Well Put My Friend

George Stigler

I have given myself the unruly task of reading George Stigler's The Theory of Price and Murray Rothbard's Man, Economy, and State, while going through the king of modern
grad school economics, Mas-Colell, for class.

This route is probably not advised. However, due to my specific interests and the way I learn, I am taking it. Maybe I will have a post about this strategy and why I am trying it, I am not sure how this will turn out, but I will keep everyone updated.

Reading through Stigler (you might recognize his mug from my silly banner), one passage captures why I love economics.

The goal of the economist is not merely to train a new generation in his arcane mystery: it is to understand this economic world in which we live and the other ones which a thousand reformers of every description are imploring and haranguing us to adopt. This is an important and honorable goal.

It is not an easy goal, however, or one which is now or ever will be fully achieved. A modern economic system is of extraordinary complexity. Imagine a three-dimensional jigsaw puzzle, consisting of roughly 100 million parts. Some parts touch against, let us say, 1,000 other parts. (This is each family deals at one time or another with that many employers, banks, retail stores, domestic servants, and so on.) Other parts touch- let us be conservative- 50,000 other parts (firms that sell to retailers and buy from other firms and hire laborers and so on). It would be enough of a task to fit these 100 million pieces together, but the real difficulties have yet to be mentioned. The pieces change shape quite often- a family has twins; a firm does the next best things and invents a new product. The economist has the interesting task of predicting (in the aggregate) each of these movements.- Stigler, George J. The Theory of Price. 1987. 7-8

There are a few reasons why I enjoy this quote.

  1. The opening paragraph summarizes why I study economics. While it is a consumer good (enjoyable for it's own sake), economics provides the best framework for understanding the world outside of my mind. It shows what reforms are possible and which are not. As my blog's title and subtitle try to convey, it is a guide for understanding human action in all of its elements.
  2. Human action and the ensuing order are extremely difficult to understand and even harder to predict. Anyone who says otherwise is trying to sell you something. The quote illustrates the complexity. Stigler goes on to explain the elements that make the problem exponentially more difficult because the rules are constantly changing, whether by law or legislation or custom. It is a terrifying area to study, but beautiful once these complexities and patterns are understood. For an example of what I mean, watch this video.
  3. Economists predict the future. For good or ill, they predict. Sometimes they are called upon from non-economists and other times they freely offer. A debate exists within economics of whether prediction is key to economic models or outside of pure economic theory. No matter which side of that debate one takes, it is clear that economists are not good at predicting the future with any precision. But the question is, who is better? As Thomas Sowell would say, compared to what? I'm putting my faith (unfortunately that is the right word) with good economists. Tell a physicist to predict when an earthquake will happen and then imagine that the individual particles had free will.

Stigler writes as well as any economist. I, thankfully, discovered him early in my studies. If the rest of The Theory of Price is as good as the opening, it will be a fun trip.

4 thoughts on “Well Put My Friend

  1. Hi Brian.

    One of my favorite "a-ha" passages from a gifted economics writer is this from the first chapter of Thomas Sowell's "Applied Economics - Thinking Beyond Stage One."

    When I was an undergraduate studying economics under Professor Arthur Smithies of Harvard, he asked me in class one day what policy I favored on a particular issue of the times. Since I had strong feelings on that issue, I proceeded to answer him with enthusiasm, explaining what beneficial consequences I expected from the policy I advocated.
    "And then what will happen?" he asked.
    The question caught me off guard. However, as I thought about it, it became clear that the situation I described would lead to other economic consequences, which I then began to consider and to spell out.
    "And what will happen after that?" Professor Smithies asked.
    As I analyzed how the further economic reactions to the policy would unfold, I began to realize that these reactions would lead to consequences much less desirable than those at the first stage, and I began to waver somewhat.
    "And then what will happen?" Smithies persisted.
    By now I was beginning to see that the economic reverberations of the policy I advocated were likely to be pretty disastrous -- and, in fact, much worse than the initial situation that it was designed to improve.

    You've probably read this before, but perhaps your followers haven't.

    Thanks for referencing my article today. I am now following you. Good luck in your studies.

    - Jeff

    • Jeff,

      That is the best quote to elaborate my idea of the power of economics. Basic Economics by Thomas Sowell attracted my attention to economics. The book you quote got me hooked. It is full of gems like that all over.

      Thanks for the comment. I hope my readers enjoyed it. I might repost.

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