Book review: The Economist's View of the World

In 1973, the Western Economic Journal published a now-famous article (ungated here) by Axel Leijonhufvud (UCLA), entitled "Life Among the Econ". The article was an ethnographic study of the Econ tribe, and included such gems as:

Almost all of the travellers' reports that we have comment on the Econ as a "quarrelsome race" who "talk ill of their fellow behind his back," and so forth. Social cohesion is apparently maintained chiefly through shared distrust of outsiders.

And:

The young Econ, or "grad," is not admitted to adulthood until he has made a "modl" exhibiting a degree of workmanship acceptable to the elders of the "dept" in which he serves his apprenticeship. 

Obviously, Leijonhufvud's was an economist, not an anthropologist, and his article was hilarious satire. However, there is something to be said for taking an outside view of the discipline, and such a view might really help non-economists to understand economists. This is where most popular economics books go wrong - they are written by economists.

That is not the case for The Economist's View of the World, written by political scientist Steven E. Rhoads (apparently, not to be confused with the current New York senator Steven Rhoads - thanks Google). Rhoads is professor emeritus at the University of Virginia, where he taught economics to students in public administration. So, not only does he know economics well, but he also brings an outsider view (of sorts) to the subject. The book was first published in 1985, but I read the revised and updated "35th Anniversary Edition", which was published in 2021, and includes reference to more recent developments such as the rise of behavioural economics, the increasing salience of income inequality, and current policy debates.

The book starts with a non-technical introduction to three important concepts in economics: (1) opportunity cost; (2) marginalism; and (3) incentives. Those topics would also tend to be at the start of introductory economics textbooks as well. However, Rhoads doesn't get bogged down in the details of theories and models, and instead focuses on applications and illustrations. For example, on the issue of incentives:

To be sure, policy makers should be careful not to just implement the first incentive that comes to mind. To do so means to risk the fate of the poor little town of Abruzzi, Italy. The city was plagued by vipers, and the city fathers determined to solve the problem by offering a reward for any viper killed. Alas, the supply of vipers increased. Townspeople had started breeding them in their basements...

This is another example of the 'cobra effect' (which I have written about here and here), interestingly also involving snakes. After these initial chapters on the basics of the economic way of thinking, the book then pivots to a more policy focus, with a strong emphasis on outlining economists' perspectives on various aspects of public policy. Like the initial chapters, this section presents the view of an outsider explaining economics to other outsiders, and is mostly successful at doing so. Consider this bit on profit-taking by middlemen:

Some readers will be skeptical: what about the unfair way that companies scoop profits from the people who actually produce the products? Look at farmers; they get a fraction of the profits from their hard work...

Economists offer reasonable defenses for all of these much-maligned groups... Middlemen are a further development of the wealth-increasing division of labor. If they do not provide services worth their costs, retailers that do not use them will put out of business not just the middlemen but also the retailers they supply.

The policy aspects of this middle section of the book are accompanied by a big dose of public choice theory, which is not something that I am accustomed to seeing in popular economics books. It is no doubt why this book is very popular among libertarian economists. However, as the book increases the policy and public choice aspects, it loses the some of the dispassionate outlining of economists' perspectives. Later sections increasingly come across more as an attempt to convince the reader of those perspectives. This is where the popular economics books lose their audience, and I'm sad to say I think Rhoads also falls into this trap.

My other gripe about the book is that it is very US-centric. The book is not so much presenting the economist's view of the world, but rather the economist's view of the US. The rest of the world barely rates a mention. While Rhoads is clearly tailoring the book to a US audience, it does tend to present economists as favouring more libertarian and small-government outcomes to an extent that is not necessarily apparent among economists around the rest of the world.

The final section of the book is a gentle critique of economics, with a particular focus on measurement of wellbeing, and on political deliberation. Unlike other books that present critiques (such as the books I reviewed here and here), Rhoads does not rely on strawman arguments that bear little resemblance to economics as it is actually practiced. For that reason, his critiques can and should be taken much more seriously. This section could easily have been expanded (perhaps to an entire book), but nevertheless it seemed like a sensible way to finish.

I enjoyed reading this book, but the overly US-centric approach turned me off and I wouldn't recommend it to non-US readers. For those readers outside the US, despite their lack of outsider perspective, population economics books by Tim Harford (for example see here) or Diane Coyle (for example, see here) would be much better.