Why Did the Economist Cross the Road?
On the first day of my high school AP Economics class, my teacher went around the room and asked each student what they thought economics was. This was the fall of 2005, well before the financial and housing crisis of ’08, so, not surprisingly, the answers weren’t exactly reflective of the intelligence that was supposed to compose that particular class. Half the students replied that it was the stock market; the majority of the remainder shrugged their shoulders; two overachieving nobs reworded the definition found in chapter one, page one of the already passed out textbook; and one student read said definition verbatim. “The dismal science”—an ill-awarded sobriquet for economics—wasn’t falling short of what it promised. But this was senior year, mind you. We were a bunch of seventeen and eighteen year olds more concerned with things seventeen and eighteen year olds should be more concerned with: dating, college, senioritis, parties, etc. Time was a valuable commodity for us and surely wasn’t going to be wasted on preparing for an obscure business class. Not to mention that in ’05 anything dealing with economics was mysterious to the everyday American plebeian, barely breaking the news cycle so swamped by the likes of the latter part of the Iraq invasion and Dubya’s ever-entertaining gaffes. So who could blame our ignorance? Apparently our teacher could, a fact made clear by the tell-tale signs of disbelief scrawled across his face.
Fast forward two years to when I was a college sophomore taking an Introductory Microeconomics class—basically the same class I had taken in high school but with about 300 more students. This was at a competitive college, a Big Ten school, with admission standards and an assumed academic excellence that was expected to be fulfilled by both the students and faculty—so someone had to know the answer to the professor’s inevitable first day question, right? What, students, is economics? Even from my modest seat in the middle-back of the lecture hall (a strategic sitting position for an introvert like myself—well out of facial recognition range for an aging professor yet close enough where I could still obtain some semblance of an education), I could see the professor’s face droop in that all-too-recognizable disbelieving countenance, frighteningly similar to my high school teacher’s own incredulous mug, though this time in response to a cricket-worthy silence uncharacteristic of a standing-room-only auditorium.
The benefit of the doubt, however, will be awarded to the students. Maybe, since this was an introductory class, most students were just taking it as a required credit for their non-economics majors. If so, they probably just wanted to slug through a dull semester of graphs and definitions, get out of dodge with a passing grade, and drink away all they learned so they could make room for what really mattered in their major. Or maybe they already had preconceived notions going into the class, having heard their dad utter a few enthusiastic words about it and assumed it to be a boring, boring class since, you know, if the old man, an accountant and an utter bore in his own right, is excited about it, then by association the class too must be boring. Or maybe they truly and honestly didn’t know the answer to the questions and, like some of my high school classmates, just shrugged their shoulders. Whatever the reason, expecting students to know the academic definition of a class they haven’t taken yet defeats the purpose of taking the class in the first place, thus rendering my professor’s and high school teacher’s disbelief unreasonable. Nary a student in either one of those classes would disagree with me on this point nor would they on the point I alluded to earlier: economics is boring. It’s a mundane, sleep-inducing, ho-hum realm of academia with so few punch-you-in-the-gut-holy-shit moments that the odds are even any used textbook will have a drool stain somewhere in its pages from when it played pillow for some sad sack of a student who just couldn’t fight off the Zzz’s any longer.
The innate boringness of economics is, for the most part, rooted in its in-depth analytical nature. Introductory classes are steeped in abstractions, rules, and laws governed by graphs and various equations. Problems are satisfied by the relentless manipulation of these things that’s often learned through memorization rather than intuition. The behavioral aspects of economics, maybe the field’s most interesting sub-genre, fall just short of being eliminated on the introductory level in an attempt to convey and hammer in the purely analytical strengths that economics not only promotes and champions but requires for advancement on a quotidian basis. That, truly, makes it a hard sell to any incoming college freshman. It’s only after you’ve paid your dues, after living in the trenches of regression analyses and the endless shifting of perfectly straight supply and demand curves, that you begin to see the heart beating underneath it all. You see that which makes economics important and enticing. In a way, getting through all the math and the tedium is a right of passage. You have to put your time in with the miserable forehead-to-desk-repeat motions in order to get to the “fun” stuff or, at the least, the more interesting stuff. But no matter how well intentioned that road of trials is, as any economist knows as if it were a commandment handed to them by God almighty, there is always a trade off.
In an attempt to curb the dullness that now defines economics, there has been a surge in mainstream literature that seeks to bridge the gap between the experts and your everyday plebeian. The pleb in this case is an ordinary cookie-cutter citizens who probably nodded off in his/her own introductory economics class once upon a time. S/he sees the headlines in the Wall Street Journal but doesn’t dare read the columns of dense type waiting below. S/he knows the connotations of the words: depression, recession, boom, bubble, and inflation but not the denotations. The pleb prefers ignorance to the big picture. Economists, though, are not insensitive to any of this. They’ve put aside their models and their equations, their relentless jargon and brutally dry sense of humors, their tables and statistics so detailed they bring accountants to weep, and have begun to make an honest attempt to sell their profession by way of literature.
