I want to learn economics

post by alexflint · 2011-01-13T23:02:24.846Z · score: 10 (10 votes) · LW · GW · Legacy · 43 comments

I would like to learn more about economics but I don't know where to start. Can lesswrong suggest specific areas of economics that are particularly useful for understanding and optimising the world? Specific suggestions such as reading lists and resources would also be much appreciated.

43 comments

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comment by Swimmy · 2011-01-13T23:39:20.850Z · score: 10 (12 votes) · LW · GW

If you want to understand the behavior of others, including adherence to and deviation from rational axioms, you need game theory. Here is Yale's open course in game theory and it's a good place to start, but it might be difficult if you don't begin with more basic econ.

For more basic things, start with price theory (aka microeconomics). Ignore macro for a while--money and banking is essential, especially if you want to see through silly discussions about monetary policy, but macro models are less important, in my opinion. Here are some texts on the micro front. Alchien and Allen are particularly readable, but somewhat dated. Note that there are basically no high school level economics texts listed there; I am not familiar with a single good high school text either.

You should ignore most popular books like Freakonomics. They are good, but in my experience don't give readers enough of a general idea of the underlying concepts. An exception is Landsburg's The Armchair Economist, which has popularized explanations of utility, opportunity cost, indifference, and efficiency, all of which seem very difficult for the public to grasp.

Likewise don't read "the classics," unless you're specifically studying history of economic thought. Smith, Ricardo, and so on are too much of a chore for material that is thoroughly dated. We know much more now and we know how to say it better.

Some essays are often much better textbook discussions. Here is an example; I would assign that essay for an intro micro class any day.

Edit: I should say "select chapters" of Landsburg's book are good. Some quite miss the point of the arguments he's trying to rebut. It might be hard for a beginner to tell which chapters are which.

I'm flipping through my Alchien and Allen book again and still seems perfectly relevant and mostly accurate. They've got all the theory down pat and explain it fantastically, it's just that it's missing a few more decades of empirical evidence, so every time they say, "X is what we find in the real world," you have to take it with a grain of salt.

Edit again: Durr. I should note I'm looking at the second edition, 1977.

comment by Zack_M_Davis · 2011-01-13T23:46:47.262Z · score: 5 (5 votes) · LW · GW

Likewise don't read "the classics,"

Possible exception: "What is Seen, and What Is Not Seen".

comment by Douglas_Knight · 2011-01-14T03:23:15.724Z · score: 2 (2 votes) · LW · GW

For popular accounts, I highly recommend Tim Harford's Undercover Economist. I warn against Landsburg, but what I've read does not include his book.

comment by CronoDAS · 2011-01-15T00:06:03.700Z · score: 4 (5 votes) · LW · GW

A bit of recommended reading:

Ricardo's Difficult Idea by Paul Krugman

comment by Manfred · 2011-01-15T03:18:41.619Z · score: -2 (4 votes) · LW · GW

I'm sorry that I can't find the original article, but it's not that simple. Who's our largest trading partner? Canada. Now, honestly, what does Canada produce that a) we can't make here for the same or lower cost and b) is worth 224 billion dollars? It is vastly more likely that the trade happens simply because shipping is cheap and profit margins outweigh it by enough that Canadian companies will sell inside the U.S.. Ricardian exchange does not represent how we trade, and so arguments from it without deeper analysis, like the one Krugman uses for trade with countries with cheap labor, will not assuredly apply to the real world.

comment by CronoDAS · 2011-01-15T05:36:38.804Z · score: 0 (0 votes) · LW · GW

Who's our largest trading partner? Canada. Now, honestly, what does Canada produce that a) we can't make here for the same or lower cost and b) is worth 224 billion dollars?

You're not entirely wrong about that...

Often things are made somewhere simply because that's where they were made in the past, and, as you said, it's easier to ship the goods than to set up shop somewhere else. In the case of trade between the United States and Canada, most of the relevant comparative advantages occur on the level of firms and individuals, not nations.

comment by Manfred · 2011-01-15T06:45:49.723Z · score: -1 (1 votes) · LW · GW

I agree, but I don't see how that supports free trade in quite the way Krugman used it. When the countries are outwardly similar, the partner's "comparative advantage" is then often an economy of scale, which is a good reason to centralize, or a capital investment, which isn't necessarily. Then free trade is made a bit more transparent and we can start arguing about what we want to maximize - efficiency or [insert metric here].

But sadly, I'm pretty sure that sometimes there's no comparative advantage at all. Sometimes trade is profitable even if you don't have any advantage, so long as the cost of shipping is less than the profit margin at the market price. People are irrational, and squeezing even a little extra profit out of this fact would allow for all sorts of semi-useless trade.

