Book interrupts your regular ‘econ’ reading habits

Until recently economics was a topic no sooner painfully learned than eagerly forgotten. Now economics is chic. Freakonomics, The Undercover Economist, The Naked Economist, The Armchair Economist, are multi-million selling titles that promise instant understanding of the deepest concepts.

What they do not tell you is that economics is hard. The topic serves up no free intellectual lunches. It bends the mind in a manner that pop-econ books do not even dare to broach for fear of losing sales. These books are the mental equivalent of the massage belts of the 1960s that were supposed to burn fat by jiggling your belly.

If it’s a real workout you’re looking for, but one that is doable, consider The Apprentice Economist: Seven Steps to Mastery, of which Kirkus Reviews has written “the concept gradually emerges in its overarching splendor, ably explicated by the author... A challenging economics overview that may need to be read more than once."

I started writing the book 25 years after obtaining my PhD in economics from the University of Chicago, mainly as a way of clearing up some concepts I never quite grasped. In the process, I discovered that economics was far more profound, but paradoxically more accessible than ever imagined.

One of the strangest ideas, which I had taken for granted as being simple, was that of equilibrium. Wasn’t that where supply and demand curves crossed and markets settled down? Yes, but the concept went much deeper. Whether we are considering equilibrium in game theory, macroeconomics, or capital asset pricing, people must predict how markets will turn based on what they think other people will do.

People interact in such a manner that some stable consensus on the future emerges, and over the years the way the future unfolds tends to validate the way people make their decisions. In other words, we live in a world of self-fulfilling prophecies.

Think of what that means for the stability of social organizations. As Roosevelt said, all we have to fear is fear itself.

Another seemingly basic concept is that of a tradeoff. I give up something to get something else because I am constrained by my budget. It sounds mundane but much of economic progress is based on exploiting this concept. The emergence of car rentals allowed people to use cars without being forced to make large and painful tradeoffs with other items in their budgets. Being able to buy single songs in a digital store obviates the need to make larger financial sacrifices that come with buying an album, thus freeing up resources to purchase other goods. The more finely we can substitute products for each other, the better can we use our incomes to satisfy our desires. Aspiring businesspeople take note.

Will this book make you rich or allow you to predict the future? Perhaps—and an emphatic no. Economists are no better at predicting the economy than anyone else. Economic models are a statement of relations between variables. This is why economic models are at their best when used to analyze the result of a government perturbation to the economy, such as the imposition of rent control. But ask an economist to tell you where the economy will be next year and you will draw a blank. The models may be sound but the economist can only predict if he or she knows how the inputs into these models will vary over the next year. These changes are disturbances to the economic system, which neither the economist nor any other individual has the ability to predict systematically. Economic models “predict” in a very different manner from what people understand the term to mean. It is the prediction of change in a system when subject to a perturbation.

If you are looking for a perturbation to your regular reading habits in economics, then Apprentice Economist might be the jolt you need.