I Feel Like I'm Taking Crazy Pills

Economists are strange. Nuts might be a better word. Sometimes I feel like Mugatu taking crazy pills. It is painful to say. Everyone wants to fit in.

I would love to be cool, but not everyone thinks about opportunity costs, diminishing returns, and revealed preference. For some reason, I hear crickets when I talk about this stuff at parties. (Pro tip: Never explain to friends or family that they get paid according to their marginal product. Accept that they are underpaid. It's not worth the fight.)

However, there is no reason to hide our quirks. Instead, I am proud. This is what keeps everything interesting. It is the spice of life.

Economics is not boring, although the textbooks try to make it so. It is the most exciting thing in the world, because economists look at the world differently. They (can I say we yet?) ask different questions and find unique, reasonable results. Talking with someone who has integrated economics into her every thought is inspiring. She is a clear and creative thinker. I hope that will be me someday.

My first exposure to this economic point of view was Thomas Sowell. In his books, I learned about important unintended consequences. Yes, proponents of a policy might claim it does X, but the world is too complex. It might do the exact opposite.

For many non-economists, this does not make sense.  Intentions = results. For example, if rent control is supposed to help renters, then it must help rents. Any difference in opinions come from differences in goals.

Good economists are contrarian thinkers without trying to simply rebel. The best example is Steven Landsburg's Armchair EconomistIn that book, which everyone should read, Prof. Landsburg asks and answers many questions that other people think they know, but are wrong. For example, why do theaters charge high (a relative term) prices for popcorn?

A non-economist will simply say something like they can or they have some sort of power. A poorly trained economist will answer that in the theater the popcorn stand is a monopoly and can charge whatever price it wants.

Prof. Landsburg demolishes this thinking step by step with such clear thinking that the answer seems obvious afterwards. I won't spoil the fun, so you will have to learn for yourself. There are many other gems throughout.

Recently, this unique economic thinking reared its head to me a few times.

One example is from a few months back. UC-Irvine economist Richard McKenzie wrote an article for EconLib where he argues that riding bike might be worse for the environment than driving a car. My point here is not to argue in favor of the proposition or not.

Instead, only people who have absorbed the economic point of view, whether formal economist or now, will even ask this type of question. Usually, people will simple stop at stage one. The car uses more energy than my bike does, so the bike is better. To borrow an idea from Thomas Sowell, they do not dig deeper to second or third stage thinking.

However, as Hayek taught us, the economy is more complicated than that. Our actions affect others, who might then change their own actions. This will create a ripple. No person is an island. We are in an integrated system.

Biking requires an increase in food consumption. Food does not just fall on our plate, but instead requires lots of people, miles, and energy to arrive on our table. Our choices affect the entire system and the price system can approximate the cost of our choices on others.

BUY LOCAL!

Everyone I know seems to think the "buying local" is a good thing. Maybe. However, most people do not even question why that is so. It is taken as gospel, not reasoned through. Instead, it is assumed as an answer or only reasoned an inch deep. The stage one thinking is that buying local provides resources for that local business, which allows them to earn a living and possibly employ others. Everyone can see that. We need to look at the unseen as well.

When judging whether something is good, the economic thinker always asks, compared to what? If you did not buy the local good, what would you have bought? Assuming "local" is more expensive (if it is not, then you are just buying the best priced good), you would have bought other cheaper goods.

Instead of spending a dollar on that local egg, you could have bought one for 50 cents from the grocery clerk. You would still have another 50 cents to spend on bread. (I know these numbers are silly.) Now, you can help one farmer and one baker out. You are just following the invisible hand.

The first common objection to this is that our "local farmer" gets more of the proceeds than the other two. The other two send money off to some evil corporation with a smiley face that slashes prices. Again, we are suffering from stage one thinking. If the people selling non-local products could get a better deal by farming local, why don't they do it? Instead, working for a grocery store is a better deal. So the grocery clerk, the baker, and you are all better off. It's a win, win, win.

My point here is not to claim that buying local is not a good idea. It might be. That is a case by case question that should be reasoned through. My point is simply to point out that the costs and benefits of buying local (or any other fad) are not always clear. Instead, we need to clear our thinking and reason through the analysis. Only then, on reflection, can we understand whether our intention is the real result.

So put on those economic glasses like my favorite economists above and take a new look at the world. Otherwise, we are just Pollyanna hoping for the best.

Leave a Reply

Your email address will not be published. Required fields are marked *