I LOVE BOOKS- My Favorite Books From 2014

Seeing other people’s lists of their favorite books of the year, like Ryan Decker’s, inspired me to read a few more books and add A LOT to my “To Read” pile. Perhaps my list of the best books I read in 2014 will inspire others.

Economics Books for Everybody

I fell in love with economics through books written for non-economists, like Thomas Sowell’s Basic Economics. Even during my academic work, I try to continue reading economics books that highlight the beauty of economic reasoning in the world around us. Here are two books to help you see the world as an economist:

  • The New World of Economics by Richard McKenzie and Gordon Tullock- Long before Freakonomics, and even before Steven Landsburg’s fantastic An Armchair EconomistThe New World of Economics showed the wonder of economics. If you’re first economics class was deathly boring, this little book could have spiced it up. Published in 1975, this book still enthralled me with vivid insights about the world. Even economists who think they know supply and demand analysis could benefit from a (re)reading of this classic. With whole sections on sex, it’s not some boring textbook.
  • An Economist Gets Lunch: New Rules for Everyday Foodies by Tyler Cowen- I love food. One of the highlights of the past few years has been my discovery of better food. Tyler Cowen largely influenced me through his older book, Discover Your Inner Economist. If you’re interested in learning about food, which you should be, and are interested in how an economist looks at the problem, which you definitely should be, pick up An Economist Gets Lunch immediately. You’ll start finding cheaper and better food without much effort. I certainly have.

Economics Books for Economists

This list is geared toward economists. It is more technical, although all the books would be accessible for someone with an interest in economics. Continue reading

One Semester In An Economics Ph.D.

Everyone knows that feeling during a long drive where you don’t remember the last few miles. You’re almost in a trance.  You feel like you missed something. That is what the last few months have felt like.

I can’t believe it is already the end of my first semester as an economics Ph.D. student. While it feels like I’ve been here for a long time, it went by in a flash. It was all a blur. However, this post is a short reflection on the bit that hasn’t slipped through my mind.

A Flurry Of Math

Before the semester, I wrote down some of my thoughts on what I was expecting. While the specifics of this semester have varied, it has been what I expected overall. Lots of work. Lots of math.

Once I’d thought I’d learned more math than I could stomach, I learned some more. And that’s great. It’s has allowed me to better understand modern economics, even though I’m a skeptic of the supremacy of math in economics.

For better or worse, if I want to communicate as a professional economist (which I do), I need to speak the language. The language is math. (Actually it is only small subset of math that uses set theory and constrained maximization) and I have learned some of the language this semester. I’m at the point where I can identify the letters in the language, but not say anything intelligible. It’s a start.

On top of my micro courses, which cover math topics like convex analysis and the classic fixed-point theorems for general equilibrium, I also took a math course in real analysis. Basically, I learned how to rigorously prove some things I took for granted in calculus. Coming from a physics undergrad, the math use was completely new. Again, it’s not something I want to spend my life doing, but it was good to learn more about these topics. Whether they were the best use of my time…

Overall, the training I am receiving in mathematics helps. More importantly, it has opened my eyes to some of the possible tools that economics can use. I see no reason to restrict my tool set (or set of arrows in my quiver as Pete Boettke calls them) to exclude advanced math, computers or econometrics. If I see an arrow that allows me to tackle a problem, I hope I’m the type of economist who grabs that arrow. Sorry to all Austrians who believe logical deduction = economics. Of course, proofs are not necessary nor sufficient for doing economics.

Economics?

Continue reading

Compared To What? Ideology Edition

I’m a day behind the crowd (it’s exam time here), but I wanted to bring up something left out of yesterday’s econ Twitter and blogosphere conversation.

Maybe you didn’t follow this, but in my world a recent paper by Zubin Jelveh, Bruce Kogut, and Suresh Naidu received buzz all yesterday. Everything started with a 538 article by the paper’s authors with the headline “Economists Aren’t As Nonpartisan As We Think. (Let’s ignore the obvious question, what did we think?)

The article involved a few ready for social media images, like the buzzwords from the left and right economists.

The take away from the article is that, contrary to some people’s claims that economics is a science without ideology, ideology remains in economists’ published work.

