Economics isn't as highfalutin' as the jargon makes it sound

Ross Gittins has a very nice piece in the SMH today, with some kind words about Economics in Two Lessons which he recommends as “the best book to introduce you to economics”. Ross says that the crucial concepts in economics are: Opportunity cost (of course!), the Invisible Hand (roughly, my Lesson One), imperfect competition, market failure and externalities (the microeconomic component of my Lesson Two).

His final para gives the lie to those who imagine economists oppose action to save the global enviroment

As for external costs (“negative externalities”), Quiggin notes that the leading British economist Lord Nicholas Stern has described climate change as “the biggest market failure in history”. So now you know why so many of the nation’s economists are appalled by Morrison’s dereliction.

The opportunity cost of destruction

With much of Australia suffering catastrophic fires and the beginning of a new war with Iran, lots of people are thinking about the idea that such disasters are good for the economy, because of the work generated in rebuilding homes, producing war materials and so on.  In my book Economics in Two Lessons, I explain why this is wrong (this is one point where I agree with Henry Hazlitt’s Economics in One Lesson. Here’s a link to  Chapter 6: The opportunity cost of destruction

US President Eisenhower got it right when he said

Every gun that is made, every warship launched, every rocket fired, signifies in the final sense a theft from those who hunger and are not fed, those who are cold and are not clothed.

And the same is true for the destruction visited on us by Morrison, Trump, Murdoch and the rest of the global denial industry. The workers who will be needed to rebuild homes, farms and infrastructure could instead be employed producing useful new things. Those forgone alternatives are the opportunity cost of destruction

The third lesson?

Another review of Economics in Two Lessons has come out. It’s by David Henderson and appears in Regulation, published by the Cato Institute (link to PDF). There’s a blog post with extracts here.

Unsurprisingly, given the source, it’s mainly critical of the analysis, but still has some kind words about the book. This para gives the flavour

Quiggin is a good writer who lays out much of the economics well. His analysis of rent control and price controls in general is a thing of beauty. Along the way, though, he makes small and big mistakes. He also shows by omission that the book, to be complete, badly needs a third lesson, on why government works so badly even when it intervenes in cases where markets work badly.

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Economics in Two Lessons, reviewed

A couple of reviews of Economics in Two Lessons have come out, from opposite ends of the political spectrum. The more interesting is Max Sawicky’s in Jacobin.

Sawicky does a great job in summarising the key ideas in the book. His is probably the best review so far for non-economists to get an understanding of the main themes.

Given the Jacobin audience, the key question is “Why should a socialist read a book about markets?” As Sawicky observes, the answer is easy for socialists in the Bernie Sanders mould – I share their views, a fact that is obvious to readers of this blog.

More generally

Quiggin’s deconstruction of Hazlitt’s “Lesson One” provides a lesson in “know your enemy” for anyone left of center. If your only instruction in economics was a principles course, this book provides an essential completion of the basic story.

More generally, Sawicky says

If your hostility to markets runs more deeply, then the mainstream theory elaborated by Quiggin provides a useful challenge.
What becomes deemphasized, when it is not glossed over entirely, is, on the one hand, the proliferation of “externalities” that bind together the interests of ostensibly disparate individuals, and on the other, our capacity (historically demonstrated) to respond effectively on a cooperative, collective level.
Economics as practiced by progressives pursues these insights, but, as I think Quiggin would agree, it has further to go. His “second lesson” is a crucial step in this journey.


I’m very grateful for this review, which gives me food for thought as I think about my next big project.

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Economics in Two Lessons, by Captain Haddock?

Last week, I did a couple of events in Melbourne for Economics in Two Lessons. One was at Readings in Hawthorn, where my old friend and colleague Al Watson kindly introduced me. The other was at the University of Melbourne, organized by the Australian Agricultural and Resource Economics Society, of which I’ve been a member for 40 years now.

Max Corden, Australia’s greatest living economist, was going to give the talk there, but was unfortunately taken ill. Another old friend and occasional collaborator, Nicholas Gruen stepped in and, among many other reminiscences, mentioned by (long ago now) resemblance to Captain Haddock, friend of the cartoon hero Tintin.

You can read the full talk at Club Troppo or in the more elegant venue of The Mandarin.