Tuesday, May 02, 2006

Wanted: Bad Economics

I have an idea for a book, although I'm not sure if I will write it. The title is "Bad Economics." To write it, I make a large collection of examples of economic errors--get rich quick schemes, news stories, political speeches, et. al. Then explain why they are wrong and in the process teach the relevant principles.

Any opinions on whether it would work? If you like the idea, feel free to contribute examples of bad economics, either as comments to this post or as emails to me. And if you happen to find bits of good economics by non-economists with good economic intuition, send them in too--I'm thinking of a short bit at the end of each chapter labelled "Diamonds from the Dungheap."


Glen Whitman said...

I like it. I have been an avid collector of bad (or misleading) statistics for quite a while, but I haven't been as diligent in collecting examples of bad economics (though I notice them, of course).

The biggest problem I see is that it's hard to get someone "dead to rights." People's economic statements are often incomplete or misleading but not definitively wrong.

One good example: the oral arguments in Gonzales v. Raich (the medical marijuana case). There was an exchange in which Justice Stevens thought a reduction in demand for marijuana should lead to a reduction in its price. See here.

Another possible example: Lots of politicians (and others) say we need to reduce our dependence on foreign oil by reducing demand; you could probably find dozens of examples just from the last few months. But while reducing demand would reduce our dependence on oil in general, the oil we continued to use would mostly come from the lowest-cost producers, most of whom are foreign. So in some sense we would be more dependent.

earth that was said...

there was a great little book a couple of years back John Paulos called 'A Mathematician Looks at the Newspaper' which gave math inspired comment on all the major sections of an average daily newspaper - news, sports, weather, stock prices, astrology, births/deaths/marriages etc. Maybe a book along these lines 'An Economist Looks at the Newspaper' is a worthy model.

Anonymous said...

But while reducing demand would reduce our dependence on oil in general, the oil we continued to use would mostly come from the lowest-cost producers, most of whom are foreign. So in some sense we would be more dependent.

I disagree with this last claim. Our dependency on foreign oil is best described by the price we would pay for oil when all foreign oil is cut off. If our demand for oil is lower, then that price can be expected to be lower. It isn't very relevant what fraction of our oil consumption is from foreign sources in peacetime.

That said, those politicians are completely off base for the simple reason that if we don't consume the oil, China and other countries are going to do it anyway. We'd just be handicapping ourselves in the global economy to no positive effect.

Anonymous said...

I would love it. Can you include a chapter on why legalizing marijuana would boost our economy; better paper, better clothes, more cigarette taxes, less $ spent on useless drug busts, etc.?

BTW, you may want to specify where comments should be made. Your blog is reproduced on half a dozen RSS feeds.
-- Dagonell (from www.livejournal.com)

Anonymous said...

People seem to like Phil Plait's "Bad Astronomy". I'd thought about doing a book about software development called "Worst Practices".

Generally it is a nice format for showing common seductive and misleading ideas, and why they don't work.

Anonymous said...

It sounds like a book that could work, though you might have to be careful about the bad examples. If you put in a discussion about why actually voting is an economic mistake, you could get pilloried enough that your book either tanked or zoomed to the bestseller list.

I would love to see a dissection of the statement on the tax forms next to the public funding of political races boxes: "Checking this box will not cause your tax bill to be higher."

Anonymous said...

Are Americans willing to read such a long book...? :-)

Anonymous said...

Have you seen Dean Baker's "Beat the Press"?


Chris said...

You could probably write an entire series of books based on Sunday Morning Talk Shows.

Sen Durbin: "Isn’t it curious, as you drive around your hometown, that all the prices on all the pumps seem to go up at the same time and come down at the same time?"

or this gem:
Durbin "Am I the only one of your guests here that think that profit taking is a problem? I mean, I understand the basic laws of supply and demand. I understand that if the input costs have gone up, it’s going to reduce your, your profitability."

Mike Hammock said...

I think it's a good idea.

Wilson Mixon wanted to write a book years ago called "Things We Know that Just Ain't So". The basic premise was similar--take ideas that everyone holds as obviously true and show that they are false (or at least questionable). I don't recall all the ideas, but I believe some of them may have been:
-Laissez faire policies were responsible for the Great Depression/We only escaped the Great Depression because of wise economic policy.
-The natural environment is getting worse, making humans less healthy. (Or more generally, "Life was better thirty years ago".)
-Corporations won't build safer products or make workplaces safer for workers unless forced to do so by the government.

There were lots of other ideas, and I could look them up later if you're interested (and if I still have them).

Anonymous said...