Note that I agree that there is still "ordinary" comparative advantage out there, among this other stuff. But I think that this other stuff, while fairly indifferent to efficiency, can be harmful to [metric of choice] (say, assign negative value to burning fossil fuels).

comment by CronoDAS · 2011-01-15T07:43:09.360Z · score: 2 (2 votes) · LW · GW

Sometimes trade is profitable even if you don't have any advantage, so long as the cost of shipping is less than the profit margin at the market price.

If the cost of shipping is less than the profit margin, that means that someone is willing to buy something from you for more than it costs you to make it - which, in an ideal market, is pretty much equivalent to having a comparative advantage. (I think.)

comment by Swimmy · 2011-01-16T06:28:44.937Z · score: 0 (0 votes) · LW · GW

You're correct. Simple example here. Transportation costs are added to other costs, and the same analysis follows from there.

Transaction costs are not really different from other costs, economists just like to highlight them because they're often forgotten.

comment by Manfred · 2011-01-15T16:19:47.499Z · score: -1 (1 votes) · LW · GW

Sometimes. The existing competitors might lose more profit by dropping price to drive out the newcomer than they would by just allowing the competition. This should become more common as the cost of shipping becomes smaller relative to the profit margin.

If by competitive you mean "competition drives down prices as far as they will go," I would disagree that that's how the world works.

comment by Jayson_Virissimo · 2011-01-14T05:51:13.910Z · score: 4 (4 votes) · LW · GW

Microeconomics

Beginner: Hidden Order: The Economics of Everyday Life by David Friedman.

Intermediate: Intermediate Microeconomics: A Modern Approach by Hal Varian.

Advanced: Microeconomic Analysis by Hal Varian.

Macroeconomics

I would avoid macroeconomics until you grok microeconomics (and maybe even then), but if you must read something, read Macroeconomic Patterns and Stories by Edward Leamer.

comment by Matt_Simpson · 2011-01-14T08:32:10.461Z · score: 1 (1 votes) · LW · GW

I second hidden order as a great introduction to microeconomics. If you're a true beginner, read that first and THEN jump into a textbook with math.

I also second everyone suggesting that you avoid macro for a bit until you understand micro. Macro seems to have much less settled theory than micro.

comment by conjectures · 2011-01-20T09:41:08.020Z · score: 0 (0 votes) · LW · GW

Varian's Intermediate Microeconomics is good. I haven't read Microeconomic Analysis which is apparently more advanced.

The reason I found Varian useful is that principle is paired with math; fairly rigorously up until the later chapters. I also read Mankiw's Principles of Economics, but you don't finish that book able to do any economic number crunching.

On the math side it's mainly differential calculus and algebra. If you have a base there already I suspect it will actually be easier and quicker to absorb the principles from a text with math - since they derive from it.

comment by jsalvatier · 2011-01-14T22:25:32.280Z · score: 0 (0 votes) · LW · GW

I second the suggestion to avoid macro for a long time since there is so very much confused macro writing. It is a field in need of rationalists.

I also used Varian's book for intermediate macro (EDIT: micro), and I thought it was decent.

comment by steven0461 · 2011-01-14T03:59:44.798Z · score: 4 (4 votes) · LW · GW

More suggestions in an old open thread.

comment by Larks · 2011-01-14T00:17:32.827Z · score: 4 (4 votes) · LW · GW

Do you want to learn the maths, or to gain good intuitions about economics?

comment by [deleted] · 2012-12-07T18:44:32.501Z · score: 0 (0 votes) · LW · GW

Say that I did want to learn the math, what would you recommend?

comment by Larks · 2012-12-08T00:29:40.944Z · score: 0 (0 votes) · LW · GW

I'm not sure I'm afraid. I quite like David Friedman's Intermediate Price Theory, but it's a little less technical than I recall.

comment by [deleted] · 2011-01-13T23:33:50.537Z · score: 4 (4 votes) · LW · GW

Have you tried Introduction to Economic Analysis by Preston McAfee?

comment by knb · 2011-01-14T04:33:24.528Z · score: 2 (2 votes) · LW · GW

I learned from Mankiw's Principles of Economics textbook. The third edition is cheap on Amazon. I learned a lot from it.

comment by CronoDAS · 2011-01-15T05:58:12.918Z · score: 0 (0 votes) · LW · GW

Me too. I found it to be the finest propaganda I've ever read. (And I mean that as a compliment.) It really did give me a whole new perspective with which to see the world.