We could then predict the ideology of any economist not in our sample by feeding his or her body of work into our algorithm. The results weren’t perfect, but the algorithm showed promising ability in distinguishing between liberal and conservative economists. To understand how well it performed, imagine that you randomly pick two economists and predict their ideologies. Random guessing would get it right 50 percent of the time and a perfect model would be able to produce the right affiliation 100 percent of the time. Our algorithm got it right 74.1 percent of the time.

Kevin Drum quickly followed up by pointing out that the slope, while statistically significant, is impressively small. I mean, the slope is basically zero, right? Drum’s concludes that it is amazing that economists, who deal with political topics, aren’t even more ideological.

Cheers to us economists. We can mask our political ideology, at least for these authors. Well maybe. Noah Smith seems to agree that the slope is small, although he expresses reservations about the authors’ ability to measure ideology. There are all interesting and important points about the 538 article, but they fundamentally miss one vital question.

Continue reading

Breakdown of Spontaneous Order: Smith and Hayek

While you would never know it from Ph.D. classes in economics, one of the most fundamental insights from economics is “spontaneous order theorizing.” Basically, many of the aspects of our society have arisen spontaneously without anyone planning them. These phenomena, like money, language, or law, are the result of purposeful human action, but are not of human design. It is a powerful model for understanding the world. For an overview of the topic, check out this article.

The two most famous economists who worked within this framework are Hayek and Adam Smith. While many writers have lumped them together, they disagreed on many issues. This is understandable since both wrote on wide-ranging topics.

If you would, allow me to put down a few thoughts I’m having about their differences on the breakdown of spontaneous order. This differences don’t affect the spontaneous order model from a positive point of view, but might from a normative.

Problems within Spontaneous Orders

A split between the two giants occurs on the issue of “social justice” with Smith providing a list of exceptions to the benefits of spontaneous order. One explanation of the split is given by Laurent Dobuzinskis, who sees Smith as emphasizing both of the sentiments of liberty and sympathy. Sympathy is not a major concern for Hayek.

In contrast, Hayek focuses almost exclusively on liberty since he is a “classical liberal for whom private property rights were paramount” (Dobuzinskis, 2008, 94). The concern with sympathy explains why, in Smith’s worldview, nonmarket institutions can play a part in providing public goods such as basic education, regulation, and economic support for the poor (Sen 2011, 259). Indeed, Smith saw intervention in the interest of the poor as beneficial to the society. “When regulation, therefore is in favour of the workmen, it is always just and equitable” (A. Smith, [1776] 2001, 356). In fact, there is a list of interventions authorized by Smith.

In 1787, Jeremy Bentham complained that Adam Smith was unable to see all the virtues of the market economy, since Smith criticized the “prodigals and projects” that were a natural part of a market. Smith also supported state regulation of financial transactions (Sen, 2011, 258) since a totally spontaneous, unregulated market can easily pave the way for “a great part of the capital of the country” being “kept out of the hands which were most likely to make a profitable and advantage use of it, and thrown into those which were most likely to waste and destroy it” (A. Smith, [1776] 2001, 356).

Justice is commutative for Smith and requires negative obligations (justice requires that people not steal compared but people are not required to help the poor) to protect others. Ultimately, Smith believed that injustice could be reduced through governmental institutions (Sen, 2011, 267). This requires an intervention into the workings of spontaneous order, sometimes to a great extent.

Hayek sees the need for government (he was not an anarchist), but believes the purpose of intervention is quite different. While Hayek believes in general rules, such as those governing property and protecting peace. Yet, government cannot provide for “social justice”. While Smith sees legislation to correct what he saw as errors of spontaneous order, Hayek defines the nature of law as “purpose-independent rules” meant to give a framework for the interaction between people. Laws should apply to “an unknown number of future instances” in order to offer a “protected domain”. This would “enable an order of actions to form itself wherein the individuals can make feasible plans” (Hayek, 1973, 85–6).

Thus, he writes that a society should function under a rule of law, or ‘meta-legal doctrine’ (Hayek, 1960, 206), which prescribes legislation by the above definition. The purpose of judges and legislators is to select those rules which worked in the past and should be held up to make it more likely that individuals’ expectations will match the real rules (Hayek, 1973, 119). This system of order provides justice precisely because it develops from general rules of behavior and not in pursuit of any individual’s purpose. Society cannot possibly agree on ends; it can find agreement on means and the framework to create. These rules can proscribe types of action but should not reference the ends which any part of society aims. Hayek terms the order that spontaneously arises from such a process as a ‘cosmos’: an order which results from the adherence to abstract general rules with no agreement as to ends (Hayek, 1978: 76).

