Naked Economics: Undressing the Dismal Science pdfdrive com

Princeton, New Jersey
January 2010

---

Introduction
T
he scene is strikingly familiar. At a large American university, a graduate
student stands at the front of a grand lecture hall drawing graphs and equations
on a chalkboard. He may speak proficient English; he may not. The material is
dry and mathematical. Come exam time, students may be asked to derive a
demand curve or differentiate a total cost function. This is Economics 101.
Students are rarely asked, as they might be, why basic economics made the
collapse of the Soviet Union inevitable (allocating resources without a price
system is overwhelmingly difficult in the long run), what economic benefit
smokers provide for nonsmokers (they die earlier, leaving more Social Security
and pension benefits for the rest of us), or why mandating more generous
maternity leave benefits may actually be detrimental to women (employers may
discriminate against young women when hiring).
Some students will stick with the discipline long enough to appreciate “the big
picture.” The vast majority will not. Indeed, most bright, intellectually curious
college students suffer through Econ 101, are happy to pass, and then wave
goodbye to the subject forever. Economics is filed away with calculus and
chemistry—rigorous subjects that required a lot of memorization and have little
to do with anything that will come later in life. And, of course, a lot of bright
students avoid the course in the first place. This is a shame on two levels.
First, many intellectually curious people are missing a subject that is
provocative, powerful, and highly relevant to almost every aspect of our lives.
Economics offers insight into policy problems ranging from organ donation to
affirmative action. The discipline is intuitive at times and delightfully
counterintuitive at others. It is peppered with great thinkers. Some, such as
Adam Smith and Milton Friedman, have captured mainstream attention. But
others, such as Gary Becker and George Akerlof, have not gotten the recognition
outside of academe that they deserve. Too many people who would gladly curl
up with a book on the Civil War or a biography of Samuel Johnson have been
scared away from a subject that should be accessible and fascinating.
Second, many of our brightest citizens are economically illiterate. The media
are full of references to the powerful Ben Bernanke, who has played a crucial
role in the U.S. government response to the global financial crisis. But how
many people can explain what exactly he does? Even many of our political
leaders could use a dose of Econ 101. Just about every political debate includes

---

an assertion by one or more candidate that outsourcing and globalization are
“stealing” American jobs, leaving us poorer and more likely to be unemployed.
International trade, like any kind of market-based competition, does create some
losers. But the notion that it makes us collectively worse off is wrong. In fact,
those kinds of statements are the economic equivalent of warning that the U.S.
Navy is at risk of sailing over the edge of the world. In my lifetime, the guy who
made the most colorful assertion along these lines was Ross Perot, a quirky third