A Useful Guide to the Federal Budget

On September 15, 2012, in budget, debt, deficit, by admin

David Wessel. Red Ink: Inside the High-Stakes Politics of the Federal Budget. Crown Business, pp. 204, $22.00 The United States, once a creditor to the world, is now in debt. Indeed, America is now one of the world’s biggest debtor nations, with an external debt to GDP ratio approaching 100%. While politicians from both parties [...]

David Wessel. Red Ink: Inside the High-Stakes Politics of the Federal Budget. Crown Business, pp. 204, $22.00

The United States, once a creditor to the world, is now in debt. Indeed, America is now one of the world’s biggest debtor nations, with an external debt to GDP ratio approaching 100%. While politicians from both parties acknowledge that the debt and the federal budget deficit pose substantial policy challenges, there is very little consensus in Washington as to what actually should be done to safeguard the nation’s finances for future generations, or whether deficit reduction should even be considered a primary goal at the moment.

When President Obama mentioned reining in the deficit at the recent Democratic Convention in Charlotte, there was scant applause in the crowd, at least in comparison to other topics he addressed. On the other side of the aisle, there are some ideologically-driven politicians who actually seem to believe their own rhetoric that immediately enacting massive spending cuts will miraculously lead to a new golden age of American economic prosperity, without any deleterious consequences or spillover effects.

With respect to the upcoming 2012 elections, when Mitt Romney chose Paul Ryan as his Vice Presidential nominee, he elevated the Budget Committee Chairman to the national stage. From that point on, the “Ryan Plan,” the Wisconsin Congressman’s eponymous budget proposal, which includes significantly cutting spending on federal safety net programs, would be an integral part of the presidential campaign.

An educated layman, bombarded on all sides by pundits in print, and talking heads on cable news, would be hard pressed to make sense of all the various accusations, counter-accusations, and outright lies that permeate the nation’s political discourse this election cycle. For readers interested in finding a guide for the perplexed to the nation’s budget in all its complexity, Red Ink: Inside the High-Stakes Politics of the Federal Budget is a welcome and useful addition to a growing corpus of literature on the peril posed by the national debt to America’s future.

In Red Ink, David Wessel (Wall Street Journal) has penned a relatively brief, but comprehensive, study of the federal budget and the seemingly never-ending political fights over it. The budget is not just about numbers or an abstraction devoid of greater political significance. “With far more precision than thirty-second sound bites or campaign speeches,” posits Wessel, “the president’s budget and alternative crafted by the opposition in Congress reflect contrasting visions for the size of government in America and the role it plays in the economy.” To illustrate his point, Wessel contrasts Jack Lew, President Obama’s director of the White House Office of Management and Budget (OMB), with Congressman Paul Ryan. Whereas, Lew “believes in government,” Romney’s running mate is on a “quest . . . to limit the size of government, including spending less on Medicaid and almost everything else.” Ryan’s “weapon of choice,” according to the author, is the budget.

Given that the budget is such a contentious political issue, one would think that the voting public would be fairly well informed as to how much the federal government spends and on what. Sadly, this does not appear to be the case. Indeed, one of the takeaway lessons of Wessel’s recent work is that the public is often misinformed, perhaps staggeringly so, on budgetary matters. Wessel cites the results of one CNN poll in which a typical respondent stated that he believed food stamps accounted for 10% of federal spending (it is actually around 2%). In addition, the results of a Cornell University poll demonstrate that an amazing number of persons who receive Social Security benefits or are covered by the Medicare program feel that they have not used a government social program. The joke about Tea Party protesters holding signs that read, “Keep Your Government Hands Off My Medicare” would be funnier, if it were not such a sad reflection of the state of public knowledge about the U.S. government’s role in the economy.