How I’ve just characterized economists and their perspective on everyday plebeians makes them seem incredibly elitist. I’m making sweeping generalizations, of course, but for the purposes of this essay the generalizations aren’t out of line and help illustrate the larger points at hand. What I’m doing is no different than what economics does on an introductory level. I’m aggregating a data set of individuals with unique sensibilities into an archetype that allows me to make assumptions on their behavior. This reductionism is a key component in economics that allows educators to teach concepts without getting bogged down in exceptions and mounds of details. For example, the supply and demand graph, two straight lines intersecting to form an X, is no different as it simplifies a complex set of data and human behavior by way of something a child could draw. (More on this later.) So thinking that economists have to dumb down their profession in order to properly communicate it is no different than how they learned it themselves. When they first took their introductory classes, they needed things simplified to the level of the supply and demand graph in order to understand it. That is, they needed things dumbed down for comprehension. Doing the same to teach and communicate with a pleb turns out not to be an elitist perspective but an exercise in humility. It’s a way of getting in touch with their origins, the economist’s. Economists have gotten so self-absorbed in the field they’ve created that they’ve lived in a bubble that continues to float higher and higher with them only looking toward the infinity above and losing sight of where that bubble came from below. Trying to make the sell that this field is accessible to a pleb is a way of saying that they’re willing to come back down and ground themselves with what they’ve lost touch with. In a way, they’re acknowledging that they’ve lost touch with reality, with the people that provide the behaviors that makes economics possible in the first place.
The good news is that economists know this and are expressing it in these books that bring economics to the doorstep of the plebeian. One such book is Charles Wheelan’s Naked Economics, published in 2003, the purpose of this essay. I’m writing this in 2014. The 11-year disparity between my words and Wheelan’s should speak to Naked Economics’s staying power. I’m sure there have been several other books, with far more recent data and anecdotes, written since then but that doesn’t make Wheelan’s book obsolete. The drive behind the book is to deliver economics to the layman so they know what economics is about in terms not unfamiliar to them. Wheelan mostly addresses introductory concepts and waves a flag whenever he’s about to go into the deep end of the pool, giving plebs ample warning beforehand. Because he does this, the concepts he mostly focuses on are timeless as they’ve been the building blocks of economics since its inception way back when. So the book’s relevance shouldn’t be in question. Besides all this, it’s a quick and entertaining read that doesn’t shy away from a certain amount of wit and candor—two things economics sorely lacks.
An obvious pitch point for the book was a limitation to the jargon economists sling every chance they get. Alan Greenspan, former Chairman of the Federal Reserve, is most notorious for this jargon, which has now come to enjoy the sobriquet of “Fed-speak” or “Green-speak.” Greenspan used Fed-speak to avoid questions but it has leaked into mainstream economics, with varying degrees of success, and has thus created a schism between the economist who claims to know what is being said by the Fed-speak and the pleb who could give two shits about it. Why the pleb is typically so in opposition of Fed-speak and econo-jargon is because this kind of language is purposely laced with obscurity and vagueness so as to lull the listener into a doldrum. The Fed-speaker’s objective is to make the listener feel as though their question was answered, even though it wasn’t, in hopes of getting the listener to move onto another topic. It’s a defense mechanism, an exercise in self-preservation. Greenspan was the master of Fed-speak as he was basically its inventor. Having served as the Fed Chairman for almost twenty years, he became an icon in the economics ring and was therefore the figurehead plebs associated with economics. Hearing him talk in incomprehensible jargon further alienated plebs from economics. The worst part about the syntax is that it was an intentional invention of Greenspan’s to manipulate the markets into not reacting to things he was saying in front of Congress. If no one could sift through his layers of obfuscation, how could they react? It’s an example of the overreaching power the Fed Chairman has on the economy, an influence some find disturbing.
Wheelan is well aware of Fed-speak’s effect on plebs and therefore clarifies the jargon the best he can so as to make his book as accessible as possible. His purposeful clarity, however, comes with an unexpected consequence. He is so successful at translating Fed-speak and the general language of economics into common terms that a lot of the concepts he’s speaking to in an instructional manner come off as his own take on the subject—opinionated rather than objective. This makes the book seem like it reeks of a personal agenda. However, having majored in economics myself, it’s easy to see that a lot of what Wheelan is doing is simply reporting the subject matter as it was reported to him. That’s not to say that the entire book is rigid in this regard and only acts as a smaller substitute to a textbook—he does slip in his own subjectivity from time to time, always making sure to point this out so it’s not mistaken as economics canon. The turn around on this approach is that he runs the risk of confusing the reader. Using idioms and colloquialisms to explain textbook concepts can potentially give the reader the mistaken impression that concepts are actually his subjective opinions instead of what they really are—staples of economics. This opens the door for skeptics of economics to unabashedly criticize him even though they mean to criticize the actual concepts that Wheelan is presenting. Their gruff is with the material but falls on Wheelan—the messenger. Perversely, though, making the mistake of criticizing Wheelan instead of the material can be a weird compliment. He sought out to create a book that used language in an accessible way so as to make very complex concepts understandable by the common person. If he is being wrongly criticized, then whoever is criticizing must have learned something about the concept from the way Wheelan wrote it. Wheelan would have accomplished his goal of pulling back the curtain on economics, just at the cost of undeserved negativity. So on the one hand: Way to go, Chuck. On the other hand: Major bummer, dude.
