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Wednesday, March 16, 2005

Economics And Society (and Some Good Reading)

My grad school cohort and I often laugh at how training in economics has made us unfit for life outside "the tribe" (after all, how many people discuss a first date in terms of Bayes Rule?). When I try to explain how an economist would approach the issue du jour issue, they often look at my like I've grown another head (actually, they did that before I got a Ph.D., but that's another story). So, I'm always looking for good books to give to my non-economically trained friends.

Alex Tabarrok at Marginal Revolution gives this endorsement of Public Finance and Public Policy, the new textbook by Jonathan Gruber. He writes

Gruber is especially good at discussing empirical research. What is the effect, for example, of social security on private savings, on the living standards of the elderly, on the incentive to retire? What do we learn from the international evidence?

(Quick answers: Social security crowds out about 35 cents of private savings for every social security dollar. As a result, social security has reduced the eldery poverty rate although not quite as much as naive trends would suggest. Social security does reduce the labor force participation rates of the elderly but less so in the United States than in most European countries where there are huge disincentives for working beyond the normal retirement age. (Get the book or this powerpoint presentation for more details - note you need to view the PP in SlideShow mode to get the full effect.)

Gruber covers all the major programs - education, social security, unemployment insurance, Medicaid and Medicare, the tax system etc. - and in each case he carefully explains the institutional details and then he evaulates the empirical evidence focusing on the most telling pieces of evidence (rather than trying to cover everything that has ever been written as in a review paper).

Click here for the whole piece.

Two other gems that are probably more accessible are Basic Economics: A Citizen's Guide to The Economy and Applied Economics: Thinking Beyond Stage One, both by Thomas Sowell. The first book gives an excellent guide to microeconomics, with almost no equations. The second book is chock full of examples of the "Law of Unintended Consequences". Sowell comes from the school of "teaching by stories", and is probably the best source for non-economists trying to understand the economist's way of thinking. His writing is a perfect example of Einstein's charge to "make things as simple as possible, but no simpler".

And for a final recommendation (if just for the name), Tyler Cowen at Marginal Revolution recommends Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, by Steve Levitt and Steven Dubner. It will hit the stores in early April.

Click here for the article.

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