Red Ink
is divided into five discrete chapters, each of which is clearly written and well organized. In a more perfect world, voters heading to the polls this November will read the book’s third chapter, “Where the Money Goes,” prior to casting their ballots. He discusses such topics as how voters overestimate waste and inefficiency, how health care spending is rising to a greater extent than other portions of the federal budget, and how Social Security, which accounts for approximately 20% of federal spending, “is perhaps the most popular part of the federal budget.” Regarding farm policy, Wessel notes that President Obama’s most recent budget envisioned ending direct payments to farmers. He also discusses the food stamp program and the expansion of the program under both George W. Bush and Obama.

The book’s final chapter, “Why This Can’t Go On Forever,” is a wakeup call to Americans and their elected representatives. Wessel approvingly quotes Doug Elmendorf, director of the non-partisan Congressional Budget Office (CBO), who has argued that there is a stark disconnect between what the public expects the federal government to provide, especially to seniors, and what taxes people are willing to pay to finance such programs. As much as the public likes to criticize Congress, it must be incredibly frustrating for those rare politicians seriously interested in reducing the deficit to be told by constituents that they want even lower taxes, but that Congress shouldn’t cut Social Security or defense. While Wessel is overall successful in defining the contours of the political debate, his work’s final chapter would have been even more powerful had he been more revealing as to his personal opinions, particularly regarding what approach to deficit reduction would be most preferable.

Red Ink does not end on a particularly optimistic note. Wessel is clearly frustrated by the lack of compromise in Washington, polarized as he perceived it to be between President Obama’s budget and Congressman Ryan’s alternative. “Neither side has enough votes to prevail, and neither is willing to compromise on some amalgam that might spread the pain that both can live with. This is the crux of the issue: the deficit widens, the debt grows, the interest burden gets heavier, the voices grow even more shrill as the budget burden is passed to future generations, and nothing gets done.” If, as I suspect, the 2012 elections result in both President Obama’s reelection and a Democrat-controlled Senate and a Republican-controlled House, we probably ought to prepare ourselves for another two more years of gridlock. Eventually, however, the proverbial ‘can’ may rise up and no longer let politicians to boot it any further down an already long and tired road.

Jonathan Eric Lewis (c) 2012

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America’s Inequality Dilemma

On August 31, 2012, in economic theory, income inequality, by admin

Timothy Noah. The Great Divergence: America’s Growing Inequality Crisis and What We Can Do About It. Bloomsbury Press, 2012, pp. 264, $25.00 In August 2012, a Pew Social & Demographic Trends report indicated that the American middle class has fallen on tough times. Among its interesting findings is that more self-described members of the middle [...]

Timothy Noah. The Great Divergence: America’s Growing Inequality Crisis and What We Can Do About It. Bloomsbury Press, 2012, pp. 264, $25.00

In August 2012, a Pew Social & Demographic Trends report indicated that the American middle class has fallen on tough times. Among its interesting findings is that more self-described members of the middle class blame Congress than they do President Obama for their perceived difficulty in maintaining their standard of living. Most alarming, and one which likely will have an impact on this year’s elections, is the fact that median net worth took a nosedive during the Great Recession, plunging from $152,950 to $93,150. Furthermore, whether today’s college graduates, many of whom are underemployed and are living back at home with their parents, will achieve the trappings of middle class status anytime soon remains uncertain. One suspects we may be witnessing the emergence of the American equivalent of Japan’s Lost Generation.

Fortunately, however, we might comfort ourselves by knowing that the United States remains a land rich in opportunity much as it was in the past, unique among nations in its lack of a rigid class structure and its social mobility. But we’d be deceiving ourselves. In The Great Divergence, Timothy Noah of The New Republic posits that, since 1979, there has been a “particularly extreme” divergence in income inequality in the United States. Noah synthesizes the work of economists, political scientists, and sociologists to argue that income inequality has increased, and that this is not good for American society. In the book’s final chapter, he advocates specific actions and policies that he believes would help reverse this trend. His suggestions are largely politically progressive proposals, including increasing taxes on the super-rich, bolstering the federal workforce, and breaking up the too-large-to-fail banks. While there are likely some conservative-libertarian policy wonks that would be amenable to his proposal to break up the large banks, few would likely support Noah’s proposal to revive organized labor.