If you’d allow me to go make a bold claim. This difference between Smith and Hayek provides a major basis for a split between certain modern-day conservatives and libertarians. Small government conservatives have followed Adam Smith more and libertarians have followed Hayek.


References

Dobuzinskis, Laurent. “‘The Adam Smith Problem’ Revisited: Comparing Hayek’s and Fouillee’s Answers.” Studies in Emergent Order 1 (2008): 92-118.

Hayek, F. A. The Constitution of Liberty. London: Routledge, 1960.

Hayek, F. A. Law, Legislation and Liberty: Vol. 1, Rules and Order. Chicago: University of Chicago Press, 1973.

Hayek, F. A. Law, Legislation and Liberty: Vol. 2, The Mirage of Social Justice. Chicago: University of Chicago Press, 1978.

Sen, Amartya. “Uses and Abuses of Adam Smith.” History of Political Economy 43 (2011): 257-71

Smith, Adam. (1776) An Inquiry into the Nature and Causes of the Wealth of Nations. London: Elecbook, 2001.

Almost Starting a PhD

Blogging has slowed down so much that almost every post starts with a list of excuses. This time I feel like it’s legitimate. Last Saturday I got married to the woman of my dreams. Believe it or not, weddings don’t just fall in to place. They require planning and that took up most of my time this summer. It was all worth it.

On top of slowing my blogging, the wedding took over time that I might have devoted to “math camp’ for my PhD. For those of you who don’t know, math camp attempts to bring all incoming econ PhDs to the same level of math. Since an economics PhD is heavily focused on math (check out some Minnesota lecture notes here or here), understanding the language of proof-based math is a must. It takes a full course plus more math to understand first year economics.

I decided the opportunity cost of the last few classes was too high and decided not to attend. Later I might regret my make-up work, but then it was the rational thing to do. Maybe I irrationally discounted the future pain it would cause… I wish I could write a proper summary of math camp, but I don’t feel qualified since I missed some of it.

Now I’m sitting in my new office (well not *my* office since I share with three others) thinking ahead to the next 5+ years. It is nerve-wrecking, exciting, confusing, and so many more things all at the same time. Over this journey, specifically the first few years, I hope to document the process through this blog. Think of this post as the start of that collection.

Here are a few things running through my mind pre-PhD:

Teaching

Minnesota might be unique because almost every first year is a teaching assistant. We start out in front of a crew of 18-year-olds on day one. From my understanding, many other places have first years as research assistants or they just do classes. We hop right into the teaching.

All the TAs here spent this whole week trying to prepare for that process of teaching. Our orientation was extremely helpful and combined with my earlier teaching experiences, I feel ready for a class. Of course I’m nervous, but I can overcome that.

First years see teaching as a blessing or a curse. After all I learned this week, I believe it will be a blessing. The most obvious reason is that I will gain teaching experience. Unless you are a top-tier researcher, most economists land in a job where their teaching matters, even to a very small degree. At some point I will have to teach if I want to be employable. I do want a job, so I need the experience. Minnesota puts that training at the (almost) core of the PhD.

Secondly, I also want to teach in the future and I can’t wait to lead my own classes. Teaching will be a blast. I’m pumped every day that I get to study economics. Economics surpasses all other subjects; it’s the coolest. I hope to spend a career instilling this love in other people and the most obvious way to do this is through the classroom.

But to teach a full class I need to take baby steps. TAing this year will help prepare me for that. My passion might not come out right away since econ 101 is highly structured at Minnesota. I won’t teach “Brian Economics,” what gets me pumped. Someday I will.

Also, teaching econ 101- to students who have likely never seen the subject- helps my personal understanding. If I want an 18-year-old to understand comparative advantage, I need to break the topic down to its core. That helps me further my understanding. Sometimes we need to ditch the math and just explain things like a real person. That’s a goal of this blog too. Econ 101 students will push me to do that better.

When thinking about teaching/TAing, it was fun to see other people’s thoughts on the process. Pete Boettke and Don Boudreaux both have some reflections on the benefits and purposes of teaching. We economics instructors have the coolest job in the world; we should show it.