But let’s not turn Wheelan into a martyr quite yet—Naked Economics is hardly free of blunders, mostly dealing with how Wheelan presents the material rather than the material itself. Let’s continue down the road of clarity. The reason why it’s such a big issue for Wheelan is because of how complex economics can become. It’s a field of academia that basically sees charts, graphs, equations, calculus, regressions, models, etc. as fetish porn. Go to a college bar with some econ grad students and see how long into their darts game it takes for them to settle an argument with a graph drawn on the chalk scoreboard. It’s like a compulsion for them. If there isn’t a chalkboard around, you can bet they’ll be scribbling on condensation-soaked bar napkins, their pen’s lines ripping through the thin tissue and bleeding into their beer’s vestige of sweat. These types of things are the crux of the subject and quickly become ingrained in the mind of the budding economist. It’s not rare to hear an economics student describe the first time he started seeing real world problems in terms of a graph in his head or, for that matter, the first time a graph popped up in his dreams. Economics merges visual representation with complicated calculations and equations. If you go far enough into the field, it’s inevitable you’ll run into some higher form of applying calculus that you didn’t even know was possible (see Applied Game Theory, a wonderful subset of economics that brings philosophy’s prisoner’s dilemma into real world terms). The bottom line is that these complications and warped world views that skew several standard deviations from the norm can be scary and are probably the biggest deterrent for most people. I don’t know the statistics of how many people drop their economics major after dragging themselves through the introductory classes, but I would imagine it’s a fairly consistent percentage on a year to year basis. So it would follow that if you wanted to write a book that explained the highly conceptual nature of economics without scaring off your audience after they’ve read the introduction, then you have to level with them. In Wheelan’s case, make them a promise: “I offer only one promise in this book: There will be no graphs, no charts, and no equations.” Well, that’s encouraging. Unfortunately, there is a significant loophole—Wheelan doesn’t have to put the graphs, charts, and equations into the book, but that doesn’t mean he won’t use them.
Take for instance a portion of his GDP (Gross Domestic Product) explanation, “…we care about GDP per capita, which is a nation’s GDP divided by its population.” This hiccup is innocent enough—it’s near impossible to explain GDP without referencing its equation in the process. But for the pleb, I’m not sure how much knowing the equation really helps in comprehension. The gist of this example, however, is to show how Wheelan is able to use math and equations without it appearing like he is using either. This hits a zenith in the ultra-confusing, highly technical, borderline Fed-speak chapter regarding financial markets (a chapter Wheelan wisely placed near the end of the book after he already laid out the groundwork for most of what you need to know about economics. It’s kind of like a bonus for him to write about, a way to to get his econo-nerd rocks off, but isn’t necessary in the slightest for having a beginner’s grip on economics).
A more egregious example of this faux pas is found a few pages after the GDP definition in which Wheelan attempts to explain the Lorenz curve and the Gini coefficient without the aid of a graph. He states in a footnote,
To derive the Gini index, the personal incomes in a country are arranged in ascending order. A line, the Lorenz curve, plots the cumulative share of personal income against the cumulative share of population. Total equality would be a 45-degree line. The Gini coefficient is the ratio of the area between the diagonal and the Lorenz curve to the total area under the diagonal.
The problem doesn’t lie within the explanation but the fact that he’s holding himself to the promise of not showing any graphs or equations, which I find honorable but in this case, stupid. The Lorenz curve would be much easier to understand by referencing a drawn out graph, neatly labeled as “Fig. 1” right there on the page. For most people, the spelled out explanation describing the ratio of the area between a diagonal and a curve is much more frightening and deterring than a simple graph. The reason why graphs are used so often in economics, almost to the point of being abused, is because they’re, well, useful. They’re visual representations of complex ideas that are otherwise taxing to communicate in any other way.