The author takes the title of the work comes from a phrase used by Paul Krugman, an outspoken advocate for Keynesian stimulus, in his 2007 book, The Conscience of a Liberal. Noah defines the Great Divergence as a socio-economic phenomenon as one not primarily involving the poor. Rather, it “is about the difference between how people lived during the half century preceding 1979 and how they lived during the three decades after 1979.” The story he tells, however, is not just about income inequality; it is about diminishing access to the top. According to Noah, over the past several decades, opportunities for upward social mobility have not increased.

Unlike some pundits who rehash talking points, Noah commendably cites ample scholarship to support his claim. In The Great Divergence, the reader learns that the United States now offers its citizens less intergenerational economic mobility than northern and western European nations. (I would venture, however, that the United States still allows for greater social mobility for children of first-generation immigrants than do Scandinavian and other western European countries.) Noah also highlights an intriguing sociological finding which indicates that Americans tend to overestimate the degree to which American society fosters upward socio-economic mobility.

Notable within the pages of The Great Divergence then is the fact that Noah challenges Paul Ryan for an October 2011 speech in which the Wisconsin Congressman contrasted what he perceived to be American social mobility with a rigid European welfare state class structure. Ryan, according to Noah, “had it exactly backward.” In truth, European countries now offer more social mobility than the United States. While Noah penned his study of income inequality prior to Mitt Romney’s choosing Ryan as his running mate, The Great Divergence takes on a more salient political implication in this new found context.

So what caused the Great Divergence? According to Noah, the Great Divergence did not result from prejudice against African-Americans or women. The failure of the American educational system to meet the demand for higher skilled workers is part of the story, as is trade with low-wage nations such as China and the increase of business lobbying in Washington. The decline of organized labor also played a role. Noah also refers to the rise of extremely wealthy (“stinking rich,” in his parlance) as a “separate and distinct phenomenon” that can be thought of as “the Great Divergence, Part 2.” The last several decades have been witness to the emergence of what are, in essence, new social classes within the top 1%, namely the top 0.1% and the top 0.01%. Wall Street, according to Noah, played a substantial role in the emergence of these extremely wealthy individuals. Top income shares are rising faster in the United States than in other developed countries.

Overall, Noah may succeed in persuading the reader in that income inequality not only is on the rise and that it is problematic for society. He is less convincing in his policy proposals to remedy the situation. To be fair, he does rightly acknowledge that many of his proposals, many of which are further to the left than President Obama, are not “politically salable today.” Noah could have bolstered his work, and perhaps the reception to it, had he offered a list of concrete and specific policies that would both reverse income inequality and be palatable to a large slice of the American electorate. The work also suffers from the fact that it is largely a summary of other scholars’ work, much of it very technical, making it less accessible to a general audience that it deserves to be.

In conclusion, one can think of The Great Divergence as a plea to the American public to recognize that income inequality is a problem. It is also to acknowledge that social mobility is no longer operating the way in which it used to. I would contend that the frustration that many Americans feel with Washington in many ways reflects the fact that the system is not producing the same results as it did for people’s parents and grandparents. Income inequality currently is a topic of concern among the country’s economists, political activists, and pundits. Whether it will be a broadly discussed national concern remains to be seen. It would be heartening to see at least one moderator in the upcoming presidential debates ask each of the candidates where they stood on the topic of income inequality.

Jonathan Eric Lewis (c) 2012

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Obama’s Deficit Gamble

On August 23, 2012, in derivatives, Dodd-Frank, economic theory, by admin

Noam Scheiber, The Escape Artists: How Obama’s Team Fumbled The Recovery. Simon & Schuster, 2012, pp. 351, $28.00 When he assumed the Office of the Presidency in January 2009, Barack Obama faced challenges on multiple fronts. Ground troops were still in Iraq, the deleterious effects of the housing bubble were rippling throughout the economy, and [...]

