The Power of Unintended Consequences: SuperFreakonomics, by Steven D. Levitt and Stephen J. Dubner

'“Super Freakonomics” by Steven D. Levitt and Stephen J. Dubner (HarperCollins Publishers, 2009) is the follow-up to their enormously popular book “Freakonomics.” Need one say more?

The theme of both books is incentives. Why? Because, as they emphasize right from the start, people respond to incentives. And how people respond to incentives is what Levitt and Dubner find interesting. Of course, Levitt is an economist and, as the authors explained in their first book, economics is the study of incentives. At least this is how more and more economists are now defining the content of economics. (The older view was that economics was the study of how scarce resources are allocated, but that definition had to do with how markets achieve equilibrium, something that microeconomists are less interested in today.)

The “freakiness” of economics, the authors contend, comes from the fact that many of the results economics uncovers are unexpected. In fact they go on to define the unifying theme of their book as: People respond to incentives, although not necessarily in ways that are predictable or manifest. Therefore, one of the most powerful laws in the universe is the law of unintended consequences.

Thus, in their first book they dealt with schoolteachers, realtors, crack dealers, expectant mothers, sumo wrestlers, bagel salesmen and the Ku Klux Klan. In the present volume they deal with drunk driving, horse manure, prostitution and department store Santa clauses, terrorists, the sources of talent, apathy and altruism, why doctors don’t wash their hands and what Al Gore and Mount Pinatubo have in common. Of course, you can easily see how all of these various things fit together.

The material in the book is presented in a light-hearted manner and their arguments are supported with example after example after example to explain and clarify where they are coming from. But, the underlying story is extremely serious.

Incentives matter!

And, incentives can either be related to positive outcomes or to negative outcomes. Incentives can either produce good behavior or bad behavior. Incentives can either build up society or it can help to tear down society. So, it is necessary to be careful what incentives you—or societies—are setting up because the consequences of these incentives can be substantial.

Perhaps the major underlying assumption of Levitt and Dubner is that, “people aren’t ‘good’ or ‘bad.’ People are people, and they respond to incentives. They can nearly always be manipulated—for good or ill—if only you find the right levers.”

And, to bring this analysis into the area of finance and the events that led up to the current economic crisis: “Believe it or not, if you can understand the incentives that lead a schoolteacher or a sumo wrestler to cheat, you can understand how the subprime-mortgage bubble came to pass.”

The author’s point, of course, is that all individuals will cheat or engage in what might be considered to be un-social behavior if the incentives are right. Another way the economist phrases this conclusion is that everyone has his or her price. My addition to this is that one should never say that they would not do something until they have actually been sufficiently tempted to do a thing and have resisted that temptation. Then that just raises the bar as to how high the price would have to go in order to cause you to succumb to that temptation.

Investment bankers and the originators of subprime loans act in their own self interest. But, when housing prices are rising at a 10% to 15% clip, year-after-year, due to the asset bubble that has been created by the interest rate policy of the Federal Reserve System, is it all bad to give loans to lower income people who cannot afford a down payment and who would really like to move their family into a house? Especially if, in recorded history, housing prices have never declined?

Why, you give a family a $50,000 loan (no down payment) for a house with a $50,000 sales price. If the rate of housing inflation is 10% then that house will be worth $55,000, $60,500, and $66,550 at the end of the next three years, respectively. That family is going to have equity in the house, and even though the house must be refinanced at the end of the three year period because the mortgage rate is going to re-set, they surely can find a borrower at that time that will give them a good rate because of the equity they now own in the house.

Is this just nasty greed? Is the borrower just a naïve, unsophisticated individual that is easy prey for the “system”? Is the mortgage broker just a slimly, greedy bastard that is taking advantage of an innocent, uneducated borrower? Or, are the incentives in place so that the family is willing to take a financial risk by stretching to move into the middle class and the American Dream? And does the lender have the opportunity to help someone achieve their lifetime dream?