And therein lies the beauty. Aside from everyday quantum physics, economics is the embodiment of taking a rigid academic concept with layers of complexity at its root and breaking through and down those complexities into a visual representation that allows for them to be effectively communicated, taught, and thus employed in any number of real world scenarios. It’s through interpreting definitions and data into graphs that scares some people from economics, but it’s also what’s responsible for the bulk of its appeal, especially to those who are inclined to learning through visual aesthetics, like, for instance, yours truly. I identified with this elegance very early on in my academic career. The notion that you can represent a person’s ideal situation or bliss through two intersecting curves on a simple cartesian plane was so abstract and enigmatic that it drew me in. If you’re lucky, while going through the rigors of an economics major, you’ll have a professor who too fell victim to this shared wonder of simplified complexities. There’s a mythical, fairy-tale aura that surrounds these people as they get caught up in their own lecture, start to eschew their detailed notes, and turn into a whirlwind of energy before your eyes, sketching and re-sketching graphs and curves from memory, rambling and going on tangents about the tricks and intricacies hidden in the curves and Euclidean shapes on the increasingly cramped chalkboard. They’ll get overly frustrated for a split second when their chalk breaks or they run out of room, but their mind is working so rapidly that they adapt just as quickly and don’t miss a beat. They get so involved in the material that before you or they even realize it, class is over and it’s time to return to reality. Mind you, this type of passion isn’t reserved for economics teachers alone but seeing a teacher yammer on and on to a chalkboard because he’s so caught up in what he’s doing that he can’t tear himself away from it, preventing him from actually facing his class, is a refreshing eccentricity you mostly see in Hollywood hagiographic flicks about the nuts-o genius either teaching at or attending M.I.T.
And then you look at the chalkboard where graphs are overlapping each other and fighting for space in a not so comprehensible jumble of lines, labels, and axis. To the untrained eye, all are individual and stand alone without any influence on the rest of the crowd. But as you parse through the mess and decipher the data, you begin to see the pattern and the innate interconnectedness of the whole thing. One graph plays off another. That feeds into another’s input, which gives you this particular curve that can be re-used on another set of axis. Everything relates; everything matters. The equations crammed in on the sides of the boards in the little space that remains—that’s the cool part. That these feet-long proofs can be boiled down to two opposite-sloping and intersecting lines is elegance. That’s the balance between the hard science of the thing and the abstract nature that allows it to be understood.
That’s the selling point of economics that no economist has figured out is necessary to use as a selling point to the pleb. The simplicity in the visualization is what makes economics possible on a mainstream level. And yet Wheelan insists on skipping over it completely, favoring line to line definitions and explanations instead. His intention is clarity, but it’s bizarrely contradictory to the subject he’s wishing to explain. How can a pleb truly get a feel for the essence of economics and what makes it unique without being familiar with, or even aware of for that matter, what makes it possible in the first place? Wheelan’s fallacy is that he is claiming to make economics more accessible by doing this when in actuality he’s just making it more convoluted and circuitous.
The irony is that Wheelan is actually doing what any economist and, really, the subject as a whole does routinely—thinking it’s for the better when it’s often not. Economics is laced with pretty little catch phrases and idioms that work great as chapter headers but only scratch the surface of the concept they’re addressing. This undermines the importance of economics and the layers of complexities that lie just below those idioms. An example of this tendency is addressed by Wheelan through one of the assumptions he explains as a necessity for understanding economics,
Economics starts with one very important assumption: Individuals act to make themselves as well off as possible. To use the jargon of the profession, individuals seek to maximize their own utility, which is a similar concept to happiness, only broader.
This is an unexpectedly loaded and dense statement. Beneath the concept Wheelan is trying to convey, that people will follow their bliss, he reveals some of the significant faults of economics as well as some of his missteps in trying to teach it. Recall that in most cases, Wheelan is merely communicating what was communicated to him during his academic career pertaining to the definitions and concepts in economics, and in those cases, he isn’t at fault for the fallacies that lie within. Here, though, Wheelan is responsible for at least part of this statement’s error. This is definitely a first-week introductory lesson, but in my experience—two different introductory classes at two different levels at two different institutions—it’s not the first nugget of wisdom that paved the way for the field of study to come. My first you-bet-your-ass-this-will-be-a-multiple-choice-question-come-midterms lesson was that individuals respond to incentives. This is implicitly true—a solid foundation to soundly base all information to come upon. Wheelan’s initial assumption, however, offers no such solid footing as it assumes that all economics starts with one very important assumption. An assumption within an assumption is shaky at best, not a place I’d want to start as a newly initiated student. The choice to do this is Wheelan’s, no doubt, but consider that if he has the confidence to state that you should be basing your education on an assumption, then that’s probably how he learned economics when he was but a young pleb. And if that’s how he learned it, why shouldn’t you? I mean he has a book deal—he must know what he’s doing. So let’s give him that credit for the moment and focus on the fallacy of basing an entire professional and academic field on assumptions. This is to say that economics isn’t always based on real world, empirical facts—things whose connotation instills unwavering confidence. An assumption does no such thing—we all know the popular saying derived from reducing the word “assume” to certain groups of letters. In economics an assumption makes things easy. It’s a way to interpret messy data representative of a sample size or population and break it down into neat generalizations. That data is itself a simplification, however, and is representative of something incredibly complex: human nature. A thing with infinities and multitudes that vary exponentially from person to person. Where it’s possible to be faced with a crossroads, come up with two opposing choices, and be right about both of them. The essence of storytelling, entrancing authors and poets for millennia, torturing them ceaselessly as they try to find the right words to describe it. It’s this that economics is often trying to simplify—shocking, no?
