FROM THE PREFACE:
One day in 1991, I walked into a medium sized bookstore and counted over 80 titles on quantum physics and the history of the Universe. A few shelves over I found Richard Dawkins’s bestseller The Selfish Gene along with dozens of others explaining Darwinan evolution and the genetic code.
In the best of these books, I discovered natural wonders, confronted mysteries, learned new ways of thinking, and felt I had shared in a great intellectual adventure, founded on ideas that are dazzling in their scope and their simplicity.
Economics, too, is a great intellectual adventure, but I could find, in 1991, not a single book that proposed to share that adventure with the general public. There was nothing that revealed the economist’s unique way of thinking, using a few simple ideas to illuminate the whole range of human behavior, shake up our preconceptions, and jolt us into new ways of seeing the world.
I resolved to write that book. The Armchair Economist was published in 1993, and attracted much critical praise along with a large and devoted following. But what I take most pride in is that The Armchair Economist is still widely recognized among economists as the book to give your mother when she wants to understand what you do all day.
A lot has changed in that 20 years. Today, no bookstore patron could complain about a paucity of titles in the popular economics section. Some of the new titles are quite good. Several, I daresay, were inspired by Armchair. The most well-known of the recent titles is Levitt and Dubner’s Freakonomics, which I think is a rollicking good read (and I said so when I reviewed it for the Wall Street Journal). But for all its merits, Freakonomics is more a collection of wonderful and enlightening anecdotes than a guide to understanding economic principles. Freakonomics is out to dazzle you with facts; The Armchair Economist is out to dazzle you with logic.
Logic matters. It leads us from simple ideas to surprising conclusions. A simple idea is that people respond to incentives. A surprising conclusion is that when drivers are protected by air bags, they drive more recklessly and have more accidents. A simple idea is that when the price of something goes down, suppliers provide less of it. A surprising conclusion is that recycling programs, which reduce the price of timber, ensure that fewer trees are planted and forests shrink. A simple idea is that monopolists charge whatever price the market will bear for their output. A surprising conclusion is that when oil supplies are interrupted, steep price hikes are evidence of competition, not monopoly. A monopoly oil company wouldn’t wait for a supply interruption to raise the price.
Evidence matters too, but logic can be powerful all on its own. Take, for example, the argument about recycling and the size of forests. If I wrote that the reason we have large cattle herds in this country is that people eat a lot of meat, few readers would demand detailed numerical evidence to support that conclusion. The idea itself is too powerful and too compelling. It’s instructive, then, to realize that the same powerful and compelling idea tells us that one reason we have large cultivated forests is that people use a lot of paper. Of course, ideas can always be misleading — but then so can numbers. We advance by learning new ways to think, even if those ways are not infallible. (In this particular case, if you still insist on evidence, you might start here or here.)
Much else has changed since 1991. When I wrote The Armchair Economist, I envisioned (in Chapter 5) a “computer game of life,” where nobody ever tells you whether you won or lost. You live and you die, and if you play well you collect rewards. If you decide it’s not worth the trouble to play well, that’s fine too. Today that game exists, and over 20 million people have played it. It’s called Second Life. In 1991, when I wanted an example of a crazy entrepreneurial wild goose chase, I invented a CEO who wanted to build a computer you could carry in your pocket. Perhaps you’re now reading these words on that computer.
There’s also much that hasn’t changed. The basic principles of economics continue to surprise, delight and edify, and they’re much the same as they were in 1991, though there are always new applications.
In updating The Armchair Economist for the 21st century, I’ve culled the Internet, the media, and my own experience of life for good contemporary applications of the eternal ideas of economic theory. As a result, some chapters — those where the examples were starting to seem a little musty — have been almost entirely rewritten. Others have been updated to put more emphasis on today’s concerns. I’ve excised all references to cassette tapes, Polaroid film and Walter Mondale.
This edition has also benefited enormously from the critical eye of my amazing wife Lisa Talpey, who read multiple drafts of every chapter and wouldn’t let me stop revising until I’d met her extremely high standards for clarity. Until Lisa got her hands on this manuscript, I’d had no idea how much room there was for improvement.
One other thing has changed since 1991: The world has become a more ideological place. Nowadays, it’s almost impossible to explain a non-controversial bit of economic reasoning without being suspected of some ulterior ideological agenda. So let me be upfront about this: I do have opinions. Speaking very broadly, I tend to be optimistic about the power of markets to do good, and skeptical of the power of governments to do better. And I am sure there’s an occasional passage in Armchair where I’ve failed to restrain myself from betraying those prejudices. But The Armchair Economist is not a work of ideology. It is, with rare exceptions, about the basic principles that guide the work of almost all economists, regardless of where they lie on the political spectrum. There is some disagreement among economists about which of these ideas are most important, but very little disagreement that they are basically correct. Economists from the far left to the far right have praised The Amchair Economist for its accurate portrayal of the ideas we all have in common, and in this new edition I’ve aimed to continue deserving that praise.