Everyday Economics

Steven E. Landsburg is a professor of economics at the University of Rochester. He has written regularly for Forbes and Slate, and sporadically for the New York Times, the Wall Street Journal, the Atlantic Monthly, and others of that ilk. His most recent book is “Can You Outsmart an Economist?”, a collection of brain teasers that teach lessons about economics, statistics, and related subjects, all with the moral that pays to look beyond the obvious. His earlier books included “The Armchair Economist,” which has been in print for over 20 years, and about half a dozen others, touching mostly on economics but also on mathematics, philosophy, and physics. His next book will be Understanding Time and Space”, an introduction to the special theory of relativity for the general reader. He blogs regularly at www.TheBigQuestions.com. Our Simon Sarevski exchanged e-mails with him to talk about everyday economics and the lessons for the laypeople.

Simon SarevskI: How to think like an (armchair) economist?

Steven Landsburg: Above all, be curious. Recognize that a lot of things need explaining. Why are people swayed by celebrity endorsements? Why are concerts priced so that they usually sell out? Why are people more willing to rest on an escalator than they are on a staircase? Why do the best-looking teachers get the highest evaluations from their students? It’s easy to dismiss these questions, thinking that the answers are obvious. It turns out in every case that the obvious answers are wrong, and that there is much to be learned both by understanding *why* those answers are wrong and by searching for better answers.

What is the biggest mistake laypeople make when it comes to everyday economics?

Either they fail to see that the world is full of mysteries, or they accept the first explanations that come to mind without stopping to ask whether those explanations actually make sense.

If you had a magic wand and could teach every man a single economics principle what would that be (and why)?

I wish everyone would fully digest the principle that you can’t prove a thing is good or bad by listing a bunch of good or bad things about it. For example, you can’t prove that it’s a good thing to license doctors by observing that licensure keeps some bad doctors out of the marketplace. Instead, you’ve got to acknowledge that licensure also keeps some *good* doctors out of the marketplace, and then you’ve got to do the hard work of coming up with some intellectual framework that allows you to weigh the good against the bad. I believe that if people took this principle to heart, we’d not only get much better policies, but we’d avoid a lot of civil strife between factions who refuse to acknowledge the legitimate concerns of their adversaries.

You have written before, explaining why you are not an environmentalist. Where does such an “outrageous” statement come from, and more importantly, what would an answer driven by economics logic would sound like regarding the modern environmental “crisis?”

You cannot prove a policy is good or bad by listing some good or bad things about it. If some activity is making our air or water less clean, that might be a bad thing. If people are voluntarily engaging in that activity, that’s likely to be a good thing. So there will always be conflicts between people who care more about one aspect and people who care more about the other. But of course, in a world with finite resources, there are *always* conflicts about how those resources should be used — you and I can’t both own the same house, for example. The fact that you and I are in conflict does not mean that one of us is right and the other is wrong; it doesn’t mean that one of us is good and one of us is evil; it means only that we want different things. Sometimes those conflicts can be resolved through markets, and sometimes they have to be resolved through the political system, but let’s try to avoid demonizing people just because they have different priorities than we do.

If the market economy is superior compared to the planned chaos, why isn’t the world adopting it to its fullest? Furthermore, why are we seeing a move towards economic nationalism and socialism in recent times?

I am not enough of a historian or a political scientist to have good answers to these questions. I do agree with you about the trends we are seeing, and I am heartbroken. A great many people will live lives of crushing poverty because of these trends.

Why are we experiencing inflation today and what can the average Joe do to protect himself from this menace?

Interruptions to the supply of goods have certainly raised prices, but at least in the United States (and probably everywhere), changes in the demand and supply for money are (as always) the main culprits. Milton Friedman used to say (at least partly tongue in cheek) that the only way to protect yourself against inflation is through riotous living. Of course, the most important and simplest thing is to hold less money. That has the unfortunate consequence that it makes life less convenient, not just for yourself but for other people (whose money loses value as a result of your choice to hold less of it).

What advice would you give to the next future president? And maybe more important, similar to the inflation question, what would be the advice for the average Joe?

My advice to the next future president is to remember, always, that the markets know more than you do. If, for example, you think we need to burn less carbon, it’s far better to accomplish that through a carbon tax that leaves each individual and each company free to choose their responses than, for example, via a mandate on the gas mileage of new cars. The same advice would, I hope, make that president extremely skeptical of imposing new tariffs, or of badgering companies to change their prices, or of mandating family leave policies, and so on and so on and so on.

What are some economics books that you would recomend for the layperson?

My own, of course. And anything by Bastiat.

What are your current or upcoming projects?

I have a half-dozen books half-written. My next project is to decide which one to finish.

Finally, although not directly related to the general topic of today’s conversation, I would like to end my interviews with this: How to find freedom in an unfree world?

Acquire the skills you need to allow yourself to work on things you love to work on, and to be rewarded for your work.