The Economist's View of the World

It's a good book if you're not too familiar with economics. The author does a great job of making it very user friendly and supports each comment with several detailed analogies that help to drive the point home. I recommend it for anyone that wants to really see how the concepts from economics class apply to the real world.

The Economist's View of the World by Steven E. Rhoads reads like a textbook as it explains and assesses how economists view the world of public policy from various economic viewpoints. Rhoads provides a sound framework for understanding opportunity costs and marginalism as important concepts and economic considerations in making public policy decisions. He also analyzes some basic economic assumptions such as the principle of consumer sovereignty. He then uses these concepts in exploring and debating key issues that the government must deal with in setting policy. The issue of welfare economics and equity is a particularly interesting debate over the right economic distribution of wealth versus the right socially responsible distribution of wealth. Are the economist's view of the right answer and the sociologist's view of the right answer consistent with the public policy maker's view of the right answer? What should guide the public administrator's decision in the debate? The issue of how the government should deal with the economic concept of externalities and cost-benefit analysis is exposed. The issue of how to compensate losers in a policy decision is also exposed and debated. Again, these are important economic concepts that can guide, but not always dictate, the direction of public policy. Throughout the book, Rhoads compares the political way of thinking and the human way of thinking about public issues with the economic way of thinking about those same issues. What may often be controversial politically is not always controversial economically and vice versa. Rhoads raises an issue about how the lack of microeconomic knowledge among politicians adversely affects the orientation and impact of public policy. He uses a number of meaningful examples to demonstrate his assertions. For example, politicians have established rent control to help the poor afford housing; but we ended up with the unintended consequence of slums, as the rent was not enough for landlords to maintain their property. It is clear that the public would benefit if politicians had a greater knowledge of economic theory when setting public policy. Rhoads, however, does not just single out politicians for their lack of economic knowledge. He also addresses the limits of economics and economic models in guiding public policy decisions. The concept of consumer sovereignty is largely a myth in the face of advertising and other producer influences. The ability to deal with the economics of externalities is not simple when attempting to identify and allocate public costs. Rhoads points out through his discussion that economists could learn more about public policy perspectives to temper their economic models, thinking, and prescriptions. Rhoads is credible in writing about public policy because he is a political scientist by training who is also knowledgeable about economics and objectively critical about its weaknesses. Rhoads's work is significant beca

Rhoads is an effective promoter of the economic way of thinking. He quotes Kenneth Arrow: "the economist's frequent job is to say 'this or that, not both. You can't do both.'" Perhaps owing to his outsider's perspective as a political scientist, he is able to usefully contrast the economic way of thinking with various alternatives. Whereas engineers concentrate on making equipment safer in order to reduce the number of accidents in the workplace, economists would tax each firm based on the number of accidents in its workplace.Rhoads understands the economic way of thinking well. On regulations aimed at saving lives, he states: "We must weigh in our own minds, using our own standards, the gains forgone elsewhere when money is spent on such programs." On marginalism: "Many doctors will want to use scarce resources to the point where the marginal utility of further expenditures equals zero (`everything possible for my patients'), not to the point where it equals the opportunity cost." He explains the economist's approach to reducing (not eliminating) pollution through taxes on pollution and licenses to pollute. "With the incentive schemes", the advantage is that "the possibility of increasing profits by reducing pollutants remains as long as any taxes are paid or capital is tied up in the marketable effluent licenses, that is, as long as any pollutant remains." The author's knowledge of the literature on the microeconomics of public policy and his explication of it impress this reader.Although Rhoads proves to be a clear believer in the benefits of a price system, his philosophy is not free market or libertarian. He justifies subsidies for science and art on grounds that appreciation and fondness for those subjects "are higher, more distinctively human, pleasures, but also harder and less enticing initially." A good sentence that describes Rhoads's perspective and why economists and noneconomists might find the book interesting is this: "I think economists should read more outside of economics, but most people should read more within it."

This is an excellent book. I first read it while doing graduate work in public administration and then read it again as I worked towards a Ph.D. in political science. For the student of public policy, an understanding of economics is critical to understanding the underlying rationale behind many failed as well a succesful governmental initiatives. Further, for the public servant, it casts light on policy design in one's professional work. This book is helpful in both arenas.The book clealry describes the traditional justifications for government in a market economy, market failure; but also delves into government failure, and the limitations of democratic processes in shaping rational policy. The book describes other economic concepts; marginalism, opportunity costs, welfare economics, pareto optimality in such a manner as to make their policy relevance very clear. Underlying this non-technical and jargon free discussion is a well intended (and on-target) critique of the academic discipline of economics. Juxtaposing early economic thinkers with today's calculus driven analysts, Rhoades sees a dearth of span of vision. Technical expertise has overwhelmed broad understanding and mathematical brilliance has driven out a wide breadth of learning. This is an great book for the serious reader and a must for graduate students in policy, PA or politics.