Classes

Classes devour the biggest chunk of my next two years. The amount of time spent in actual lectures might not be much, but everyone warns of the difficulties of *cue scary music* problem sets.

For those of you who don’t know, problem sets are the (torture) mechanism that econ programs use to teach students. They involve proving theorems and solving problems. From what I’ve heard, they do not involve any economics, but I could be mistaken. I’m only half-joking. 50 pages of written solutions every week is not uncommon.

These problem sets have a purpose, so I’ve been told. To survive in the Samuelsonian world of academic economics, economists must communicate with each other. First year tries (by fire) to teach the language of economics. My coursework is all geared toward that. I plan on taking a math course in Real Analysis (so I can understand those lecture notes above), a micro course, and a macro course. I also want to audit econometrics so that I can start the second year in a better place. Most future courses require econometrics, so I want it right away. Maybe I won’t fit this all in, but that’s the plan now. All four courses are truly fundamental to academic economics. It’s the core at every university for a reason.

Hopefully, after the first year, we PhD students can understand a bit when they attend lectures in varying fields, such as micro theory, trade theory, or applied micro. The second year and beyond is about specialization. That is when we try to move to the forefront of our field. Year one attempts to put the foundation in place.

As most first years, these core classes are my greatest worry. It will take a lot of time and effort learning stuff that is not directly applicable to doing economics. One professor at Minnesota admitted that we will learn nothing applicable for the first year and a half. I hope he is also half-joking. We still need to go through as a right of passage. I hold Deirdre McCloskey close by as an inspiration.

There are many horror stories, but many people can make it through. Everything I heard this week made me more confident in the process. People likely exaggerate these stories and Minnesota already seems like a cooperative place to do work. Everyone is supportive. We are all on the same team to get through this Ph.D. Classes will be tough, but manageable.

Writing

One of the things that is almost unheard of in the first two years is writing. That seems odd since we are budding academics who make their living writing, but that’s not the emphasis. Most of the work, as I said above, is through problem sets. Solve this problem. Prove this theorem. It is not writing or research in the way that most economists use the term. We are still in training, not actually doing economics.

My goal is to keep writing on my own, beyond the classwork, trying to do a little economics. This will include Econ Point of View, a small book I’m working on (more coming soon I promise), and academic research, such as a paper I’m doing about the Panic of 1907.

For one thing, I find writing extremely relaxing when I’ve done a lot of reading or studying. It uses the brain in a different way. Instead of relaxing on Facebook, I hope to write. I’m weird like that.

More importantly, my job prospects depends on my writing. That’s how economists communicate. If I can’t write articulately, no one will want to read me. If I can’t research and write a coherent argument, I won’t publish. I need these skills to survive, so why not work from day 1? I’m sure someone will scold me along the way, but I want to write. It helps my thinking. Everyone has their own way and this is mine.

So those are a few of my thoughts staring a PhD in the face from 4 days out. Minnesota is a great place and I am happy a chose Minnesota. THe journey seems long from here, but I know it will go by in a flash. Taking some time to write like this will help me soak it all in. Hopefully, it will give insight to potential PhDs about the process.

Wish me luck!

Reflections on the Advanced Austrian Seminar at Mercatus

As I said in my review of Pete Leeson’s Anarchy Unbound, I am in Washington, D.C. at the Mercatus Center. Actually, I’m now in a hotel lobby. That’s not the point.

I came out here for the Advanced Austrian Economics Seminar, a 3 day conference/seminar for students interested in the ideas of Austrian economics, broadly defined. It was a gathering of around 20 students from around the world and faculty members from George Mason. Israel Kirzner, Pete Boettke, Pete Leeson, Larry White, and Chris Coyne gave lectures. Virgil Storr was also around and active in discussions. All of them know more economics in there pinky than I know in my body, to steal Pete Boettke’s cheesy line.

Any students interested Austrian economics should apply for next year’s program. The people are fun and Mercatus treats guests well. I’m talking putting us up in one of those places where the shower head is some weird set-up you’ve never seen before. Fancy stuff like that.

Plus, I got a lot of books as reading material, aka Christmas for me.

If I can go again, I definitely will.