So let’s recap the several levels of comprehension in play here: (1) human nature, the basis and inception of all of this; (2) the aggregated data meant to represent human nature; (3) the assumption based off that data—in this case, “Individuals act to make themselves as well off as possible”; and (4) Wheelan assuming this assumption is the root of all economics that follows.
With each level, we experience a further simplification of human nature, something that should be impossible to simplify. In doing so, various nuances and details are abstracted and lost along the way. Their sharp, distinct edges are rounded off. Take the crossroads example I proposed above. You can break down the decision of choosing which way to go by assigning probabilities to both sides. The probabilities will allow you to assume what choice will be made. After the choice is made, you can amass many more assumptions based on whether the initial assumption was correct. But what’s lost is the unquantifiable human variable that one person may rationally choose one way while another may rationally choose another, and they’d both be right. That seems contradictory but when you take into account individual experience and perspective and desire and emotion, the ability to make assumptions about a person’s behavior becomes impossible and, frankly, somewhat petty. Assuming you know someone and what they will do because of your assumptions is assuming that you know what that person is thinking. What is free will if a choice is definable by data and assumptions? Where do you stand as an individual choice-maker in that light? Can there ever really be a choice, then? and can that choice ever be wrong or ever be right?
Complications are abound.
The second part of this statement is once again a broad assumption that claims to know more than it ever could. It states that individuals will act in accordance with whatever makes them as well off as possible. Kind of vague, to be sure. What does it mean to be well off? Who decides what is the best thing to make you well off? Is there a jury or a board of utility maximizers that have the final say on how well off your actions made you? At what point in time is it decided that you’re more well off now because of something than you will be down the line? This also brings into question selfish behavior v. generous behavior. The assumption is that people will always act in such a way that they will make themselves better off. Charity is the obvious example. Someone can give a sum of money to charity out of the goodness of their heart even though they can’t afford it. Does the happiness they get from giving outweigh the financial deficit they’re now incurring? Are they better off because they feel better about themselves? It’s an interesting scenario that questions the very notion of utility, a favorite term of behavioral economists, who, as Wheelan explains, like to link it to happiness. But this would require a unit of measurement to be assigned to happiness, another aspect of human nature that suffers the fate of undefinability forever thwarting economists and their desire to assign numbers to human essence.
The catch in Wheelan’s statement is the use of the word “individual.” By using it to appeal to the reader’s solipsistic sensibilities, he’s confusing the true intent of the word. An individual is one person. A single specimen of human nature with their own set of desires, preferences, and nuances. They are unique. They are that snowflake that is different from the blizzard. Wheelan’s use of the word sucks you into this meaning before he makes a broad-sweeping generalization designed to characterize the whole of human behavior, that “individuals will seek to maximize their own utility.” He’s implying this on a universal level, that every individual behaves in the exact same way with the goal of maximizing utility. A very simple counter-example: I like writing. You may not. Therefore we are different. We will behave differently to maximize our utility. It may be more beneficial for you to be a writer—financially, intellectually—and it may actually maximize your utility to be a writer. But since you don’t like it for whatever reason (maybe a writer who lost his mind and used his fountain pen to exact some horrific, centuries-old vengeance against your family thus avenging his ancestors for some long forgotten woe), you probably won’t do it no matter how happy it might make you. In a bizarre twist, Wheelan supports this in the very next paragraph:
Indeed, this seemingly simple observation that different individuals have different preferences is sometimes lost on otherwise sophisticated policymakers. For example, rich people have different preferences than poor people do. Similarly, our individual preferences may change over the course of our life cycle as we (we hope) get wealthier.
If one person has different preferences than another, how can we safely assume they’ll act in their own self-interest? Maybe someone is self-deprecating or self-destructive in nature and are their own worst enemy. They have a tendency to pull the pin on their own hand grenade without an inkling to throw it. All this seems to be absurd behavior, or, as economists would say, irrational.
Let’s take all this to the hyperbolical extreme: Say an economist asked me to touch a boiling pot of water. Of course, if I acted in a conventionally rational way, I would tell him to screw off. But with the help of information asymmetry, I go ahead and touch the pot anyway and suffer a significant unpleasantness. Why would I do this if I was a rational human being? Because I knew what the economist was trying to do: prove that given a consistent set of controlled circumstances all people would act the same way, a rational way, by not touching the scalding hot pot. But since I know this—and I as an individual have a personal bone to pick with economists—my preference to prove to them that not everyone acts in a conventionally rational way, by their definitions, outweighs the stinging pain I’m now feeling on my digits. To me, this is more rational and as a result, raises my utility. One person’s rationality may not hold the same meaning for another.
