Economics for the Rest of Us [Paperback]

"Freakonomics" was a popular sensation a couple of years ago. Why? Because it used a series of cute anecdotes to show the ingenious ways in which economists can explain virtually any aspect of our lives, including some we don't normally think of us "economic." As if it hadn't been already, "Freakonomics" raised the "dismal science" to cult level, implying that everything can be understood by quantifying it: the clockwork universe of the Enlightenment run amok, sort of.
Thankfully, along comes Moshe Adler with "Economics for the Rest of Us" to debunk that notion. He takes aim at two of the founding myths of modern economic theory and practice, and eviscerates them. One is "Pareto efficiency": the notion that you can't change the rules to alleviate the misery of the poor because it would take away too much from the affluent, and therefore make "the economy" as a whole less efficient. The other is the notion that there is such thing as a quantifiable "marginal product of labor" that determines how much each person earns for his or her labor. (In reality, wages are determined by the workers' bargaining power, which is why management loathes unions.)
Taking off from these two points, Adler raises - and answers - a set of questions far more interesting than anything in "Freakonomics": Are monopolies good or bad? Can public education, for instance, be improved by "throwing money" at it? What's the impact of rent control? What's the impact on employment of a minimum wage? Can low wages cut unemployment during a recession? Why are corporate CEOs so eager to pursue mergers and acquisitions?
Along the way, Adler uncovers some forgotten aspects of economic history. For instance, Adam Smith and David Ricardo, those supposed icons of the ultra-free market, didn't believe in a quantifiable marginal product of labor. They both understood that wages are based on bargaining power. It was later, "neo-classical" economists who fabricated the theory that workers always receive the full value of what they produce: a myth that's hoodwinked even supposedly liberal economists to this day.
Adler signs off with some recommendations for getting us back to economic reality. These include setting the minimum wage at a level where it always constitutes a living wage. But more important, he reminds us of a basic, humbling fact that's been forgotten in our market-obsessed world: "There is really no such thing as 'the economy,' there are only people." What's so terrifically "efficient" about a society that will let people starve and allow the environment to be destroyed rather than violate an abstract economic theory? Fortunately, Adler is here to ask the question and provide some timely answers.

In clear prose and with some well chosen examples, Adler demolishes two of the central tenets of received textbook economics. The first is a justification for social non-action known as the principle of Pareto efficiency. Stated simply, this principle states that on grounds of efficiency, one must be wary of a policy which feeds the hungry, if that policy would reduce the bonus of a Goldman Sachs executive by even one cent. The second is the view that the relative earnings of the rich and the poor are determined by the application of calculus to a technologically determined relationship between inputs and outputs independent, for example, of relative political strength. (For an obvious counter-example, again think Goldman Sachs).
The non economist reader of this book will wonder how such thinking could ever have come to dominate the discipline of economics (Adler provides a nice historical overview). The economist reader will never again think about these two concepts in quite the same way.
If teachers of Econ 1 really want their students to "think for themselves" they will require this book as supplementary reading. But let them be forewarned. Dropping these two principles cuts the legs from a great deal of the psudo-scientific defense of policies which permit the continuation of social injustice, a defense into which many teachers of introductory economics have been co-opted without even knowing that they have been duped.

For those who haven't been through a certain college curriculum, the subject of economics is about "the allocation of scarce resources", and is basically a social science (like psychology, sociology, and a bunch of other majors ending in "ology") with ten tons of math unnaturally shoved where it doesn't belong. This book thankfully keeps the formulas and graphs to a minimum, instead focusing on explaining and philosophizing about a few key economic concepts. I thought it did so in a way that's pretty thoughtful and engaging, with the welcome oversight of a social conscience.

The first, more interesting half of this sub-200-page book explores the concept of economic efficiency, defining/debating stuff like Utilitarianism (which basically argues that feeding the poor with the rich's money is a net good for society since a dollar means more to the poor), Pareto efficiency (argues against that), supply and demand, taxes, and income redistribution. It gets especially thought-provoking near the end, i.e. Chapter 7 gets into how massive inequality can ruin society through consumption alone. How? Because it becomes more rational/profitable for sellers to cater to only a tiny handful of super-rich instead of masses of average people, which leads to consequences like a dearth of real estate in NYC (because the rich demand space-hogging mega apartments), airplanes with no legroom, lower availability of doctors and medicines, and even crappier rock concerts (cuz some CEO just hands Elton John a million to show up at his house instead). He also argues against popular notions like higher taxes discouraging CEOs to work or rent control hurting the real estate market, and expends lots of effort discrediting Pareto in general.

The second half is about wages and employment, exploring things like the Value of Marginal Product, how CEOs get away with earning $11,000,000 on average (answer: because the loss to each shareholder is too small for any of them to care, and because of the inherent difficulty in technically proving that the CEO didn't actually contribute that much value, even though everyone knows it), how minimum wages don't hurt the economy, and how lowering taxes doesn't help it. All the while, he reminds us that the economy does NOT have a self-correcting mechanism in times of failure, and that there's really no such thing as "the economy" anyway -- which can be empirically robust even when most of the people in it are just scraping by. If you're sensing that this Moshe Adler guy's a Democrat, you'd be right (he even slips in a jab at creationism on the last page, heh heh), but I thought his arguments were pretty convincing, even if I occasionally got lost in his hypothetical examples.

Pick this up if you're interested in an econ book that won't put you to sleep.