What about the mortgage banker that writes the mortgage? And what about the investment bank that packages up mortgages and sells the cash flows generated by the mortgages to investors around the world? And what about the firms that provide a credit rating for the various securities that are generated? And the list goes on and on.

I am not saying that nothing dishonest happened is this example , just that the motives of different individuals will be different. And there will be some real people just trying to do the right thing.

Levitt and Dubner argue: “Human behavior is influenced by a dazzlingly complex set of incentives, social norms, framing references, and the lessons gleaned from past experience—in a word, context. We act as we do because, given the choices and incentives at play in a particular circumstance, it seems most productive to act that way. This is also known as rational behavior, which is what economics is all about.”

As Gary Becker, who is quoted in the book, explains, the economic approach “does not assume that individuals are motivated solely by selfish gain. It is a method of analysis, not an assumption about particular motivations…Behavior is driven by a much richer set of values and preferences.”

The economic approach “is a systematic means of describing how people make decisions and how they change their minds;…whether, upon coming upon a pile of money, they will steal from it, leave it alone, or even add to it;…why they’ll punish one sort of behavior while rewarding a similar one.”

The subprime example is my own and does not come from the book although, I believe, that the thrust of the story is the same as the theme which unifies the book. The book is too rich in examples to do justice to what is there in this short review. One must read it for themselves. Some parts will sound familiar if the reader has kept up with the material Levitt and Dubner have published in the New York Times Sunday Magazine or on their own website. It is still insightful to see how they integrate all this material into one publication.

The conclusion that we should take away from this book is that, in whatever we do, whether it be in relating to a lover, being a parent, being a banker, being an investor, or whatever, the incentives we set up and the incentives we respond to, matter. And we had better be careful about what they are so that we get the response that we want and do not fall victim to the law of unintended consequences.

Comments

[Ponchovilla:]

Of course their objective is not just shedding light on "behavorial economics" but to sell books. But the plot is entertaining. Can't wait for the charts and graphs, theories and conclusions.

The problem with economics is there is no non-arguable definition of what economics IS. Remember that reply under oath? "It depends on what the meaning of the word 'is' is"

Put 25 economists in a room for a week and I'll bet a war breaks out. Particularly if there are macro, micro, Keynesian and Austrian schooled "ECONOMISTS" still alive.

Oct 17 03:56 AM

[enigmaman:]

Yes it all seems like common but common sense is no longer common and it no longer makes sense," we are living in a world of make believe and trying not to let it show- Moody Blues" its a mad world that is getting crazier every day. People dont know which way is up or down anymore, is this the land of OZ, can we click our heels together 3x and go home, so many people no longer really know right from wrong and then when they vote for change they can believe in they get more of the same except wrapped in a different package and twice as expensive. Things are spinning out of control, the more they do the less engaged most people will be and so we will end up with more of the same only worse. The only way to stop this insanity is we need to pay the piper for it all but the Fed wont let us, so we kick the can down the road compounding our problems with every kick of the can "Tomorrow, tomorrow, not today,all the lazy people say."

Oct 17 07:42 AM

[Leftfield:]

The present state system has been built by the incentives our empowered government hath wrought. By rent seekers, for rent seekers and of rent seekers. There is this one clause in the Constitution, the Commerce Clause which big government since FDR has used as a device to consider all their overreaching: "Regulating interstate commerce."
This subverted the spirit and intent of a society of sovereign citizens who have inalienable rights granted by God and who delegate only specific rights to government. Functionally, it is now quite the reverse.
Of course, the Federal Reserve Act of 1913 and the unconstitutional amendment allowing the income tax, passed in secrecy in the dead of night at the same time, set the stage for this usurpation.
Can a society now grown around the effects of this cheating, which has been incentivized to believe in this toxic kool-aid, whose jobs and benefits (incentives) revolve around such lies, actually see the true disaster that has resulted and set a course of change based on virtuous values and incentives?

Oct 17 08:43 AM

[Zenilvana:]

I have been pondering what motivates people to the way they do. I suspect the unconsciousness lurking around beneath our rational thinking. I like to explore more into this world, unintended territory, of which this author remind again freshly.

