Book Review: The Economics of Just About Everything

The Economics of Just About Everything was half of a present from my brother, L. We always exchange books for birthdays and at Christmas. The other half of his present was Marilynne Robinson’s Lila. I am a big fan of Ms Robinson’s novels but I thought Just About Everything would be an easier read at a time when I had a big pile of books waiting to be read. So I went with it.

Several years ago, I had read Stephen D Levitt and Stephen J Dubner’s Freakonomics and their more of the same, SuperFreakonomics . I was enamoured for quite a time by the suggestion that economic analysis that strayed from just looking at the behaviour of ordinary markets was really beyond the cutting edge and that these two writers brought knowledge and brilliance to areas that no others would even deign to explore.

Perhaps, there was one volume too many. Or, perhaps, I thought the chapter on climate change in the second volume misunderstood what the scientists were saying. In any event, I reverted to my default view that people who spend most of their writing space hyping themselves up are never as good as they say they are. [1] My time as a fan had come to an end.

Andrew Leigh, perhaps, because he came to economics after studying law and politics, is much more humble about his contributions to the field. He credits Chicago University’s Gary Becker as a pioneer in the “economics is everywhere” movement. He gives Dubner and Levitt credit by referring to the Freakonomics revolution. And he explains the ability of economics to provide insights across broader fields by explaining that it envisages people maximising well-being and happiness, not simply financial rewards, so that it is equally applicable to “Scrooge McDuck and the Dalai Lama”.

Importantly, Leigh explains the way in which consideration of incentives can assist in developing good government policy and assist government in achieving its objectives. Among his examples is the history of the way in which contractors were rewarded for transporting convicts to Australia. The Second Fleet was arranged on the basis that the contractors were paid a flat rate per convict which resulted in crowded and cruel conditions and a shameful rate of deaths on the voyage. This led policy makers to change the form of remuneration so that a considerable amount of the overall payment depended on convicts arriving in good health. The contractors suddenly found their humanitarian side; conditions were much better for the travelling convict; and many fewer died en route to Australia.

Incentives, indeed, proved to be the key.

As well as looking at incentives to explain (and influence) events in the public sphere, Leigh’s analysis is directed to advising us as individuals about how to find strategies that contribute to maximising our own welfare and happiness. In the area of finding a life’s partner, he discusses the trade-off between finding the best partner and the lost years of our life we might spend rejecting perfectly good options searching for perfection.

For me, one of his most insightful observations was for those people, my father professed to be one of them, who claimed never to have failed to finish a book that they had started, no matter how bad it was. Leigh points out that there are, always, many more good books than we will ever have time to read (my perpetual regret — the lack of time, not the surplus of good books). If we want to maximise our good times, it makes little sense to use up part of our reading time on books that amount to a mild form of torture.

I had used this very argument with my father about fifty years ago with, let me say, limited effect. How nice to be vindicated by an economist after all this time.

In turning economic analysis to different spheres of activity, Leigh also manages to collect a great deal of interesting data upon the subjects of that analysis. The data inform the analysis and help explain the points that are being made but are interesting in their own right. In looking at love, marriage and relationships in general, Leigh unearthed the gem that an expensive engagement ring was a form of security deposit by the future bridegroom to compensate his future wife in the event that the engagement was cancelled. She might, in those circumstances be perceived, in an old-fashioned world of questionable values, as used goods and, thereby, less valuable, but would keep the expensive ring to redress the balance.

Leigh also looks at health and healthcare; sport; the workplace and careers; and art and literature. The chapter on crime and crime prevention discloses the amazing fact that Leigh has an odd connection with each of Australia’s greatest two gun massacres, Hoddle Street and Port Arthur. He also acknowledges Levitt’s insight that the greater availability of abortions, in the United States, in the wake of the Supreme Court decision in Roe v Wade , led to an astonishing drop in the crime rate in the nineties as less children grew up experiencing the type of disadvantage that led to a life of crime.

What emerges from Just About Everything, and particularly from the chapter on crime, is that evidence and objective analysis is an excellent way to enhance our understanding of the world and how its complexity operates. It is hardly evident from the cover of Just About Everything but Andrew Leigh is a Federal Labor politician, at time of writing, shadow assistant treasurer. It is reassuring to this reviewer that any politician champions the cause of evidence based policy making and objective analysis. It is even more reassuring that one writes books on that very subject.

I was also pleased to see that one of the later chapters in Just About Everything looks at the economics of making predictions. In The Signal and the Noise , Nate Silver makes the point that very non-evidence based and ideologically biased predictions are made every day in our main stream media and the same pundits are invited back to make the same generally unreliable predictions, tomorrow and next week. In terms of incentives, the fact that there is no cost to the pundit for getting it shamelessly wrong means that they will keep doing it as a way of pushing their particular barrow.

There is a deeper pleasure, however, in my pleasure. One of my objections to Levitt’s line that he had singlehandedly changed the world by bringing economics outside the stock exchange is its failure to recognise the work of statisticians, generally, and those like Silver who do put their reputation on the line, every time they make a serious prediction.

The analysis that Silver has published, through his website 538 , in its various emanations, has the same lust for data as does Levitt, Leigh and every analyst who seeks to use the principles of economics to explain the world in all its various aspects. And predicting the future, whether it be an election result or a football game, requires an understanding of the present and the past and the forces at work. And those forces are sometimes economic incentives, broadly understood. Sometimes, they involve other aspects of human nature. Silver has explained, for example, that parties and candidates experience a bounce after conventions because supporters are cheered by all that favourable publicity and are more likely to respond to those robo-polls than when they feel less enthusiastic about their party.

I am for analysis, therefore. And I am for gathering and looking closely at the evidence. But I am not for claiming that one form of analysis, objective as it may be, produces all the insights.

Nonetheless, Just About Everything is an insightful book and every page produces something of interest and worth knowing.

When you finish, you will wish that we had more politicians like Andrew Leigh.

Footnote

[1] This is perhaps related to Dan Mori’s phrase from his days in the Marines that the first report is always wrong.