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The Armchair Economist (S. Landsburg)

2008-09-24 6 min read Books marco

I felt like an addition to my review of Landsburg’s book was in order after completing the read. I am as enthusiastic as I ever was, but I think I have a more nuanced look now.

First of all, I read the book as an attempt to popularize both economics and its fundamental tenets. In that attempt, Landsburg succeeds spectacularly: the way of thinking of economists, which is probably the most important thing right now about their achievements, is brought forth with great clarity and persuasive power.

Economics is a clear winner in this game. We learn what economy is about, what it’s not about, and rational ways to distinguish between the two. To spice things up, Landsburg shuns the obvious and focuses almost entirely on the paradoxical. That certainly makes him more interesting and makes his reasoning more likely to be a feature at parties. Everybody wins.

Even better, the prospective economist easily finds examples of where Landsburg has gone wrong. That sounds bad, and it might usually be, but the errors are not as frequent as in other Landsburg books (or book on economics in general) and they are looming as visible as anti-semitic attacks would be in Heidegger.

Of course, now I have to give you an example, or stand there as a liar. I will focus on one example from each category that I found.

Economics: Landburg states that theft, from the perspective of economy, is just redistibution and hence neutral from an economic perspective. That’s patently wrong, since the value of the object stolen is most frequently smaller to the thief than to the owner.

This is due to three factors that can each be present in a case of theft independently (they can be missing, too). The first one is that the intrinsic value of the object stolen typically goes down because the act of stealing entails a partial destruction. This is the case, for instance, when a thief steals something that is affixed to something else (a car stereo, for instance).

The second change is the actual value of the stolen good that is reduced because of the theft. Stolen goods typically have much lower value than “unstolen” ones. This is certainly partially due to laws against theft, but it’s more likely due to the mismatch between stolen property and needs of thieves. If I steal your car, I probably didn’t want exactly that model, color, or set of accessories, so the value to me is much lower than it was to you.

The two diminishing factors apply mostly to casual thieves, those that steal without big plans. That could be someone who’s hungry, or it could be someone that needs drugs, for instance. The industrial activity of stealing, involving expensive goods stolen typically for large profit (like cars in Southern California) is a different beast: here theft occurs on commission, and a particular object is requested and a specific price paid.

The third factor, which is something present in pretty much every theft, is the replacement labor. Even if the cost of the object doesn’t change in the transfer, the legitimate owner has to replace the stolen object, or at least change the function that was associated with it, causing typically much larger damage than just the value of the object stolen.

Imagine someone breaks into your car and steals a camera on the back seat. Of course, your camera got stolen, and that’s a cost. In addition to that, though, the thief typically had to break a window or force a lock open – in which case you will have to replace the window or the lock.

I had recently a credit card stolen, the probably most inefficient transaction in the history of mankind: the thief could get absolutely nothing out of it, since I had the card locked within minutes of the theft. Since it was locked, though, I spent weeks getting in touch with everybody that had recurring charges on that card and had them change the number. Worse still, the card was stolen just before my trip to Hawaii – as I got there, I had no credit card and could not rent a car.

Not all theft is economically adverse, of course, and some legislatures actually take that into account. In Germany, it is perfectly legal to steal food if you have no other way of acquiring it. The idea is that it is economical to take food from someone that has surplus and give it to someone who has a deficiency. The reason for this is that food if fungible (easily replaced), that if someone gets away with stealing it, it probably wasn’t that crucial to the owner, and that the damage done is small, in most cases.

Since we humans tend to plan, most theft will harm our planning, since they make a resource unavailable that we had counted on. Hence, theft is in balance not a redistribution but a destruction of value.

Approach: the last chapter of the book is about religion and religious beliefs, their dangers, and remedy. Of all possible causes, Landsburg attacks environmentalism, comparing his own resistance to it to a motion of rationality that he likens himself to religious freedom. Just as he didn’t have to spend a lot of time explaining to kindergarten teachers that references to Santa were not particularly welcome to a Jewish child, so he didn’t understand why he’d have to explain that he didn’t agree with the religion of environmentalism and saw no reason his child should be taught that (ironically, at the Jewish Community Center).

Landsburg doesn’t like environmentalism because it is a moral approach to a problem he thinks would be both easily solved with economics and probably not even worth considering much. He gives the example of the outrage environmentalists felt when someone proposed to move polluting industries to the Third World, reducing the pollution here and increasing the incomes there.

The problem I see with this approach is that environmentalism is a religion that states we do not know all the effect of the changes we are causing. So economics doesn’t help, since it’s good only at putting causal relationships to the test and to balance stated interests.

Landsburg can, of course, claim that as a religion, environmentalism has no place in economics – but that’s not the claim. The claim is that environmentalism has no place in life and that it is trying to encroach on problems that have nothing to do with a religion.

Fact is that environmentalism has one leg up: it already made prediction that came true. Hence it is not an opinable set of thoughts, but one that is tested. The only reason so many people believe in environmentalism is that they didn’t, and their life was poorer. So, while Landsburg has a valid claim when he says that environmentalism is a religion, he errs when he says that economics is sufficient to tract the problem of pollution. We have to add the variable that we know that some of the consequences of our actions are unknown.

Style: Landsburg has strong opinions and states them clearly and amusingly; a dangerous combination, for sure. The problem is that he states wrong opinions with the same aura of ex cathedra teaching that his title (professor) entitles him to. It’s a common problem with kumu, they tned to switch to this highly authoritative style no matter how dumb the stuff is they are currently saying.

But, you know what? You really should read the book, it’s amazing.