Noam Scheiber, The Escape Artists: How Obama’s Team Fumbled The Recovery. Simon & Schuster, 2012, pp. 351, $28.00

When he assumed the Office of the Presidency in January 2009, Barack Obama faced challenges on multiple fronts. Ground troops were still in Iraq, the deleterious effects of the housing bubble were rippling throughout the economy, and confidence about the nation’s long-term fiscal prospects hovered somewhere between hope and despair. To his significant advantage, President Obama did enter the White House with Democrat majorities in both the House and Senate. Although the former Illinois Senator’s supporters did not necessarily know it at the time of the new president’s inauguration, the first two years of the Obama Presidency would be crucial years for the country’s recovery from the worst economic downturn since the Great Depression. For decades to come, historians will debate whether President Obama helped or hindered what, in fact, would prove to be an anemic recovery from the near meltdown of the American financial sector.

In The Escape Artists: How Obama’s Team Fumbled the Recovery, Noam Scheiber provides a comprehensive narrative detailing the personalities and policies of the Obama economic team. He argues that President Obama and his team made a mistake in focusing on deficit reduction, rather than putting jobs foremost on the agenda. A senior editor at The New Republic and a Schwartz Fellow at the New America Foundation, Scheiber posits that while it is certainly the case that, “Team Obama helped avert catastrophe,” they nevertheless failed in their self-appointed task of restoring the economy to close to where it was prior to the financial crisis.

Readers most interested in the personalities behind the recovery will find much to appreciate in Scheiber’s extremely well researched book. Although he treats the complex economic issues with dexterity, Scheiber focuses his attention on the educational, personal, and professional backgrounds of the major players on Obama’s economic team than on complex and nuanced economic and legal issues. He devotes individual chapters to differing members of Team Obama, including Larry Summers of the National Economic Council, Treasury Secretary Tim Geithner, and Gary Gensler of the Commodities Futures Trading Commission (CFTC).

Overall, Scheiber is successful in documenting how the personal backgrounds of the key players on Obama’s economic team affected their policy decisions during their tenures in the administration. Occasionally, however, Scheiber’s narrative goes slightly off course. This is never more the case when, perhaps in an attempt to be comprehensive, he seemingly diverts his attention from the topic at hand. There are sections in the work where Scheiber spends perhaps too much time detailing some of the interesting, albeit not immediately relevant, details about the aforementioned personalities. One such case in point is a detailed discussion of Larry Summers’ childhood and high school years, which could easily have been condensed into two short paragraphs.

When he is at his best, however, Scheiber provides a fascinating look at the decision-making process of Obama’s economic team. This includes the numerous, and sometimes colorful, internal squabbles within the West Wing and other agencies and departments. Scheiber recounts how Christina Romer of the Council of Economic Advisers (CEA) had advocated for a larger stimulus package than the one that eventually was put into place is perhaps well known, details the tensions between Summers and Geithner, and recounts the different personalities and policy views of those tasked with deciding how to regulate derivatives, for instance, in the wake of the crisis.

Scheiber does, however, devote significant attention to Treasury Secretary Tim Geithner’s career and policy decisions. The reader learns how Geithner’s years overseas, first in his youth and then early in his career at Treasury, shaped his worldview. According to the author, Geithner’s approach, describing as a “willingness to set aside concern for appearances and keep kicking dirt on the fire until he smothered it,” is probably responsible for saving the financial system. On the other hand, recounts Scheiber, the bailouts really demonstrated how deeply embedded both personally and professionally Geithner was in the financial world.

