Lectures on Microeconomics: The Big Questions Approach
The Big Idea
You are fortunate to be holding this book, or any book. You are alive. What are the chances? If the world were poorer or less populous today, you might not have been born. Or, if born elsewhere or in an earlier epoch, you might have been already dead by violence, disease, or starvation. But here you are, in this relatively prosperous time and place. Something must have gone right! But what? This book is about the few basic principles that enable individuals to do better collectively than they would have done individually. These principles fall under the rubric of economics.
You may object that you do not feel lucky, or that the misery of your fellow travelers could have been alleviated if the society had been organized more cleverly. This book is about that, too. Each glimpse of understanding that you gain, you will be encouraged to channel towards a quest for a better design of policy or institutions, at home, at work, and beyond.
The book’s content and organization are based on the premise that you will master economic concepts and techniques best by attempting to tackle the fundamental economic and philosophical questions that you care about most. To this end, the book’s material is organized around the big substantive questions:
• When do markets help translate individuals’ uncoordinated, selfish actions into outcomes that are best for all? (Adam Smith posed this question and, in response, conjured up the “invisible hand,” which we will formalize.)
• Do markets change people and, if so, for worse or for better? That is, are markets moral?
• How should exchange be organized when markets fail or are impractical to set up?
• What lessons does the dog-eat-dog environment of the jungle hold for the modern society?
• Translated into the language of modern economics, do Marx’s ideas have merit?
• Why is there so much income inequality? Or is there too little?
• Will the proliferation of superhuman robots immiserate humans?
• What might a socialist society look like? Are we there yet?
• Can Kant’s categorical imperative (aka the Golden Rule) possibly work when everyone has his own idiosyncratic idea for how he would like to be treated and is ready to impose this idea upon the rest?
• How can the society that demands fast highways, new markets, and easy ways to communicate become worse off if you give it some of what it demands?
• Is there a logical impossibility inherent in the United States Declaration of Independence when it calls for liberty and the pursuit of happiness?
This book offers answers. I hope you find yourself occasionally disagreeing with these answers. The book’s goal is not to persuade, but to show how to reason towards one’s own conclusions. In fact, I hope you disagree even with the way some of the questions are posed, for the goal is not to indoctrinate you to view the world through a particular lens. Instead, the goal is to display a kit of lenses—economic models—that you would be able to combine in order to build a magnifying device to your own specifications.
Here is what you should expect:
1. You will learn how to pose a question rigorously and how to follow through with an answer. That is, you will develop a habit of sitting down and thinking about a formal model. Especially productive in working towards this goal will be the time you spend alone with the end-of-chapter problems.
2. You will appreciate that even the broadest and most ambitious questions—in fact, particularly such questions—beg for a model, however narrow and naive. You will end up debating the relative merits of different economic systems and ways of life anyway, and unless you commit yourself to a model, you will end up debating loosely, stumble over an inconsistency in your argument, and will be defeated, whether or not your argument has merit.
3. You will learn to interpret models. A good test for a deep understanding is to try to explain as much as possible in plain English, without invoking jargon of any kind. This skill will enable you to reach the audiences beyond classmates and professional economists.
4. You will learn to think as both a moral philosopher and an engineer. The moral philosopher seeks efficiency and fairness and, perhaps, also seeks to satisfy some of the ethical fads prevailing in the society. The engineer is an economics expert, who knows how to do best subject to constraints. One must juggle both roles when designing institutions and even some products, such as self-driving cars.1
5. You will learn to see the natures of economic and philosophical inquiries as not incommensurable. This vision will encourage you to port questions and techniques from one discipline into another.
6. You will develop an appreciation of economics as a nonsectarian discipline and, along the way, may discover the pleasures of being nonsectarian more broadly. Because of the common language of mathematics and the commitment to rigor, it is impossible for economists to persistently talk past each other. The book’s ideas range from libertarian to socialist. One model argues for egalitarianism. Another one advocates inequality. It is up to you to decide which model suits the context and reflects your values (or, perhaps, prompts you to revise your values). The book will inoculate you against ideologies by training you in the language of modern economic theory, so that you can reason about a wide range of economic and social issues on your own terms.
7. Perhaps, most importantly, the acquired knowledge will make you a better citizen and a more enlightened—and, hence, happier—individual. In the words of Landsburg (1993): “Economics in the narrowest sense is a science free of values. But economics is also a way of thinking, with an influence on its practitioners that transcends the demands of formal logic. With the diversity of human interests as its subject matter, the discipline of economics is fertile ground for the growth of values like tolerance and pluralism.”
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