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- Verified Buyer
I have never taken even a basic course in economics, and yet I have become quite interested in the subject and I want to be able to follow the current events in the economy with some level of understanding. So I have been reading quite a few books about the economic crisis of 2008 and following, and I read Paul Krugman's blog in the NY Times. And I invested in this book to get a better fundamental understanding of how economics works as a subject. It was a very worthwhile investment.Each chapter begins with an overview of what mainstream texts teach, and that was not always easy for me to understand. But I did my best, and I have at least a nodding acquaintance with what a person learns in a microeconomics course. But more importantly, this book then presents the Anti-Text discussion and analysis of the weaknesses and assumptions that underlie mainstream economics.One of the key points that impressed me is how models are used. Economics is based heavily on charts and equations that simplify reality in order to deal with it abstractly. The trick, as the authors explain it, is that a model is supposed to be judged by how accurately it predicts reality. Yet what happens in practice is that models are taken as proof, rather than as testable hypotheses. Models are not supported by evidence from the real world, but by imaginary examples from a vastly over-simplified world in which decisions are made by hyper-rational beings who bear little resemblance to actual humans.They further argue that real world factors such as unequal access to information and vastly unequal access to power are brushed aside and written out of the models. So when a worker interacts with a corporation, the assumption is that each is a totally free agent who can enter or leave the market at will, so if a corporation decides to move their production out of a community, the workers equally have the freedom to sell their labor elsewhere, without taking any account of the real-life ties that an individual worker may have, such as an underwater mortgage and kids in a local school. The power that corporations have in making laws that favor them is also written out of the standard textbook.Economics concerns itself almost exclusively with what it refers to as "efficiency," and very little with issues of "equity," which means not equality of outcome, as those who fling "socialism" around as an epithet claim, but with basic fairness in how a society's resources are allocated. Matters such as externalities, while touched upon, are downplayed.An interesting example is the Pareto Principle, which states that "society" is better off if someone becomes better off without anyone else becoming worse off. This seems to be almost a truism, until the actual application of it is considered. Imagine a community in which 100 people each earn $100 a week, and then suddenly, one member of the community finds oil under his property, and begins to earn $1 million a week, while the other 99 continue to earn $100 a week. All to the good, right? But out here in the real world, human beings have an innate sense that it is unfair for one member of the group (or even half of the group) to be given benefits that the rest do not share in. In fact, this sense of fairness is observed not only in young children but even in other primates. Did the people earning $100 become worse off when their neighbor suddenly struck it rich? Not in any absolute sense. But they were comparatively worse off than before, because they now lived in a world in which they were noticeably poorer than one person, whose sudden wealth came to him purely by luck. (If you give one kid in the class a candy bar, and nothing to the rest of the class, the Pareto Principle would say that this is a net gain for the class. Is it?)If you don't like this example (which is mine, not the authors') consider this one: 10 people are in a bar. In walks Bill Gates. The average wealth of the people in the bar is now in the millions of dollars. But how does that matter? This, in effect, is how the wealth of a nation is measured. If the average is higher, then society is doing well. But society is made up of individuals who may not participate in this average at all.In fact, examples like this make one wonder whether economists have ever met any real people, since they seem to have so little interest in or understanding of actual human emotions and reactions. The Efficient Market Hypothesis is just one of many examples in which an idealized model works about like cold fusion--it's a beautiful idea, but it doesn't match up very well with cold hard reality. The EMH basically claims that the price is always right. If a 2 bedroom house in the Califonria desert is sold for $800,0000, well that's what it's worth, there is no other price, and a bubble can't possibly exist.Anyhow, all in all, a well-written, clear, and very informative and insightful book. I will be re-reading it again from time to time to deepen my understanding of how economics does, and doesn't work.