As for President Obama himself, Scheiber portrays him as an idealistic politician who both sought bipartisanship on economic matters and was committed to his health care agenda, but was ultimately faced with an intransigent Republican opposition. For those readers who think that only Congressional Republicans cared about the deficit, The Escape Artists will provide a different perspective. In fact, Scheiber contends that Obama was too focused on deficit reduction. This, according to the author, played into the Republicans’ hands, as if to concede the point that the larger American public was most concerned with cutting spending. “By agreeing that deficits were the biggest threat to the economy,” he writes, “the president lent credence to the fallacious argument that cutting breeds prosperity, which Republicans wielded against his efforts to secure more stimulus.” Scheiber’s own view, then, is more in line with Keynesianism than with the cutting spending crowd.

In conclusion, The Escape Artists is an enjoyable read detailing how President Obama and his advisers ultimately failed to revive the American economy. The book, however, sometimes does not live up to the very provocative subtitle regarding fumbling the recovery. Indeed, if one were to judge this book by its cover, one would think it was just another right-wing critique of the president. While Scheiber occasionally gets bogged down in details that detract from the overall flow of the larger narrative, he does provide a lucid study of how individuals, personality quirks and all, do ultimately shape policy. Scheiber thinks that the president should have focused more on jobs. Whether he will get a chance to do so in a second term is ultimately up for the voters to decide.

Jonathan Eric Lewis (c) 2012

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The Economics of Eating Locally

On July 10, 2012, in economic theory, by admin

Pierre Desrochers and Hiroko Shimizu. The Locavore’s Dilemma: In Praise of the 10,000-Mile Diet. . Public Affairs, 2012, pp. 256, $26.99 In a July 1, 2012 article, The New York Times highlighted the growing trend toward growing and consuming locally grown and produced food. One of the individuals profiled in the Times was a wealthy [...]

Pierre Desrochers and Hiroko Shimizu. The Locavore’s Dilemma: In Praise of the 10,000-Mile Diet. . Public Affairs, 2012, pp. 256, $26.99

In a July 1, 2012 article, The New York Times highlighted the growing trend toward growing and consuming locally grown and produced food. One of the individuals profiled in the Times was a wealthy former technology manager who proclaimed that, “the future is local.” The following day, the Times ran an article in which some top chefs acknowledged, without shame it would appear, how good some corporate food products truly are. At a time when Congress is debating the Farm Bill and the merits of agricultural subsidies, it behooves those interested in economics and food policy to reflect upon the growing strength of the local food movement, born out of the notion that one should buy and eat as much as locally grown food as possible.

The husband-and-wife team of Pierre Desrochers and Hiroko Shimizu, however, are having none of it. In The Locavore’s Dilemma, Desrochers (University of Toronto) and Shimizu argue that if it were to be widely adopted, either voluntarily or through government mandates, “locavorism can only result in higher costs and increased poverty, greater food insecurity, less food safety, and much more significant environmental damage than is presently the case.” The authors do concede that some local food is “perfectly fine with us.” The main point of their recently published work, however, is to counter local food activists who contend, wrongly in the authors’ opinion, that local food, because it is local, is necessarily better for the economy and for the environment than food that has traversed the world, finally to rest upon a neon-lit supermarket shelf.

Desrochers and Shimizu devote five chapters to debunking what they identify to be five myths regarding locavorism: that it improves social capital, has economic and concomitant social justice benefits, generates fewer greenhouse gas emissions and is better for the environment, promotes food security, and is fresher and more nutritious than food from distant lands. Underlying their arguments is their belief that, “our modern food system is an underappreciated wonder that is the culmination of thousands of years of advances in plant cultivation and animal breeding; harvesting, storing, and transporting food; and retailing and home cooking techniques.” The author’s follow-up sentence concedes that while well intentioned, the locavore movement advocates flawed policies. “Only through greater technological advances, economies of scale and international trade,” write the authors, “can we achieve the locavores worthy goals of improving nutrition while diminishing the environmental impact of agricultural production.” Not satisfied with merely criticizing locavorism, Desrochers and Shimizu call for an even more globalized food system.