Oct 17 10:12 AM

[Alphameister:]

I have made the same argument regarding the housing meltdown. It amounts to this: the road to hell is paved with good intentions. Once the basic premise is accepted that housing prices can move only in an upward direction, idiotic as that premise might be to any enlightened individual (or to unprescient individuals with the benefit of hindsight), the housing bubble becomes inevitable as caring politicians and mortgage bankers seek to do good for themselves by doing good for others (which is the way capitalism operates, right?). Government is notoriously inept in anticipating unintended consequences and should NOT be in the business of manipulating human behavior with the goal of achieving their vision of a utopian society.

Oct 17 10:57 AM

[OldSusanna:]

Enigmaman and Leftfield: you are spot-on in my view. The government has steadily sought (and successfully executed) to become both the best playground and most frightening bogeyman--skillfully (and clumsily) "nudging" whomever they chose, wherever they chose. Though these strategies were (and are) ill-conceived from the start (regardless of intention); add the X-factor that is humanity and behold the real world: unintended consequenses are often a bitch.

Oct 17 11:35 AM

[bottoms-up:]

When I studied economics at UCLA many years ago the definition we worked with was "the study of the allocation of resources."

I still think this basic definition is the best one I've ever heard...

Anybody else...?


On Oct 17 03:56 AM Ponchovilla wrote:

> Of course their objective is not just shedding light on "behavorial
> economics" but to sell books. But the plot is entertaining. Can't
> wait for the charts and graphs, theories and conclusions.
>
> The problem with economics is there is no non-arguable definition
> of what economics IS. Remember that reply under oath? "It depends
> on what the meaning of the word 'is' is"
>
> Put 25 economists in a room for a week and I'll bet a war breaks
> out. Particularly if there are macro, micro, Keynesian and Austrian
> schooled "ECONOMISTS" still alive.

Oct 17 12:36 PM

[pdtor:]

Th e great thing in this book is unexpected consequences of people's actions. He call out results that are enot politically correct, such as aborsion leads to a lower crime rate. This is obviously shouldd applied to economics, but main stream economists not as bright. IE Allan Greenspan keeping interest rates too low too long earlier in the decade..............did not see unexpected risee in bubbles in realestate. In hindsight it is obvious, people are going to buy homes at 1-2% morgages. Now what about Trillion dollar defecits.........what will they intail................... what .............INFLATION. They will not be able to pull away the punch bowl in time.

Happy Capitalism

Oct 17 12:38 PM

[Doc 224899:]

MOTIVATION IN FREAKONOMICS:

The most powerful influence on human motivation today, in America, is the unprecedented media propaganda campaign being presented by the alphabet networks. The net results, as they apply to the economy, include the following:

1) Healthcare is the only service people can't live without, and could be the basis of a successful American service economy that could blanket the globe for the next 100 years, enabling the US to survive its relative poverty of basic materials during the epoch of peak commodities. That won't happen because media propaganda casts healthcare as an infinitely available resource with no intrinsic value that we should offer at neglibible cost to all people, everywhere, whether they are citizens or not, because they have a right to it.

2) The next 100 years will pit nation against nation, and race against race, in wars for basic materials and natural resources like fresh water, oil, coal, iron ore, copper, gold, rare earths, technical metals, nutritional resources, uranium, aluminum, etc. America will lose those wars because media propaganda defines any process by which we might wage such wars as morally reprehensible, though any other country or race who wages such war is right and reasonable. As an example: an American war for oil in the middle east would be characterized entirely right and reasonable if anyone but us was waging it, say the Kurds or the Sunnis or the Shia or Kuwait or Iraq, but media propaganda immediately casts any American leader as a monster who would even posture in the general direction of supporting such a war. Moral arguments against our prevailing in any war in the Middle East in which we'd come out controlling petroleum resources routinely gain support by casting such war as "a war for oil", and once that label is hung the moral argument has been won - but only because media propaganda makes the idea of our prosecuting such a war as morally wrong. Wars have always been fought for such material gain, at some level, and failure to fight such wars is an a priori claim to defeat.