The goal of the weekend was to show how modern research can use the ideas of Austrian economics. The presenters emphasized that Austrian economics is not a body of settled doctrine, but a framework for furthering economic science. Although we discussed the famous Austrian names (Mises and Hayek especially) quite often, the lens looked forward. We want to use these insights to move forward, not just look back.

The weekend started off with Israel Kirzner presenting on the market process.That talk sticks in my brain. First, for me Kirzner is a towering figure. The first few chapters of Competition and Entrepreneurship are a major reason I’m doing a PhD. I told Pete Boettke that I was like a teenage girl at a boy-band concert (with slightly less screaming). I was much more intimidated by him than even people like Robert Lucas, Ed Prescott, or Raj Chetty. Heck, I named my blog after Kirzner’s dissertation. And this is a guy that 99% of economists have (wrongly) never read.

Second, Kirzner brought an energy to the podium that I was not expecting. He’s no longer Mises’s young student, but still has pure passion and excitement for the science. Plus, I learned a lot. While I have watched lectures of YouTube from him on similar topics, this had a new bend. To get a flavor of his ideas and the talk, check out the video below.

How do we understand an open-ended world that cannot be collapsed down into a probability distribution? If you understand, let me know how. It’s tough. It’s also right at the heart of the differences between Austrians’ understanding of the market as a discovery process and non-Austrians’ framework. That’s what Kirzner has struggled with for 50+ years and still presenting on.

The rest of the weekend involved 5 more lectures and 2 breakout sessions. On top of that were meals and free time to talk about this subject that I love. I can’t express how fun that was for me.

The passion differed from other seminars I’ve been to. Everyone there loves economics with a fervor. Mercatus, particularly the Hayek program there, is daring to be different, following the recommendation of James Buchanan.

This weekend was especially unique for me personally because it was the first time I had ever talked with an academic Austrian economist. Literally, I have never talked with people who want to do research in this field.

I didn’t realize that until the first night. It hit me. I am around people who actually share my interests. Now, I was able to talk with other academics interested in the ideas. It overwhelmed me for a moment.

Beyond what I’ve mentioned, the highlights for me were:

  • connecting with a whole new set of economists. I know have a larger network of interesting young scholars.
  • the food (both for the seminar and outside of it). I had my first Pakistani meal and my first meal off a “hidden” second menu.
  • discussing Austrian economics and political economy over beers and whisky.

However the seminar wasn’t without some disappointments. Mainly, it disappointed me to see the collective lack of understanding of non-Austrian models from us students. There were a few situations where I felt like we didn’t arrive at a proper understanding of what non-Austrians are saying on an issue.

For example, Larry White asked a fairly simple question about Keynes’s model. I forget the exact question. No one, myself included, knew the answer. Upon reflection, I remembered the point, but I had no internalized the model well enough to even answer a simple question quickly. That’s disappointing to see. Most people were happy to sneer at Keynes, but didn’t know the model.

In other discussions, less glaring examples came up. I don’t think we had a correct understanding of how and why other economists use words like information or rationality. People were slaying strawmen. If Austrian economics is going to interact with the rest of the profession, the Austrian economists need to at least be able to understand others. That’s a necessary condition for minimal conversations.

Maybe this is me looking for a negative thing to write so this post isn’t just “GO AUSTRIANS.” Maybe not. Who knows. Overall, the weekend has been what I hoped for and more. I can’t praise the seminar enough. If anyone involved at Mercatus ever reads this, thanks for the weekend.

So if anyone is even remotely interested in the Austrian school of economics, apply to attend next summer here.

Anarchy Unbound, Economics Unbound

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It takes something special for an author to claim the book isn’t arguing much and then spend 200+ pages not arguing much. My guess is the author is understanding the size of the case.

Such is the case with Pete Leeson‘s Anarchy Unbound. His simple thesis is that “anarchy works better than you think. (1)”  That is about as low of a bar as an academic can set. Leeson himself acknowledges that this is an extremely simple task, especially for an academic work that includes 10 essays. While I’m at Mercatus at the moment for an Austrian economics conference, I find it fitting to write-up my thoughts on the book.

Even though Leeson claims he is not making a radical argument, many people will see this as a radical book. As soon as a book has the word “anarchy” in the title eyes are going to roll.