Steeped in both history and economics, the authors make numerous valid points about the flaws of locavorism. Intuitively, one would expect that local food from a small family farm could be more expensive than mass produced food from a large agribusiness. Also, it is quite logical to expect that if one were to fully adopt a local food diet, one would certainly be deprived of many good and nutritious foods. A strict locavore in New England, for instance, would not see many bananas in his kitchen. “Providing the basic necessities of life at ever more affordable prices should be the starting point of all discussions on local social capital. Locavorism should at least do as well as a our modern food system in this respect.”

The authors also contend that the food activists’ economic rationale for locavorism also is largely without merit. Citing the work of classical economist Adam Smith in a discussion of physical geography and agricultural specialization, Desrochers and Shimizu go on to argue that, “the most glaring shortcoming of the locavores’ economic rhetoric is that it ignores productivity differentials—and therefore production costs—between agricultural locations.”

With regard to the environmental impact of locally grown food versus food transported across great distances, they cite the work of scholars whose works lead to the conclusion that transporting food requires less energy than producing it. Finally, with regard to safety, the authors do not buy into the locavore argument. “Humans who benefit from the global food supply chain are now taller, healthier, and live longer than ever before.” While this may indeed be factually true, it is also the case that the modern food supply exists in tandem with modern medicine, advances in contraception, and penicillin.

The authors should be commended for writing a comprehensive and an impassioned study of locavorism. In many ways, their assessments are, from a theoretical viewpoint, perhaps largely correct. But the question remains: how likely is it that locavorism will really take over the way Americans or Canadians think about food? Mandating that schools buy a certain percentage of local food is perhaps economically inefficient and unsound public policy, but it will likely not have any great impact on the national economy. Furthermore, the effects of climate change will unfortunately make it even less likely that consumers will be able to purchase a wide array of food solely from local farmers. If individuals want to purchase local food and are willing to pay more money for it, that is their choice and it should be respected. Some people like to eat vegetarian, others fast food, and others local. In some locations, eating local is perhaps a very sensible option.

In conclusion, Desrochers and Shimizu, in The Locavore’s Dilemma, provide a thoughtful critique of the local food movement. Their arguments, especially regarding the economic and environmental implications of locavorism, should be given serious consideration. One, however, does get the sense that the authors do not see a problem with much of the modern food system. This is unfortunate, as there are indeed serious problems with it and with the quality of food that is churned out at cheap prices. In order to save money and get food at the lowest prices, one could easily eat fast food several times a week. But this does come at a health cost. The authors have convincingly demonstrated that locavorism does have significant drawbacks. But so does eating large quantities of what could be best described as junk food.

Jonathan Eric Lewis (c) 2012

 

Name Your Price

On June 19, 2012, in economic theory, housing, by admin

Eduardo Porter. The Price of Everything: Finding Method in The Madness of What Things Cost (paperback). Penguin Books, 2011, pp. 296, $16.00 Why do generic drugs cost less than name-brand drugs even though the chemical makeup is, for all intensive purposes, identical? Are wealthy people happier than poor people? Moral objections aside, can one put [...]

Eduardo Porter. The Price of Everything: Finding Method in The Madness of What Things Cost (paperback). Penguin Books, 2011, pp. 296, $16.00

Why do generic drugs cost less than name-brand drugs even though the chemical makeup is, for all intensive purposes, identical? Are wealthy people happier than poor people? Moral objections aside, can one put an accurate price on human life? More philosophically, what is the function of prices in a free market economy? If one were interested in attempting to figure out how best to answer any of these questions, Eduardo Porter’s recent book would be an excellent place to start.

In The Price of Everything, Porter (New York Times) argues that, “every choice we make is shaped by the prices of the options laid out before us—what we assess to be their relative costs—measured up against their benefits.” But there is more to prices than a cut-and-dry economic calculation about how to assess which course of action to take; prices tell us about humanity. “The prices we face as individuals and societies—how they move us, how they change as we follow one path or another—provide a powerful vantage point upon the unfolding of history.”

