ve spelt out already I don’t want to use the term “Pareto-optimal” to talk about this. I also want to confine “efficient” to its normal meaning of “technically efficient” and avoid the common economist practice of extending this to cover various definitions of “market efficiency”. So, I’m talking about “free lunches” or, more formally, benefits with no opportunity cost.
In Lesson 2, I’ll be looking, among other things, at the Second Welfare Theorem, which says any outcome with no free lunches corresponds to a particular initial allocation of property rights, broadly defined to include taxation obligations and entitlements of all kinds.
Now please comment, criticise and hopefully enjoy
I have a few observations about Asia, and living here and also traveling to nations other than Singapore. I have been mulling them over on this trip alone as I have no one to talk to (except everyone I meet, and it’ll astonish you to know I am a friendly, chatty person. Well, the friendly might surprise you if you think of me as a harpy swooping to scourge my foes with a whip of venom. In truth I smile at strangers, and it took me some little time living in NYC before I could repress the drive to meet with my gaze every person I pass, a practice that actually impedes walking in Savannah, as one frequently knows the person and cannot, under any circumstance, walk past them without speaking briefly. My children think I am “scary,” a not unadulterated good character reference. By this they mean I have a mean glare on me, but that’s part of a mother’s job. If you can’t get somebody to stop fooling around just by looking at them sideways, you have failed to cultivate your maternal powers.) I have been loath to commit them–these ideas you forgot I was talking about just now–to pixels because I feel they are disorganized and perhaps it is not even possible to unwind the tangled skein. However, you are always kind in accepting my scattered thoughts as continuous writing and thus encouraged I will proceed.
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I have a chapter in a newly released book on happiness, extracts of which have been published in The Conversation. My argument, summed up as Measures of happiness tell us less than economics of unhappiness, is a reworking of points I’ve made in the past. In particular, I argue that it’s more useful to think about removing avoidable sources of unhappiness, and that has been the great success of social democracy and the welfare state.
Here’s another draft excerpt from my book in progress, Economics in Two Lessons. To recap, the idea of the book is to begin with the idea that market prices represent opportunity costs for the households and business who face them (Lesson 1), and then go on to explain why market prices won’t in general equal opportunity costs for society as whole (Lesson 2). A lot of the book will be applications of the two lessons, and this section is an application of Lesson 1.
As before, all kinds of comment and criticism, from editorial points to critiques of the entire strategy are welcome.
Continuing my ‘great art books I bought this year’ series, it turns out that, secretly, Dr. Seuss liked to draw cats and architecture, in a Seussian style. You can buy the book
Maurice Sendak wrote the introduction, just as he did for my other new Seuss book.
Ted and I met years ago and liked each other immediately. I gave him reason to laugh mightily on more than one occasion when I launched into one of my “wacky” (his word) subtext theories relating to my favorite Seuss books. I was a product of fifties psycho-analysis, and he forgave me that and my terrible earnestness.
Oh, to be a fly on the wall as an earnest young Maurice Sendak expounded his theory of Green Eggs and Ham. “I would not, could not, in the dark.” Hey, sometimes a tunnel is only a tunnel.
I’m still redrafting the opening section of my book, on the concept of opportunity cost. Some applications to specific problems coming soon, I promise. In the meantime, comments and criticism, including editorial corrections and nitpicks, much appreciated.
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As part of the research for Economics in Two Lessons, I’m looking in to the history of some of the ideas I’m talking about, including Pareto optimality, externalities and of course opportunity cost. I’m undecided as to whether I’ll include this material, perhaps as starred (skip if you feel like it) sections, or in an Appendix. Suggestions on this point are welcome.
My research on the intellectual history of opportunity cost has so far gone no further than Wikipedia, which attributes the term to Friedrich von Wieser, an Austrian economist in both the national (he was Minister for Finance there in 1917) and theoretical senses. Turning to the article on von Wieser, I was surprised to read that he put forward an argument very similar to mine regarding the relationship between opportunity cost and the distribution of wealth
Instead of the things that would be more useful, there are things that pay better. The greater the difference in wealth, the more striking are the anomalies of production. The economy provides luxury to the capricious and greedy, while it is deaf to the needs of the miserable and poor. It is therefore the distribution of wealth that decides what will be produced, and leads to a consumer of a more anti-economic variety: a consumer wastes on unnecessary, guilty enjoyment that which could have served to heal the wounds of poverty. —Friedrich von Wieser, Der Wert Natürliche (The Natural Value), 1914.
It turns out, even more surprisingly to me, that von Wieser was linked to a Viennese group of Fabians.
I’m still trying to digest this, and work out where to go next with it. Can anyone point to useful information about von Wieser?
Over the page, the draft preface for my book-in-progress, Economics in Two Lessons
I got some great comments first time round, but I can see it would be easier if I presented my drafts in a more orderly fashion, though not necessarily sequential. So, I’ll begin at the beginning. Comments, both critical and favorable, much appreciated.