I experienced this reaction first-hand. The confused looks I got when I read this book around campus or up at the lake cabin was evidence of people’s gut reaction to word, just the word. As with all words, it can be used to dismiss another’s argument out of hand (such as that is socialist or that would be anarchy) or it can be used as a descriptive tool. That is how I want to use words.

To be used properly as a tool for helping conversation, Leeson and readers must first come to agreement on what the word means, or at least what it will mean in this book.

Leeson takes a fairly academic definition of anarchy, not the popular definition. Anarchy is not a state of chaos, as most people use the word. Instead, anarchy simply means no government.  That’s all. Anytime a government is not around to enforce contracts, protect citizens, whatever it is that governments do, Leeson calls that anarchy.

But this definition really begs the question. Now readers are left wondering, what is government? That’s harder to pin down. Leeson wrestles with it a little, but leaves it open. I bet some authors have spent a whole book on this question. Anarchy Unbound is about moving beyond that argument.

Leeson’s defines government somewhere between Potter Stewart‘s definition of porn, “I’ll know it when I see it”, and Weber’s classic definition of government as a territorial monopoly on violence. For this review, that is a good enough definition. You know it when you see it. If you want a more complete explanation, check out the first chapter. He is slightly more nuanced.

Without government, what are we left with? What structure remains when there is not a monopoly on force. Leeson argues that other rules arise to fill the void left when government is absent.

This allows Leeson to distinguish government and governance. Government is only one form of governance. Throughout the book Leeson works to show readers forms of governance that emerge without government. He applies rational-choice theory to understand this topic.

Rational people, through following incentives, develop forms of governance to improve their lives. As always in economics, actors do so because it is in their interest to. They expect life to be better with a form of governance than without one.

To take one example, even when plundering ships on the open sea, privateers had an incentive to not destroy their potential loot. If I’m going to steal your ice-cream cone, I really don’t want to hit the cone into the ground in the process. That would be a loss for everyone. It is in my interest for you to hand over the ice-cream cone without violence.

Privateers faced with this incentive developed a system of governance to reduce these deadweight losses. Ransom and parole developed as a form of “Coasean contract.” Leeson explains:

After overwhelming a merchantman, such a privateer offered its victims the following bargain: for a price it would allow the merchant vessel, its cargo, and its crewmembers their freedom. If the price was right, this arrangement was mutually beneficial. Provided the price agreed on in the plunder contract was higher than what the privateer expected to earn if it plundered its victim traditionally and thus had to incur the costs discussed earlier, it was happy to enter such a contract. (76)

Leeson shows that even in the worse of scenarios (people who live off of stealing), some rules developed to reduce costs. Governance does do something. It is not all violence like we imagine the Hobbesian jungle.

Again, it’s straightforward economic reasoning. Rational people don’t like chaos. It is expensive to deal with chaos. These rational actors develop forms of governance even when academic economists with their narrow framework don’t believe they will. They make anarchy work better than you think. QED. Well not quite. Leeson has more of an argument to make. Continue reading

A Mediocre Counter-Factual

The hardest part of judging policies is the dreaded counter-factual. Basically, we want to know what would have happened if that policy didn’t happen. Unfortunately, since most policies are not done in a lab, we rarely see a true counter-factual. The minimum wage raises or it doesn’t. We only see one of the two.

Since we rarely have a counter-factual, what is someone with an interest in policy to do? Well, we do have some tools, but it can be rough.

Most of the fancy econometric tests are just trying to build this missing counter-factual. They attempted to reconstruct what would have happened under a different policy. If we have our best guess of what would have happened under a different policy (from the counter-factual), then we can start making some judgments about the relative outcomes.

As I said, this is really hard, I mean really hard, like perfect run in Mario hard.

We all struggle to find the right counter-factual. Sometimes we come quite short. In my Twitter feed, I came across a tweet and article which thinks it has the missing counter-factual. Continue reading

Well Put My Friend

The following comes from page 54 of New Directions in Austrian Economics. It’s an essay by Mario Rizzo called “Praxeology and Econometrics.”

We do not have a choice as to whether we shall make methodological decisions. Our choice, rather, is whether we shall make them explicitly, examining the various implications and subtleties of meaning, or whether we shall make them implicitly, blind to everything but technique.

We can ignore the questions about what it means to do economics. That doesn’t mean the questions and problems go away. This is our science and we should know what we are doing as scientists. We can be more clear (at least to ourselves) about what good economics involves.