Historians may find this last statement hyperbolic. Most of Porter’s examples throughout the text are drawn from the twentieth-century. He does convincingly demonstrate that prices do play an important role in how societies are organized. Indeed, I would argue that for post-industrial consumer societies, prices of assets, goods, and services, can tell us a lot about the economic and political health, or lack thereof, of a given polity at any particular point in time. For instance, when only a select few members of a country’s ruling political elite can afford to purchase luxury goods, there is most likely something deeply wrong with that country’s political system.

The author of The Price of Everything makes the case that prices should be understood not just as “attached to things we buy in a store,” but pretty much everywhere. “At every crossroads, prices nudge us to take one course of action or another. In a way,” writes Porter, “this is obvious; every decision amounts to a choice among options to which we assign different values.” He argues that identifying prices allows us to better understand our decisions, be they measured in money, time, or opportunity costs.

The Price of Everything
is divided into thematic chapters in which Porter explores the prices of goods, happiness, life, and other aspects of life in which prices matter. In Chapter One, “The Price of Things,” he rightly contends that, “consumers’ interactions with prices are fairly complex.” He identifies the extremely important assumption held by economists, which is that people are rational actors or, in Porter’s words, “people know what they are doing when they open their wallets.” In a balanced approach, he notes that while this is often the case. “But as a general principle, the assumption is misleading in a subtle yet important way.” The difference, according to the author, is this: “market transactions do not necessarily provide people with what they want; they provide people with what they think they want.” Skeptics, on the other hand, might contend that this is a distinction without a difference.

For anyone who has taken a college-level economics course, the rational actor will be a familiar character. But what if the hypothetical rational actor does not always act so rationally? What if this assumption is flawed? Drawing upon behavioral economics, Porter states his view that, “the model of rational humanity is a powerful tool that can help us understand the behavior of men and women in many walks of life. Yet, at the end of the day, belief in the inerrant ability of our choices to communicate our preferences is inconsistent with how we actually behave.” In other words, human nature is complex. In my view, economists, unlike professional historians, make a grand assumption about human rationality, one that any historian of the twentieth-century Europe in particular, could easily refute with ample historical evidence.

For readers interested in the financial crisis of 2008 and its aftermath, the book’s epilogue, entitled “When Prices Fail,” is worth ample consideration. After discussing the housing bubble, Porter discusses speculative bubbles, in general and contends that there are some economists who do not believe that bubbles exist. While Porter does discuss the efficient market hypothesis, he fails to provide as comprehensive an overview of the subject as it merits. The author’s view is that the discipline of economics both is, and should, change in respond to the financial crisis. He contends that the belief in “unbounded rationality” is flawed. Furthermore, he contends that economics needs to embrace a more complex and nuanced understanding of human nature, one in which people do not always pursue what they want, but rather what they think they want, a point he also raised in the book’s first chapter. In my opinion, if economists happened to think a bit more like historians, wherein the world they study is understood to be a messy, complex place that often defies simple explanations, our public policy discussions might not be so polarized between the progressive left and the populist right.

In conclusion, every once and a while, an economics book comes along that is not only intellectually engaging, but also refreshingly devoid of partisanship and quite accessible to a general audience without being overly simplistic. Porter’s well-written study is one of these books. He takes the reader on an intellectual journey into the realm of prices and explains how prices, or what things cost, help explain not only economics, but also aspects of human nature. While it is unlikely that economists, let alone extreme adherents of laissez-faire capitalism, will be willing to forgo with the rational actor assumption anytime soon, it is nevertheless the case that in two decades the economics profession will look very different from what it is today. If you want an engaging and enjoyable non-fiction read this summer, and one that will leave you wanting to learn more about how the discipline of economics might adapt to the post-financial crisis era, The Price of Everything is highly recommended.

Jonathan Eric Lewis (c) 2012

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