3) In the national debate about rescuing our economy, there hasn't been a single word about limiting or regulating the income of trial attorneys, regulating legal fees, increasing the efficiency and quality of operations in the many strata of courts and legal systems in the United States, healthcare tort reform, making legal representation "universally available", reigning in riduculous product liability suits, examining the way America's predatory trial attorneys have brought industrial corporations to their knees and chased many corporate headquarters to other countries to shield them from liability exposure, or even calculating the direct and indirect expenses of maintaining the enormous legal systems in our country. Why? Because media propaganda refuses to entertain such discussions, carries advertisements for trial attorneys, runs a slew of TV shows that lionize lawyers and cast lawsuit complainants as purely right and sympathetic, and maintains the anonymity of the trial attorney lobby that influences both political parties. Any financial sector this costly, drawing dollars from every American every day, raking in profits from every step in the production and distribution of every product in our economy, that cannot even be discussed and that doesn't even have an identified financial sector carrying its name, should be part of our national debate.

Oct 17 01:54 PM

[EEB:]

Here is an interesting quote from the article:

"The author’s point, of course, is that all individuals will cheat or engage in what might be considered to be un-social behavior if the incentives are right. Another way the economist phrases this conclusion is that everyone has his or her price. My addition to this is that one should never say that they would not do something until they have actually been sufficiently tempted to do a thing and have resisted that temptation. Then that just raises the bar as to how high the price would have to go in order to cause you to succumb to that temptation."

As is usual with economists everything is based on unfounded assumptions. How do we know that everyone has a price? Well, because they will either succumb to a temptation or they won't. And if they don't succumb that just means their price is higher. So, evidence that disconfirms the theory is re-interpreted as evidence that confirms the theory. How convenient.

Notoriously, the same question begging strategy is used to "argue" that everyone acts rationally all the time. If a counter-example is offered, the situation will simply be re-interpreted to confirm the theory.

In other words, both the theory that everyone has a price and that everyone is rational, as presented by economists, are not falsifiable.

Oct 17 04:42 PM

[bob adamson:]

Thank you Mr. Mason for yet another delightful and well written review. Your review and “Freakonomics” itself are by their topical yet open-ended nature a sort of political Rorschach blot from which all sorts of subliminal issues and concerns of a political and economic nature (the bizarre as well as thoughtful) are conjured in various minds as we see from the array of comments posted to date.

It just goes to show that trying to herd people is like herding cats and that this is both a great blessing and a source of frustration and concern whenever, like now, great issues are at stake. In short, it illustrates that it is necessary to make tentative rational assumptions about the best policy options for both micro and macro economic purposes but it is equally necessary to continually be on the lookout for unexpected consequences as these options are put into practice. The only error is ideological rigidity.

Arguably there are significant insights to be gained from the application of behavioral psychology and sociology to the study of economics but it is much too early to attempt to draw conclusions or create models based on behavioral economics. To date these insights caution us from assuming that some simple logic can be relied upon to predict the effect of changes in economic activity. They do not yet (and may never) give us a systematic basis for planning our personal or societal economic future with accuracy.

That said, I think the sort of general broad brush conceptual framework (i.e. not necessarily the specifics of his approach but its general nature of addressing the problem) that Hyman Minsky devised 30 years ago is a useful way to apply behavioral economics ideas (i.e. as a general way to envisage trends and reaction, and modify those trends, rather than as a way to fine tune economic behavior on a short term basis).

Oct 17 05:18 PM

[TinyTim:]

Thanks for the heads up on their new book. I thought the last one was interesting, but simple, probably why it was a best seller for so long.
Looking forward to this one after reading your review.

Economics (old school)- allocation of scare resources
Given enough people, any resource (something useful) is scarce.
So: allocation of resources sounds good.
As economies speed up, equilibrium is less likely and less of an issue:
dynamic allocation of resources

Study of incentives is behavioral economics or even psychology.