The assumption that people work in their own self-interest, to make themselves as well off as possible, is itself working on the assumption that all people act in a rational way and that making yourself better off is rational behavior. This allows economists to discount all those who they deem to be irrational, surely shunning a big chunk of the population, especially me with my burned hand (irrational people would be deemed outliers or anomalies and are the minority in data sets. They’re labeled this till the characteristic that makes them an outlier is seen in the majority, which would end up switching the roles of the rational and irrational). If you’ve ever driven in Chicago, then you’re probably well acquainted with the irrational behavior of the human race. So it would follow that if the population is often irrational for whatever personal reasons they may have, making assumptions based for only those who are acting rational is hardly a sound place to begin for an academic field of study claiming to deal with human behavior as a whole, let alone a book seeking to teach that field.
The final term of note in Wheelan’s initial assumption is the concept of utility, which Wheelan states “is a similar concept to happiness, only broader.” Wheelan is purposely obscure in defining utility probably because there are so many different definitions that pertain to economics. Academics who tend to study utility seldom find a concrete definition that encompasses the entirety of what the word truly connotes. Wheelan’s definition therefore isn’t wrong, but it’s not wholly right either. For our purposes, let’s use Wheelan’s general definition and add a bit more by saying that utility is a measurement of individual preferences, so the more preferences that are satisfied, the higher an individual’s utility. Comparing it strictly to happiness is a wonderful way to make it appeal to the pleb, but again, as with so many generalizations on human nature, it’s a gross oversimplification that leads to an even grosser assumption. A counter-example: Paying my electric bill will raise my utility since I would prefer to have it paid than not be able to see in my apartment at night. However, this doesn’t really make me happy because I’m not exactly thrilled with paying the thieves at ComEd the ridiculous amount of dough they’re charging.
But Wheelan does qualify his original assertion that utility is “similar to happiness” by adding that it’s “only broader.” So now the very general and non-specific idea of happiness becomes the specific point of distinction for a definition. The comparison to happiness is there to make economist’s lives easier—for study, for water-cooler conversations, for writing—it’s a vagueness they can all see some common ground in when going about their day-to-day work in academia. Simplifying a complex idea like happiness, only broader into utility also makes it far easier to teach to the pleb. But as addressed supra, the spectrum of possibilities and entropy that is the human experience is impossible to funnel into a neat and clean simplified notion. It’s immune to reductionism. Even if it were possible and you were able to simplify me into a singular term, that term would be worlds different from any other individual’s, which would make making a generalization on the aggregated sum of individuals—the populace—a fool’s task.
But this type of oversimplification runs rampant in economics, and by way of association, also in Naked Economics. Utility isn’t the only terminology that is either vague or misused in the field. One of the earliest phrases economics students are encouraged to carve into their foreheads backwards so they see it every morning when they look in the mirror to brush their teeth is “Ceteris Paribus,” which is latin for “all else equal.” This term sees the most use with the manipulation of graphs in order to demonstrate how changing one variable has an effect on the system as a whole. In order for this to be communicated in the easiest terms possible from teacher to student or pleb, certain things must remain constant or else the whole thing becomes very complicated, very fast, and the pleb is lost in a whirlwind of information and possibilities.
For instance, on a regular supply and demand schedule, with a market in equilibrium, if the market demand of a good increases, assuming all else equal, then the price of that good will increase, too. But, in reality, when, ever, is all else equal? The world is an intricate place, and making the assumption that everything in the world remains constant while only one other thing changes is naive. If this is the only way to communicate and teach certain models and ideas, then what does that say about those models and ideas? Deconstructing reality into simple abstractions for the point of communication betrays the point of communicating the intricacies of reality in the first place. Despite this unforgivable boner on the part of economics, Wheelan is totally cognizant of the implications of “all else equal.” Word for word the phrase isn’t brought up till the very end of the book in which he says, “All else equal, it is great to discover the world’s largest zinc deposit. But all else is not equal.” He is pointing out the flaw of the economics academic realm in that those who oversee that realm actually teach that all else is equal to students. As shown with the vast differences between individuals, it’s clear that all else will never be equal and will always be in flux and will always be uncertain.
Even though Wheelan is ever so careful not to use the words “all else equal” or its latin equivalent up till this point, he is still guilty of using the concept throughout the book, especially when discussing the assumptions that he outlined as being essential to understanding economics as a whole. But Wheelan’s cunning has limits, and he often finds himself at the mercy of economics jargon, using it as liberally as he has to in order to teach it, but ever aware that he’s doing so. It’s easy to feel his reluctance in using the jargon, but he does so with purpose, using it as a teaching tool to show the hidden meaning behind the words. I think that Wheelan is genuinely interested in economics, but more so interested in the behind-the-scenes implications that comes with certain points of teaching in the field. Take the term “transition costs” for example. This is used to describe the losses incurred when a firm or company is in the middle of a merger or any like overhaul. It implies that there will be losses during this transition, i.e. people will be fired. In this jargon-y sense it’s just a euphemism. This happens a lot in economics and Wheelan doesn’t hesitate to admit as much: “Still, ‘in the long run’ is one of those heartless phrases—along with ‘transition costs’ or ’short-term displacement’—that overly minimize the human pain and disruption.”
