Saturday, August 04, 2007

The power of economic thinking

Tyler Cowen has established a reputation for, among other things, many worthy blogs at Marginal Revolution. He has now assembled and embellished many of them in his Discover Your Inner Economist: Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist.

Most non-economists think that economics is all about a narrow dollars-and-cents accounting and, thereby, miss the important point that economics is about a much broader and more comprehensive treatment of incentives.

And people are complex enough to strive for status when it will give them things that they would be shamed to purchase for cash -- such as social and sexual partners. See how values and markets interact and intersect.

But this is just the tip of the iceberg. Our world is challenging and interesting and the appreciation (and application of) the broad array of motives and incentives is very useful, as Tyler shows.

The book is great fun to read and appreciate. My favorite passages were about food. Tyler elaborates the idea that the best food exists were income inequality is the greatest because good restaurants require lots of cheap labor and many wealthy guests. You are not likely to eat well in Scandinavia but you will eat well in the ethnic neighborhoods of U.S. cities.

Tom Schelling pioneered this brand of economic thinking many years ago -- and received a Nobel prize for his approach and his insights. It works when practiced by smart people and, as the Cowen book, shows, it can also be explicated and taught.