Third party payer systems, like health "insurance." It distorts the market on both sides. Consumers of health services have no economic incentive to behave in a healthy way; the doctors/hospitals will fix me up. On the other side of the coin, health care providers are only motivated to get the maximum loot they can from the insurance pool. So, charging $1000 for 4 stitches seems reasonable to them. Yes, I was charged $250/stitch for four stitches from the emergency room. Despite my efforts to find out throughout my wait, the hospital couldn't tell me that's how much they were going to charge me prior to doing the work.

My mistake was going to the emergency room and telling them I had insurance. They took my ER $150 co-pay, and my insurance company paid them another $450 for a total of $600 for four stitches that took them all of 15 minutes to perform. But, the hospital didn't feel like they were fairly compensated so they've sent me a bill for the difference, albeit somewhat adjusted.

It's quite a racket they have going on.

Anonymous said...

I provide you an example of bad environmental science in clothes of "sustainable economic evaluation": http://www.advance-project.org/

They made a relation between Gross aded value of goods and ressource use or polution. Then they rank this so called Sustainable Value-concept to a EU-15 average.

Please write this book! And please publish it in german!

sierra said...

I often get a kick out of reading letters to my local paper, especially this one, which demonstrates several fallacies. It would be entertaining even if it didn't cite "Economics 101."

Anonymous said...

Such a book was already written. It might have been more useful if the title was clearer, but instead it was called "Economics in One Lesson."

Anonymous said...

It depends on what you want your book to do. If you want a debunking, it's a great format. If you want to teach "right stuff," it's hard to lead readers to that solely by showing lots of "wrong stuff." It's a bit like defining an elephant by what it's not. (The space of economics isn't, alas, a linear space; so you can't just put up simplex walls until the Right Volume of data emerges.)
Perhaps you might consider a model where each chapter plots a path from "really badly wrong" to "somewhere in the vicinity of right" by meandering through popular ways of being wrong. That's still "pull towards" rather than "push away from", but I imagine it could be very entertaining.
-- perry

Eric H said...

Couldn't you pretty much just work your way through the CFR? That's what the Pentagon would call "target-rich".

Bad Economics doesn't roll off the tongue very well. How about Pseudonomics? Failing Econ 101? Ecocomics?

Matt McIntosh said...

I like this idea. For an example of "diamonds in the dungheap" I would look at the late Jane Jacobs, a non-economist who seemed like she groked the Way of Catallaxy. Paul Graham is a slightly more obscure but nonetheless great example. A more classic example would of course be Bernard de Mandeville, but that might not be what you're looking for.

Anonymous said...

Didn't Steven E. Landsburg do some of this in "The Armchair Economist," in the chapter entitled "Sound and Fury?"

It was very entertaining.

Anonymous said...

This is a great idea!

You could devote a chapter or a whole section of the book to bad economics in Congress. For example, the anti price gouging bill passed by the House on 5/3/06 would provide fertile ground for teaching a lot of good econ principles.

Can I pre-order a copy of the book? :-)

Good luck!

Anonymous said...

You could rip through some living political philosophers who have grown rich off being ignorant of economics. One who comes to mind G.A. Cohen.

Anonymous said...

My favorite is: We must institute rent control because we have a housing crisis, and we must not build new housing because that leads to gentrification.

sierra said...

Perry makes a good point. The space we call bad economics is rather chaotic and difficult to visualize, and thus harder to penetrate through exposition. To paraphrase Tolstoy, each fallacy is wrong in its own way. (Still, it would be a fun read.)

Anonymous said...

Hi there.

Books on bad economics have been done before, but its definitely worth doing again. After all, peoploe keep embracing new and not so new pyramid schemes.


Anonymous said...

Hi Viz!

So why oh why is voting an economic mistake? It has almost no opportunity cost. If nothing else it is an excercise in participatory theatre with a low admission price. I look at voting as purchasing complaining rights. Wonders of wonders, I even recently participated in a governor election with a miniscule margin of victory. Voting definitely has superior entertainment value compared to buying lotter tickets.


Anonymous said...

You can read a recent french book wrote by Philippe Simonnot, libertarian and professor of economics at the university of Paris X and Versailles. This book relates numerous economic errors in History.

Anonymous said...

Bad Economics;
Lawmakers tell FTC to Define Price Gouging

Anonymous said...

1. The belief that everyone should get as
much formal education as possible. Two strong forces converge here: the "post hoc ergo propter hoc" falacy, and the education establishment's interest in generating demand.

2. Any one of many bad finance columnists. One of the worst is Clifford Pleschette, who writes in the ANG newspapers (Fremont Argus, etc).

red said...
This comment has been removed by a blog administrator.
wow power leveling said...
This comment has been removed by a blog administrator.