Basically, when economists use “in the long run,” they are saying that the short run is going to suck. Badly. But eventually things will turn up. When you ask an economist a question and they respond with, “Well, in the long run…” that means that whether they know the answer or not, they’re not too keen on telling it to you straight. This is a nice way of avoiding giving any real kind of answer with certainty (recall our good friend Mr. Greenspan). A fun thing to do when an economist responds this way is to immediately ask when exactly is the “long run” that they’re referring to. The contorted expression and continuing attempt at dodging that follows is oh so satisfying.
Despite Wheelan being mostly aware of the misleading jargon in economics, he seems genuinely confident in his use of the phrase “We’re better off…” This is a particular nuisance because of how vague and ungrounded this lead-in tends to be. There is absolutely no litmus test, no concrete reference point, for an economist to point to that says we are better off now than at any other point in time. An example of this vagueness is: “We are better off today than at any other point in the history of civilization because we are better at producing goods and services than we have ever been, including things like health care and entertainment.” Well, duh. This is like comparing an apple to the planet Jupiter. Are we better off than the neanderthals? I’ll let you ponder that one. Were they better off than the species that preceded them? I’m not an anthropologist so I don’t know what species that was, but probably. For fun let’s use the concrete reference point of a family living in the 1900’s. Was the family in the 1900’s better off than the neanderthals? Maybe. The first problem with this comparison is that we have no idea what life was like back in either of those eras because we weren’t there, so anything that follows is pure speculation on our part. Wheelan, though, would use the production of goods and services to derive an answer, relying on stats to lead him to a conclusion. The problem with this is that it’s unfair to compare a neanderthal’s production to the production of the 1900’s because of a thing called information asymmetry. Producers of the 1900’s have the unique advantage of knowing how neanderthals produced things, which gives the fellas in the 1900’s an unfair leg up in knowing how and how not to produce certain things based on what worked and what didn’t for the neanderthals. I’m exaggerating of course, but then compare our current knowledge and technology to that of the 1980’s. It’s obvious we’re better off now if you want to only base betterment on production, but neglecting everything else (war, poverty, education levels, murder rates, infant death rates, etc.) that was happening at that time renders the general phrase “We’re better off…” hopelessly illogical and irrelevant. A huge mislead for any pleb diving into economics.
Allowing the term to hold weight in comparing the well-being and economic prosperity of specific eras is similar to the aforementioned simplification of human nature that should be vehemently avoided. The production of goods and services alone should not be the only thing considered when determining if we’re “better off” now because of something than we were before that certain something. Only considering production in this way ignores a litany of other things about ourselves that holds just as much impact, if not more, in determining our better-ness. This would be an extension of the mistake made with the use of Ceteris Paribus—remember that not all things are equal.
Wheelan never admits to this fallacy, though, but he does point out, for whatever reason, that some economists err worse than him. He cites Robert Fogel: “In his 1999 presidential address to the American Economics Association, Robert Fogel, a Nobel Prize-winning economic historian, pointed out that our poorest citizens have amenities unknown even to royalty a hundred years ago. (Over 90 percent of public housing residents have a color television, for example.)” This is unequivocally true, of course, but ends up being irrelevant—ask any of those public housing residents (low-income citizens, mind you) whether they care that an obscure Prince or Lord didn’t have a TV. Expressions, both verbal and visual, of indifference and possibly disdain are sure to follow. The problem with Mr. Fogel’s comment is that saying these poor people are better off than royalty one hundred years ago simply because they own a TV is ludicrous. Possession of a TV doesn’t guarantee a meal on the table or healthcare or employment—all of which royalty would surely remark upon with their own looks of dull indifference having been entitled to them by birthright. Using historical comparison to demonstrate improvements in our own society and economy is ignoring the actual opinions of the people who are being referenced, those who can’t consistently put a meal on a table, who are suffering, who would tell you the economy is doing them no favors no matter how many TVs they have compared to people living a hundred years ago.
