Book Review: Trillion Dollar Economists

I just finished reading Trillion Dollar Economists by Robert E. Litan. The subtitle is "How economists and their ideas have transformed business". The book is separated into three sections, and the first section really does look at how economists' ideas have transformed business. Sometimes. Litan takes a fairly broad view of who counts as an 'economist', and in many instances makes claims that because someone 'thinks like an economist' then they can be counted. So, the claim that economics and economists' ideas have had a trillion-dollar impact on business is probably fair, but not all of the illustrative cases used in the book are. Despite that issue, the first section of the book does a good job and it is easy to see by the end of the third chapter (on pricing) that the trillion-dollar claim is probably not overstated.

The second section of the book focuses more on policy, and especially on U.S. policy. This might be interesting to some readers, but I felt that this section took the book in an entirely different direction from where it started. To be fair, regulation and policy are Litan's forte, but the promise of this book (in the subtitle) was about business. And while policy certainly is important to business, the second section had an entirely different vibe from the first. In fact, at that point it almost felt like two separate books glued together. Moreover, the claims of the role of economists are even overplayed in the policy section. Consider this bit:

Likewise, had the build out of the Internet come several years later it is entirely possible that one or more of the Net-based companies that are now household names never would have launched. In some respects, then, these businesses and their founders may have the breakup of AT&T to thank. Economists who played some role in the events and decisions that ultimately led to AT&T's dismantling also deserve some of the credit.

No doubt, economists deserve credit, alongside the manufacturers of energy drinks, and the parents of those Net-based companies' founders, who let them work in their basements or garages. And countless other peripheral players.

In the final section, Litan talks about his views of the future of economics, but is fairly conservative in those views. He seems unwilling to go out on a limb and make any bold predictions. Which is fair - bold predictions do have a habit of coming back to bite the predictor. But if you're going to hold forth on the future of the discipline, why hold back?

Despite some good bits in the first section, I felt the book was distinctly below par. Even the first section had some weird moments, such as the long section in the fourth chapter that attempted (mostly unsuccessfully, I thought) to explain linear programming and the simplex algorithm (pretty ambitious for a book targeting a general audience!). And this bit that appears to conflate regression analyses with showing causality (when, except in specific circumstances, they only show correlation):

Regression analyses enables economists (or other social and physical scientists) to understand the relationships of different variables. In the farming example above, an economist or statistician would estimate an equation to understand how different independent factors (such as the special supplement, the fertilizer, the amount of rain, the days of sun, the temperature, and so on) cause an effect on crop output - the dependent factor. [emphasis mine]

This misunderstanding about causation vs. correlation was eventually cleared up, but not until five pages later, and even then it only drew a couple of sentences of comment. Litan was over-cautious perhaps in the final section of the book, but perhaps he could have re-distributed some of that caution into his description of regression analyses.

Overall, I wouldn't recommend this book to the general reader. Readers with a business focus (or business students) might find some value in the first section, but probably won't find it worthwhile to persist past there.