Seriously, if you want to learn economics, I highly recommend it.

comment by EchoingHorror · 2011-01-15T11:54:31.136Z · score: 1 (1 votes) · LW · GW

I'm learning and learning to learn economics too. If they're not a primary source for learning, I still find textbooks useful as references. A detailed table of contents and explanations of each concept can be useful when concepts or explanations are omitted from another source. And, if you don't mind reading textbooks cover-to-cover, they tend to be complete.

Here are some free online economics texts. Other commenters are suggesting micro before macro, so go with that. They should all be useful for optimizing the world in specific ways. Reading the introductions of more advanced texts should tell you about how the field is divided and may guide you to realize what you want to study in particular.

comment by Curiouskid · 2011-11-02T00:18:33.293Z · score: 0 (0 votes) · LW · GW

Generally, reading criticisms of other theories will save you a lot of time. It protects you from wasting your time reading those other theories. This site is run the the people who organized the occupy wallstreet protests. There's plenty of criticism. I hear they are coming out with a textbook soon.

http://kickitover.org/

comment by mwengler · 2011-01-15T02:46:09.001Z · score: 0 (0 votes) · LW · GW

If you want to learn some clever and useful ways of economic thinking, I highly recommend "Freakonomics" and "Superfreakonomics," google them for details. They are fun and they figure a lot of unusual stuff out thinking like econmists.

If you want something more orderly, start at the Wikipedia article on economics and keep thrasing around with links from that, including the reference list.

Among the most important principles that may not leap out at you from starting at Economics, I would look at http://en.wikipedia.org/wiki/Comparative_advantage

comment by Manfred · 2011-01-15T02:58:51.930Z · score: 3 (3 votes) · LW · GW

I'd like to advise some caution of Freakonomics - they set off a BS-detecting heuristic that I learned from a book on the epistemology of aliens and bigfoot... next time I visit my parents I'll have to type up the story for you guys.

Anyhow, the heuristic is this: if the amount of BS you detect is proportional to how well-versed you are in the current topic, it's probably that bad for all topics and you just don't know it. Their chapter on climate science was pretty bad, so I thought about it more critically and noticed a clear case of this in their second book. Not necessarily that bad factually, but similar levels of rigor.

comment by Vaniver · 2011-01-15T06:15:12.086Z · score: 3 (3 votes) · LW · GW

Seconded. The result that made the book popular- abortion reduces crime- was so strongly contested by Steve Sailer (debate here) and others that I'd call it refuted.

In the book, Levitt makes a comment at some point that he wasn't good at the mathematics side of economics, but was great at the unconventional thinking side. That set my alarms blaring, because thinking unconventional things is no credit when you screw up the math. Which Levitt appears to have done at least once.

comment by Perplexed · 2011-01-14T15:59:48.955Z · score: 0 (0 votes) · LW · GW

For the parts of microeconomics and game theory which abut on the decision theory discussed here, I would suggest some of these free online textbooks. Registration required, but is apparently fairly painless - even spam-free.

ETA: One branch of microeconomics that I think is particularly important is "information economics". In the course of Googling to find resources on this topic, I ran into this useful encyclopedia.

comment by wedrifid · 2011-01-14T04:55:41.840Z · score: 0 (0 votes) · LW · GW

Learn this, and most other things at http://www.khanacademy.org/

comment by Manfred · 2011-01-14T01:26:27.868Z · score: -1 (7 votes) · LW · GW

Here's what I did, which is all I know how to recommend:

0) Absorb liberalism by osmosis.

1) Learn neoclassical economics - price curves, opportunity cost, many of the basic arguments of politicized economics.

2) Learn how especially the politicized stuff is incomplete (should see it coming if you read LW) - evidence for and basics of Keynesian economics, read economic analyses of past trends (growth of trusts, great depression, WW2, silicon valley, banking crisis), economics of public and common goods.

3) Study the world a bit, try and find out what other countries are doing well and how we can copy them. My one book recommendation: Deep Economy by Bill McKibben - excellent book, even if you partly disagree you will be very glad you read it.

comment by Zachary_Kurtz · 2011-01-13T23:25:08.594Z · score: -2 (8 votes) · LW · GW

Starting with behavioral economics could be a good place, since the applications to daily life are obvious.

some possible books include:

Predictably irrational by Dan Ariely Why Smart people make Big Money Mistakes - Gary Belsky Nudge - Richard Thaler

comment by Matt_Simpson · 2011-01-14T08:33:04.921Z · score: 3 (5 votes) · LW · GW

I disagree. Behavioral economics is typically criticizing the standard neoclassical model as a starting point. Understand the neoclassical model first and you'll better understand behavioral economics.

