The Armchair Economist: Economics & Everyday Life

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Landsburg received a Master of Arts degree from the University of Rochester in 1974, along with a Doctor of Philosophy degree from the University of Chicago. [2] The now Rochester Professor of Economics released his first book, Price Theory and Applications in 1989 and followed it up in 1993 with the first edition of The Armchair Economist. [3] Since then he has written for many different publications such as Slate, The Wall Street Journal as well as releasing numerous other books surrounding the topic of Economics. [3] [4] If you find it hard to believe that people drive less carefully when their cars are safer, consider the proposition that people drive more carefully when their cars are more dangerous. This is, of course, just another way of saying the same thing, but somehow people find it easier to believe. If the seat belts were removed from your car, wouldn't you be more cautious in driving? Carrying this observation to the extreme, Armen Alchian of the University of California at Los Angeles has suggested a way to bring about a major reduction in the accident rate: Require every car to have a spear mounted on the steering wheel, pointing directly at the driver's heart. Alchian confidently predicts that we would see a lot less tailgating. The principle I am applying is precisely the same one that predicted the disappearance of gasoline lines. When the price of gasoline is low, people choose to buy more gasoline. When the price of accidents (e.g., the probability of being killed or the expected medical bill) is low, people choose to have more accidents. I remember the late 1970s and waiting half an hour to buy a tank of gasoline at a federally controlled price. Virtually all economists agreed that if the price were allowed to rise freely, people would buy less gasoline. Many noneconomists believed otherwise. The economists were fight: When price controls were lifted, the lines disappeared.

I don't always agree with him in my heart, BUT my brain has a hard time arguing the ideas he puts forward. I'm not trying to convince anyone of anything. Read the book and then think about what is in it. Put some of the techniques he teaches into looking at the problems we see in today's economy.

Table of Contents

How can this be? Are not many murders crimes of passion or acts of irrationality? Perhaps so. But there are two responses to this objection. First, Ehrlich's results indicate that each execution prevents 8 murders; it does not indicate which 8 murders are prevented. As long as some murderers can be deterred, capital punishment can be a deterrent. The second response is this: Why should we expect that people engaged in crimes of passion would fail to respond to incentives? We can imagine a man who hates his wife so much that under ordinary circumstances he would do her in if he thought he had a 90% chance of escaping execution. Perhaps in a moment of rage, he becomes so carried away that he will kill her even if he has only a 20% chance of escaping execution. Then even in the moment of rage, it matters very much whether he perceives his chances to be 15% or 25%.

Now this is critical because this explains the real monetary value of walking along the beach. Non-economists might gag that this activity has a value, but it does. I could have done anything with my time, like work, but I chose to spend it in this particular manner, and that is worth something. So if enjoying nature means something, there could theoretically be a dollar value attached. In fact, there often is. My friend Judy owns a fat pad in Marin county (which she got for a song from a person shortly thereafter indited for international drug smuggling...but that story is for another time :-) Anyway, you would be hard pressed to find someone who loves nature more...for walking in it...swimming in it...and merely knowing it exists. But it does have a value. I don't know the number, but I would imagine that if a suitably ludicrous offer was made for 40 acres in Marin, that love of nature could be quantified. This insight, the fact that value must be attached, as hard as it may be, to non nuts-and-bolts numbers is true....and valuable...and then completely ignored as evident by the aforementioned millionaires example. Let me mention a third response as well. Ehrlich did not just make up the number 8; he arrived at it through a sophisticated analysis of data. Skepticism is fine, but it is incumbent on the serious skeptic to examine the research with an open mind and to pinpoint what step in the reasoning, if any, he finds suspicious.) After this slight digression into the challenges of empirical research, let me return to my main topic: the power of incentives. It is the economist's second nature to account for that power. Will the invention of a better birth control technique reduce the number of unwanted pregnancies? Not necessarily -- the invention reduces the "price" of sexual intercourse (unwanted pregnancies being a component of that price) and thereby induces people to engage in more of it. The percentage of sexual encounters that lead to pregnancy goes down, the number of sexual encounters goes up, and the number of unwanted pregnancies can go either down or up. Will energy-efficient cars reduce our consumption of gasoline? Not necessarily -- an energy-efficient car reduces the price of driving, and people will choose to drive more. Low-tar cigarettes could lead to a higher incidence of lung cancer. Low-calorie synthetic fats could increase the average weight of Americans. Peltzman's observations reveal that driving behavior is remarkably sensitive to changes in the driver's environment. This affords an opportunity for some drivers to influence the behavior of others. Those ubiquitous Baby on Board signs provide an example. The signs are intended to signal other drivers that they should use extraordinary care. I know drivers who find these signs insulting because of the implication that they do not already drive as carefully as possible. Economists will be quite unsympathetic to this feeling, because they know that nobody ever drives as carefully as possible (do you have new brakes installed before each trip to the grocery store?) and because they know that most drivers' watchfulness does vary markedly with their surroundings. Virtually all drivers would be quite unhappy to injure the occupants of another car; many drivers would be especially unhappy if that other car contained a baby. That group will choose to drive more carefully when alerted to a baby's presence and will be glad to have that presence called to theft attention. I don't usually review books for the benefit of others. If I do, I usually make a brief statement for me to remember what I felt at a later time. But for those who want to read this book, which has been touted as the predecessor of "Freakonomics", or as a layman's introduction to economics, I have to say that it has been the worst book I've read in a long time.In this revised and updated edition of Steven Landsburg’s hugely popular book, he applies economic theory to today’s most pressing concerns, answering a diverse range of daring questions, such as: This is not just the worst book masquerading as an introduction to economics I've read - it's a textbook example of the kind of malicious tunnel vision logic that causes people who've taken a bad quality econ 101 course to go around extolling the virtues of the perfect free market with the typical disdain that half knowledge and bad actors bring when they maliciously try to wow interested novices into a field they might have little to no experience in - but using 'logic' will bamboozle the reader into aligning with the author's rather crazy and fringe ideas about political theory, policy and human behavior. The extensively revised and updated edition of Steven Landsburg’s hugely popular book, The Armchair Economist—“a delightful compendium of quotidian examples illustrating important economic and financial theories” ( The Journal of Finance).