Oct 17 07:23 PM

[Bill S. Friend:]

Interesting and way complex. The air of entitlement among wall street and banking execs has astounded me throughout, perhaps this clears things up for me.

Oct 17 08:17 PM

[Crocodilian:]

As to author's question about the mortgage crisis, its fairly evident where the fault lies: the completely unnecessary moral hazard of the "implicit guarantee" of the Federal Government to FNMA and FRE, and their decision to guarantee private mortgages on very speculative terms.

What's particularly bizarre about the behavior in 2002-2007 is that there was tremendous liquidity and credit availability-- without a Federal guaranty, implicit or explicit, you were still being bombarded with offers for credit cards . . . clearly, credit availability was high, without any Federal guaranty.

So for no good reason, the Federal government acted to guarantee real estate lending. Small wonder that there was a lot of it.

The tragedy of the "implicit guarantee" will haunt us for a long time, and its as clear a case of "unintended consequences" as one needs to have.

Oct 17 08:51 PM

[surfgeezer:]

With all the mistakes and manipulations that have been made it is correct to be outraged and saddened, but I would caution the alternatives would be worse. You seem to be advocating a no regulation world in the beginning, but then switch to blaming regulation of interstate commerce to what are apparently your interpretation of God's societal ideals with an apparent theocracy to decide what is right.-"set a course of change based on virtuous values and incentives?". We have elections so voters decide the definition of virtue not an Iran style religious overseer for very good reason.
I would argue that in fact the corporations have too much power and the government is the only viable counter balance as the supposed free market of consumers is unable to countermand international corporations. The fact that their lobbyists have distorted the competitive field is not a reason to get rid of the referees.

On Oct 17 08:43 AM Leftfield wrote:

> The present state system has been built by the incentives our empowered
> government hath wrought. By rent seekers, for rent seekers and of
> rent seekers. There is this one clause in the Constitution, the
> Commerce Clause which big government since FDR has used as a device
> to consider all their overreaching: "Regulating interstate commerce."
>
> This subverted the spirit and intent of a society of sovereign citizens
> who have inalienable rights granted by God and who delegate only
> specific rights to government. Functionally, it is now quite the
> reverse.
> Of course, the Federal Reserve Act of 1913 and the unconstitutional
> amendment allowing the income tax, passed in secrecy in the dead
> of night at the same time, set the stage for this usurpation.
> Can a society now grown around the effects of this cheating, which
> has been incentivized to believe in this toxic kool-aid, whose jobs
> and benefits (incentives) revolve around such lies, actually see
> the true disaster that has resulted and set a course of change based
> on virtuous values and incentives?

Oct 17 08:55 PM

[efglutton:]

Re Economics - In complex adaptive systems, it is impossible to know the future with absolute certainty. That said, I think they are correct in that most people act in their own self-interest and will do anything to get ahead if given the proper combination of incentives and means.

Oct 18 05:10 AM

[Moon Kil Woong:]

I loved the author's first book and will most likely like this one. The simple fact is every time government augment's the basic econopmic rules of a free market they open holes for people to benefit in ways that do a dis-service to 1 or more people if not the system itself. Then if this is not regulated it can mushroom into bringing down the whole system. When you allow any derivative to be bought and sold with or without verifying if the writer can cover the risk, the buyer or derivatives does or doesn't have the underlying asset, and if they can write or buy policies naked or multiple times over with the same underlying asset you open yourself up to rampany speculation,out of control legerage, corruption, and contracts that can be the cause of a collapse as well as benefit individuals if or when the entire system collapses.

It is not just a moral issue of who or who is not corrupt. It will happen just as sure as there will be cocaine dealers if there is enough demand for cokaine by people who can afford it. Anotherwards its a natural ramification of the economic incentives surrounding the activity. We really need to look at the system and correct it if we have any hope of preventing future "abuses". That is we need to tward unintended consequences that arise that harms society and threatens the delicate balance of our economic system as a whole.