The frequency of linguistic flubs like this in those who we revere as leaders in the field of economics is alarming and, I posit, a relevant indicator that care that needs to be taken when addressing any problem with the tools economics provides. It’s also what makes economics, and thus, ostensibly, a lot of Wheelan’s book, mostly bad. But, paradoxically and weirdly, this is also what makes Wheelan’s book very good. Wheelan’s diligence and accuracy in breaking down the core essence of economics reveals the standard journey every budding economics student takes in academia, a valuable structure for the pleb as well. Introductory classes on any level center around teaching the basics of the analytical tools that are necessary to understand in order to progress in the field. This approach often and unfortunately creates a black hole of boredom and monotony thanks to powerpoint presentations by dull teachers and brutally dense textbooks that you can use as a legitimate substitute for a dumbbell. It’s only after getting past the introductory classes do students get to the good stuff, the things that garner real interest and investment of attention, things with implications on practical levels. When students get to these substantial classes, they begin to see why they needed to drag their hungover corpse to their early-morning introductory class in the first place and sit through hour upon hour of dry, repetitive material. The initial zombie-like mentality of just chugging through class after class in order to get a diploma only wears off toward the end of an economics major. This is because in order to see the interesting stuff that is woven into the more advanced class, the boring stuff has to become second nature. Economics has to be approached like a professional athlete approaches their sport. A baseball player will take hours upon hours of batting practice, tens of thousands of swings, all so the motion of swinging the bat becomes so natural to him that he no longer has to consciously think about it. This frees up his mind to work on the mental side of the game—emotions, approach, strategy, etc. The basics need to become ingrained in an economics student so they can begin to focus entirely on the complexities and intricacies that make economics possible in the first place—see: human nature, behavior, personality, etc. The human element isn’t necessarily lost along the way but temporarily ignored or put on hold until further notice. In its place fall equations and graphs and abstractions. Once these become natural to the budding economist, the big picture begins to arise once again, and the implications of those abstractions begin to manifest in unexpected ways. This path, taken and groomed for students, is the big one. It’s why most people abandon economics too soon after only barely scratching the surface of what it’s capable of accomplishing. People, plebs, students are alienated when we push aside the human aspect for the sake of models and equations. There’s no face to identify with, only guns and butter.
The dilution of humanity in economics is ever-present in Naked Economics, accidentally or not. The most salient example can be found in the idea of “creative destruction.” Wheelan states, “Creative destruction is not just something that might happen in a market economy. It is something that must happen.” Creative destruction is the phenomenon that in order for capitalism to work and for the economy to grow, certain things must be destroyed in order to make room for newer, better things. The classic example is Wal-Mart swooping into a town and stomping all over the individual and specialized mom and pop shops that preceded it. While this is often an example seen in introductory classes, the human impact is often stripped away from it completely. Students are taught that firms go out of business—it happens in capitalism, quite often, actually—but they’re never taught the downside of the whole enterprise, what happens to the moms and pops who are now left exposed to the harsh realities of the job market with still a mortgage to pay. Unemployment is a number to most economists, but it’s a reality for the people who make up that number. And it’s dire, bet that. These are things that aren’t taught to students, but they should be.
Even though, as a practicing economist, Wheelan’s supposed to champion the ideas of competition, capitalism, and creative destruction, he can’t help being aware of the costs that come with these things. Page 37: “Competition means losers, which goes a long way to explain why we embrace it heartily in theory and then often fight it bitterly in practice.” Page 144: “Joseph Schumpeter, who coined the term ‘creative destruction,’ described capitalism as a process of incessantly destroying the old structure and creating a new one. That may be good for the world; it is bad for the firms and industries that make up the ‘old structure.’” And finally, Wheelan drops the hammer, page 193: “Yes, the economic gains from trade outweigh the losses, but the winners rarely write checks to the losers. And the losers often lose badly.”
Wheelan’s statement on page 193 just so happens to come in a chapter about the much heated topic of globalization. This is a topic that has spawned violent protests wherever the World Trade Organization (WTO) meets; it is extremely polarizing. But in this chapter, Wheelan finally lets go of all the restraints that economics has chained him with. He eschews the cold-hearted nature of the subject and embraces what economics is supposed to do. He uses the tools he has learned throughout his career and deploys them to make a passionate plea that no matter how much you marginalize people by turning them into data, no matter what may be necessary for capitalism to grow, no matter what you as an individual may believe to be right, there are always costs. More accurately, there are always casualties. This chapter is the nexus of what this book is about. It appeals to the highly technical economist by using the tools they’re familiar with while also appealing to the pleb through compassion. It shows that now more than ever there shouldn’t be a schism between the two groups. Economics is an accessible subject, and it is also a beautifully technical one. But these two things needn’t be exclusive.
This awareness is key as to why Naked Economics, good or bad, is ultimately important. It shows that economics is the study of a cruel and bitter reality, namely a capitalistic economy, while simultaneously acknowledging, by way of Wheelan’s own personal interjections, the inherent compassion every person possesses regardless of how steeped in the cruelty they may be. Economists are still people and are just as icky inside as everyone else. The schism is traversable. Despite its blunders, Naked Economics was a great first step in doing this back when it was published, but by no means was it an end. What Wheelan started can only be picked up by academics, specifically those in a position to influence the freshest and newest minds entering into economics, those students in introductory classes. If the professors and teachers of these classes follow the pattern that has been used in the past—focusing on the analytics first and leaving the humanity until later—then we will see more of the same. But if we make a genuine effort to inject some sort of compassion into introductory classes through examples that show what’s really at stake, then the type of economists we will see in the future will be a special kind indeed. The key isn’t to neglect the analytics; it’s to make sure that through the analytics, students see the meaning and implications lurking behind the numbers and models. Economics needs to resonate with students through more than just calculations and graphs. It needs to show that there are emotions involved—there are real people under all this. Students need to be constantly reminded that this is true. Reminded that it’s not just about the definitions on the first day of class. That there are always trade offs.