Anybody who has ever googled the phrase, ‘books to be read in economics’ or something similar, would surely come across a number of lists which would feature this book. Over the years, the book has achieved a cult status. Following it, there has been a sequel and even a documentary. When you first go through the list of contents, you would feel that the things being discussed in the book are not purely economic events and some would seem far from it. But the book is an amazing lesson in reason. It teaches us that something that is plausible, may not be right and something that may seem absurd, may actually be the truth.
The most important example of this would be the correlation that the authors draw between a fall in the crime rates in the United States during the 1990s and an important decision Roe v. Wade on abortion which was made by the Supreme Court in 1973. The decision was in favour of abortion. The authors’ reasoning behind the apparent connection between the two was crystal clear. Abortions lead to a fall in the number of unwanted children, reduces penury and thereby leads to less crime. Conservative thinking would lead us to attribute a fall in the crime rates to better policing, an increase in the number of policemen and so forth. But statistical results given by the authors showed otherwise.
At a first glance, it might seem that the authors have taken up random events and used statistical analysis to show that they have seemingly absurd causes. But this couldn’t be farther from the truth. The authors take up issues like teachers cheating in state wide tests taken by students to ensure better results for schools and in turn themselves, parenting issues which affect economic outcomes for children, legalized abortion and crime rates as well as the drug trade.
Taking up the teachers’ cheating issue. It is a simple economic problem of costs and benefits. Students in a particular school were supposed to take a country wide standardized test. If the results for a particular school weren’t good enough, the school would be closed. This would result in teachers losing their jobs. When the teachers cheated on the tests to ensure good results for the school, they were just responding to the situation, by comparing the costs and benefits. The costs of cheating were low owing to the fact that the tests weren’t monitored by outsiders, the benefit was retaining jobs. Clearly, the benefits outweighed the costs.
Now, why was this issue important? It was important because it affected education, an important variable affecting economic growth. It was an issue small enough to be ignored but big enough to affect performance levels.
Another important issue taken up is related to parenting. How certain activities, habits and situations related to families affect the kind of lives that the children lead. The study conducted by the authors and the results so obtained can help us in understanding why some people do better than others provided the same situations. The findings themselves are important lessons in tweaking our lifestyles for better economic outcomes.
The authors draw similarities between a racist group, Ku Klux Klan and real estate agents. They state that the power of these two groups is derived from asymmetric information. Real estate agents discuss the attributes of houses with potential buyers in code-words. These are used to mislead the potential buyers who might not want to pay the asking price of the place. Similar to this, the racist group, Ku Klux Klan wielded power only till the time that their dealings remained secret. Once they were exposed by a journalist, they faded into oblivion.
Disparities in real estate lead to market failures. The involvement of agents at times works to the detriment of the industry. Willing buyers cannot find homes despite availability and willing sellers cannot sell despite the fact that people are willing to buy.
In another study, the authors dive into the workings of crack gangs and expose the nature of their operations as well as the risks associated. They explain in detail why the crack business is not as profitable as it might seem.
The authors take up important issues, relate them with fascinating issues that bear some similarity, so that even those who do not have any knowledge of the issues can understand them. They make economics “The Theory of Everything”, an omnipresent force which shapes the society.
Most important of all, it prevents economics from becoming a complete snooze fest and therefore, it is a great read especially for novices.1