Oct 18 08:09 AM

[wyvern:]

This was already a well-defined concept under the publication of Human Action by Ludwig von Mises. Nothing new here... move along

Oct 18 09:21 AM

[F. Bradeen:]

"Everyone has a price" reminds me of a joke. A man asks a woman if she would go to bed with him for $1,000,000.00. She says, "Yes." he then asks, "how about $100.00?" She answers, "What kind of woman do you think I am?" he says "We already determined that. We are now just haggling over the price."

To make this serous, ask yourself what percent of women would answer "Yes." to the first question and you will have your answer to "EVERYONE has a price." Maybe not everyone, but I bet it would be in the high 90% catagory.

Oct 18 10:11 AM

[Alphameister:]

Economics defined as a study of resource allocation sounds like a very primitive zero-sum game. Optimum utilization of resources or the generation of wealth rings more true to me. The greatest resource in the world is the unfettered mind of man, and if the study of economics teaches us anything it is that wealth generation is greatest where the minds of men are most free.

Economics does not usually consider such valuables as love, beauty, peace, etc., but these are primary values in my life. In my own life, I have made many trade-offs in which my opportunities for financial gain have been reduced for the sake of earning the love of family and friends, taking time to "smell the roses," partiipating in a sport, and so on. In other words, I seek to maximize my "wealth" in terms of self-esteem and well-being, broadly defined as happiness. Money is extremely limited in its ability to buy the things that bring greatest happiness to my life.

Oct 18 11:40 AM

[ed233:]

Your article attributes the asset bubble as having been created by the interest rate policy of the FED reserve. And since you've drawn that conclusion you implied that it should therefore be alright to give loans to lower income people who cannot afford a down payment and who would like to move in their family. First of all I don't agree that it was the Fed that created the bubble by lowering interest rates. It is much more complicated than that. In any case two wrongs don't make a (good) right. But what really bothers me about your illustration is that you have completely failed to see where the subprime mortgages went off the rail. The so called incentive you've tried to attach as an economic good or bad in your illustration confuses what is illegal behavior. Economic principles are built upon legal behavior. I admit that there can be economic consequences from illegal behavior. But economic principles are not postulated based upon illegal or fraudulent acts. In the subprime mortgage debacle was fraught with immoral, illegal and fraudulent acts.

































]




Misrepresented and or fraudulent lender's statements were produced creating false gross debt ratios and valuations. Mortgage brokers routinely misrepresented the fine print of contractual documents to the detriment of the borrower. Credit rating agencies accepted supporting documentation without making background checks. No banker or investor worth his salt would have invested in these toxic investments had there been proper disclosure of checks and balances. So remember, it wasn't solely interest rates that caused the asset bubble. LOL Looking after your money.

Oct 18 02:15 PM

[artkarl:]

Rational behavior is not the same as correct behavior, and it is not all that hard to see the difference in any one instance.
Buddhism has much of value to say on that specifically.
Many people warned of the danger of the housing bubble long before it was apparent to the majority, and this pattern is in line with most behaviors.
It is surely "self interest,' or "greed," that clouds decisions.
Or "rational" choices in those decisions.
Seek first to understand, then to be understood.

Oct 18 03:19 PM

[Crocodilian:]

@ed233
"Misrepresented and or fraudulent lender's statements were produced creating false gross debt ratios and valuations.Mortgage brokers routinely misrepresented the fine print of contractual documents to the detriment of the borrower. Credit rating agencies accepted supporting documentation without making background checks"
----------------------...

Yes. This point should be underlined. We constructed a system whose rules were "write down some numbers in some boxes and the Government will guarantee you hundreds of thousands of dollars in mortgage loans. buyers and their collaborating bankers, realtors, appraisers, mortgage brokers just put down "numbers that work" in the boxes . . . since no one was checking, or had any incentive to check, it is also not surprising that many of these "numbers in boxes" turned out to be "not quite right".

In the latter part of the mortgage/real estate bubble, the extent of fraud was huge. One of the most common was "owner occupancy". Lots of speculators took "free money" in a "heads I win, tails I walk away" bet, made possible by a far-too-generous program of mortgage guarantees.

