• Cocktail and Dinner Party Economics
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  • Dinner Party Economics

Who are the Wise Guys?

The Wisdom of Crowds by James Surowiecki
A well-functioning market will make everyone better off than they were when trading began—but better off compared to what they were, not compared to everyone else. On the other hand, better off is better off.” Page 107
It is always a pleasure to read a book featuring the work of economists that doesn’t imply we are idiots. (For an endless tirade against economists read The Black Swan by Nassim Taleb—but more on his book in a later post.) Surowiecki clearly understands the research he writes about and interprets it in an entertaining  and easy to understand way.  He is much like Malcolm Gladwell in that regard.  (Come to think of it both of these guys wrote for the New Yorker so it might be the influence of their editors.) According to the book, ordinary markets are a great example of the wisdom of crowds. (Preaching to the choir here.) The results of ordinary markets give us insight into why they are created for unusual things.   Surowiecki gives us many examples of this: election markets can predict a presidency, sports markets can predict the outcome of the big game, and decision markets can decide if a particular product will make it in the business market place.  I found his example of how a conventional market like the stock market predicted who was really to blame for the Space Shuttle Challenger explosion within minutes of the explosion fascinating.

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Dotting the i’s: Invention, Innovation and the Industrial Revolution

(See Cocktail Party Economics Chapter 4 p 48)

Invention is the mother of necessity ~Thorstein Veblen (1857-1929) American economist and sociologist
  The implications of A Dozen Facts about Innovation by Michael Greenstone and Adam Looney published as part of the Hamilton Project by The Brookings Institution worries me. A lot actually.  You can find the article here or here in PDF format.)

Major Themes

Let me give you an overview of the policy memo’s major themes.
  1. Innovation and inventions (as measured by total factor productivity) are a major source of growth for the United States which is a good thing. It leads to a higher standard of living, a longer life span and more leisure. (No worries yet.)
  2. Since 1973 total factor productivity (TFP) has slowed down in the USA.  The annual growth rate fell from 1.9% to 0.7%.  In other words, if the growth rate hadn’t fallen, worker’s conpensation would be 51% higher than it is now. (Some anxiety now.)
  3. Prospects don’t look good for the future if things don’t change.  Why you ask?  First, not enough students choose Science, Technology, Engineering and Math (STEM) majors that feed innovation.    Furthermore, women who have increased their participation in undergraduate education, tend to drop out of these innovation inducing majors.  Lastly, close to half of the folks who do choose STEM PhD’s are foreign students and are not allowed to stay in the USA once they are done their degree. Therefore, the US doesn’t get to keep the fruit of their educational investments.  (Brooding fears.)
  4. Change is possible but politically difficult. This requires significant changes in US immigration, education and R & D policies.  (Ominous feelings of gloom.)

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A single book at the right time can change our views dramatically, give a quantum boost to our knowledge, help us construct a whole new outlook on the world and our life. Isn’t it odd that we don’t seek those experiences more systematically?
    • Steve Leveen, The Little Guide to Your Well-Read Life (2005), p. 11
  I have decided to blog.  Like any economist, who sees the world through economic lenses, I need to consider the opportunity costs.  The decision to write about one thing means I cannot use the time to write about another.  So I have to be picky. Furthermore, there are lots of great blogs out there and I don’t see the point of repeating their content. I therefore need to specialize in something not generally done elsewhere in order to make a difference which of course leads us to the issue of “comparative advantage” (a concept you can read more about in our wonderful book!). So what is the ‘right’ thing for me to specialize in? To write about? It took a bit of thinking but I have come to a decision–one I hope proves helpful to you.  I thought I would, on a fairly regular basis, review other people’s writing about economics and business. I will focus mostly on books, but from time to time, might focus on other blogs, interesting articles and informative documentaries. (Oh, by the way, Rick will write as for this as well so look for his byline.) The Three E’s
In the highest civilization, the book is still the highest delight. He who has once known its satisfactions is provided with a resource against calamity.
    • Ralph Waldo Emerson, Letters and Social Aims: Quotation and Originality (1876)
I will generally be aiming these reviews at students who have much of their life ahead of them and probably could benefit from someone helping them weed out the chaff from the wheat but hopefully anyone who wants to be a “student” of business and economic ideas will find what I do here useful and informative as well.  It is my hope that good reading will lead to a well-lived life.  Therefore, this blog will try and be a repository of commentary on writing which is generally considered entertaining, educational and economic in nature. In this context, I define ‘Economic’ loosely in terms of ideas related to decision making and market systems. Thus management, psychology, politics and business books and articles are all fair game. When the economics isn’t explicit in the piece, I will endeavor to add a commentary from the economist’s perspective. ‘Educational’ means I will generally limit the type of books and articles to non-fiction.  (This is not to say that fiction can’t educate.) ‘Entertaining’ is the most difficult to define as it is subject to the tastes and preferences of the individual.  There are many who would never think that a non-fiction book could be remotely interesting—let alone one about economics.  I beg to differ.  It is my genre of choice. However, within this genre there exists a wide variety of choice.  I will limit my reviews to books I think the average first year university or college student would enjoy.  In other words, I won’t be reviewing many of the classics like Das Kapital any time soon. Most of the trade books I review have already made it to one best seller list or another which means the public has voted with their pocket books as to whether it is a good book or not. (Das Kapital may be a best seller but I don’t think that means the current owners have read the entire book.  It can only be described as a very hard slog!  Sometimes people buy a book because they have to for a course or because they think it is good for them.) I will try and make every book I review in this blog one that can be read in less than a week. The format of our blog will be similar to our book—it will have quotes, napkin notes and from time to time a gossip column.  Please contact us with any suggestions and feel free to comment—both to agree or disagree with the reviews. Happy reading and talk about us at cocktail parties!

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