comment by Zachary_Kurtz · 2011-01-18T02:15:06.731Z · score: -1 (1 votes) · LW · GW

I suppose that's true, though it shouldn't be.

comment by [deleted] · 2011-01-14T07:50:35.519Z · score: -4 (8 votes) · LW · GW

Read Human action from Ludwig von Mises. PDF: http://mises.org/books/humanaction.pdf Edit: http://mises.org has additional material like a study guide too.

comment by Matt_Simpson · 2011-01-14T08:25:18.494Z · score: 4 (6 votes) · LW · GW

Warning: this book contains the views of a small group of economists that the vast majority of the field would disagree with. See, e.g., awful austrians

comment by Jayson_Virissimo · 2011-01-15T01:43:41.810Z · score: 0 (0 votes) · LW · GW

I agree, but deny that it matters very much. The methodology that economists claim to adhere to doesn't significantly constrain their actual practice of carrying out economic research. Whether an economist claims to be a Logical Positivist, Critical Rationalist, etc... doesn't seem to matter very much in terms of their behavior while doing economics.

comment by jsalvatier · 2011-01-14T16:55:22.751Z · score: 0 (2 votes) · LW · GW

And I think LessWrongers are more likely than average to disagree with the "foundations" of the Austrian approach, if not some of their conclusions and emphasis.

comment by Jayson_Virissimo · 2011-01-15T01:44:56.969Z · score: 2 (2 votes) · LW · GW

And I think LessWrongers are more likely than average to disagree with the "foundations" of the Austrian approach, if not some of their conclusions and emphasis.

I agree, but deny that it matters very much (if by "foundations", you mean methodology). The methodology that economists claim to adhere to does not significantly constrain their actual practice of carrying out economic research. Whether an economist claims to be a Logical Positivist, Critical Rationalist, Bayesian etc... doesn't seem to matter very much in terms of their behavior while doing economics.

comment by Matt_Simpson · 2011-01-15T06:41:25.968Z · score: 1 (1 votes) · LW · GW

I agree, but deny that it matters very much (if by "foundations", you mean methodology).

It does in the case of the (some) austrians. They don't think economics can be empirical - it's purely a theoretical science for them. And with no math.

comment by Jayson_Virissimo · 2011-01-15T07:38:38.664Z · score: 2 (2 votes) · LW · GW

It does in the case of the (some) austrians. They don't think economics can be empirical - it's purely a theoretical science for them. And with no math.

And yet, even Rothbard's America’s Great Depression makes hundreds of references to empirical facts (and uses quite a bit of descriptive statistics). My point is that there is a very loose connection between the stated methodological principles of economists and the actual manner in which they perform their research and construct their arguments.

comment by Matt_Simpson · 2011-01-15T10:32:45.639Z · score: 1 (1 votes) · LW · GW

I agree in general, but not for the hardcore Austrians like Rothbard. The facts are illustrative only for Rothbard. His argument doesn't rest on empirical observations.

comment by Jayson_Virissimo · 2011-01-15T18:31:34.991Z · score: 2 (2 votes) · LW · GW

I agree in general, but not for the hardcore Austrians like Rothbard. The facts are illustrative only for Rothbard. His argument doesn't rest on empirical observations.

I apologize for being unclear. I agree with your point that the facts Rothbard uses are "illustrative only", but I deny that this separates Rothbard's work from most of the economics profession. He is simply more upfront about it.

Of course, I agree entirely with your advice not to start learning economics within the Austrian Paradigm, which is why all of the texts I suggested were within the Neoclassical Paradigm.

comment by Matt_Simpson · 2011-01-16T09:40:23.360Z · score: 1 (1 votes) · LW · GW

Ah, I see. My impression of the economics profession as a whole is that there is a large group for which you're description fits and another large group for which it doesn't, but I don't have any communicable evidence for this position. I've personally worked with several economists in the latter category, but they would probably put most of the profession in the former.

comment by Nic_Smith · 2011-01-14T18:41:01.334Z · score: 1 (3 votes) · LW · GW

Indeed. They have many good ideas, but more than a fair share of bad ones too, and the absolute worst ideas seem to be at the very core of the school of thought. "Awful Austrians" states the case pretty well, also worth looking at is Bryan Caplan's "Why I Am Not an Austrian Economist"

comment by jsalvatier · 2011-01-16T01:10:38.846Z · score: 1 (1 votes) · LW · GW

There's also an entertaining back and forth between Caplan and Walter Block (an Austrian) which expands on that essay (http://lesswrong.com/lw/ar/awful_austrians/35kn). I'd say Caplan wins decisively.