The FBI produces an annual "Mortgage Fraud Report". Read it here:
www.fbi.gov/publicatio...

Oct 18 03:38 PM

[Jason S.:]

I have always thought of economics as the study of human population behavior. In the end, the point of studying the allocation of resources is to understand the intention behind the allocation - which of course is human behavior on a large scale. Therefore it seems more accurate to describe as the study of human population behavior. This takes into account many of the "values" (emotion, morality) that commentors previously argue are not defined well by economics. Maybe that's why those specific economists do not have good conclusions/models. The freakonomics authors are essentially human behavior scientists.

Oct 18 03:50 PM

[The Geoffster:]

Economics is extremely useful as a form of employment for economists.
- John Kenneth Galbraith

Oct 18 07:43 PM

[Tom the Mon...:]

I wrote on the subject of incentives and the subprime crisis two years ago. I see the impact of incentives every day and they are indeed very powerful.

I enjoyed Freakonomics so I will eventually have a quick read of Super Freakonomics. I hope it comes with the CD of Super Freak. RIP Rick James.

Oct 18 08:19 PM

[Smarty_Pants:]

"The economic approach “is a systematic means of describing how people make decisions and how they change their minds;"

As wyvern noted, the Austrian School of economics has utilized this approach for many decades. Those who are familiar with Austrian School economic thought are indeed thinking "nothing new here".

The term used in von Mises' book Human Action was "Praxeology", which was coined over a century ago.

From Wikipedia: en.wikipedia.org/wiki/...

"Praxeology is a framework for modeling human action. The term was coined and defined as "The science of human action" in 1890 by Alfred Espinas in the Revue Philosophique, but the most common use of the term is in connection with the work of Ludwig von Mises and the Austrian School of economics."

If you want to get a good understanding of economics, get a copy of von Mises' book Human Action and slug your way through it.

mises.org/resources/3250 (The Human Action homepage. It's FREE.)

Oct 18 09:42 PM

[Hmm?!:]

I will respectfully disagree, there are some pretty cleary defined economic principles out there. None of them have been violated (unlike ethics), by the recent economic meltdown.

Some key points
- 300 economics professors signed a full page Wall Street ad stating the stimulus bill was a bad idea. Beyond government and Wall Street puppets, there has been no equilavent rebuttal.
- There is NO Keynesian or Austrian branch of economics....just economics. John Maynard Keynes had some theories, none of which supported large government debt. Keynes fought against deficit spending. Ever study Chinese Physics or Equadorian Mathametics???.....it is nonsense!
- The core principles are almost as clear as Newton's laws of physics. However the timing of economic outcomes and the rationality of human behavior will never be accurately clocked like a falling apple (9.8 m/s).


On Oct 17 03:56 AM Ponchovilla wrote:

> Of course their objective is not just shedding light on "behavorial
> economics" but to sell books. But the plot is entertaining. Can't
> wait for the charts and graphs, theories and conclusions.
>
> The problem with economics is there is no non-arguable definition
> of what economics IS. Remember that reply under oath? "It depends
> on what the meaning of the word 'is' is"
>
> Put 25 economists in a room for a week and I'll bet a war breaks
> out. Particularly if there are macro, micro, Keynesian and Austrian
> schooled "ECONOMISTS" still alive.

Oct 18 10:36 PM

[Smartinvest...:]

Yeah I agree with you because that is, afterall, what MONEY does right? It helps allocate resources in a way so that we don't run out of them. If a particular resource is scarce, like oil, then the price goes up so high that no one can afford it and we'd NEVER run out of oil.

But that's what the study of money is I guess, and money can be any medium of exchange, an intermediary to buying all goods and services. Let's just say that economics studies both, the way in which we allocate scare resources (land, labor, capital) AND the incentives that cause us to allocate them a certain way.


On Oct 17 12:36 PM bottoms-up wrote:

> When I studied economics at UCLA many years ago the definition we
> worked with was "the study of the allocation of resources."
>
> I still think this basic definition is the best one I've ever heard...
>
>
> Anybody else...?

Oct 19 05:55 AM