Naked Economics Wheelan, Charles (books to read for 13 year olds TXT) 📖

Second, many of our brightest citizens are economically illiterate. The media are full of references to the powerful Ben Bernanke, who has played a crucial role in the U.S. government response to the global financial crisis. But how many people can explain what exactly he does? Even many of our political leaders could use a dose of Econ 101. Just about every political debate includes an assertion by one or more candidate that outsourcing and globalization are “stealing” American jobs, leaving us poorer and more likely to be unemployed. International trade, like any kind of market-based competition, does create some losers. But the notion that it makes us collectively worse off is wrong. In fact, those kinds of statements are the economic equivalent of warning that the U.S. Navy is at risk of sailing over the edge of the world. In my lifetime, the guy who made the most colorful assertion along these lines was Ross Perot, a quirky third party candidate in 1992 (when Bill Clinton and George H. W. Bush were running as the mainstream candidates); Perot argued emphatically during the presidential debates that the North American Free Trade Agreement would lead to a “giant sucking sound” as jobs left the United States for Mexico. The phrase was memorable; the economics were wrong. It didn’t happen.

The Perot campaign was, as he might have put it, “a dog that didn’t hunt.” But that does not mean that those world leaders who do get themselves elected have a solid grasp of basic economics. The French government in 2000 undertook a program to tackle chronic double-digit unemployment with a policy that was the economic equivalent of fool’s gold. The Socialist-led government lowered the maximum workweek from thirty-nine hours to thirty-five hours; the supposed logic was that if all people with jobs work fewer hours, then there will be work left over for the unemployed to do. The policy did have a certain intuitive appeal; then again, so does using leeches to suck toxins out of the body. Sadly, neither leeches nor a shorter workweek will cause anything but harm in the long run.

The French policy was based on the fallacy that there are a fixed number of jobs in the economy, which must therefore be rationed. It’s utter nonsense. The American economy has created millions of new Internet-related jobs over the last three decades—jobs that not only didn’t exist in 1980, but that no one could have even imagined—all without the government trying to divvy up work hours.

In 2008, the French government under Nicolas Sarkozy passed legislation allowing companies and workers to negotiate away the thirty-five-hour workweek, in large part because the policy did nothing to fix the unemployment problem. No sane economist ever thought it would—which doesn’t necessarily mean that politicians (and the people who elect them) were willing to listen to that advice.

Which is not to say that America doesn’t have its own economic issues to deal with. Antiglobalization protesters first took to the streets in Seattle in 1999, smashing windows and overturning cars to protest a meeting of the World Trade Organization. Were the protesters right? Will globalization and burgeoning world trade ruin the environment, exploit workers in the developing world, and put a McDonald’s on every corner? Or was New York Times columnist Thomas Friedman closer to the mark when he called the protesters “a Noah’s ark of flat-earth advocates, protectionist trade unions and yuppies looking for their 1960’s fix”?1

During the 2008 presidential primaries, Barack Obama criticized the North American Free Trade Agreement, which was negotiated during the presidency of fellow Democrat Bill Clinton. Were Obama’s comments good economics, or just good politics (since he happened to be running against Bill Clinton’s wife)? After Chapter 12, you can decide.

I offer only one promise in this book: There will be no graphs, no charts, and no equations. These tools have their place in economics. Indeed, mathematics can offer a simple, even elegant way of representing the world—not unlike telling someone that it is seventy-two degrees outside rather than having to describe how warm or cool it feels. But at bottom, the most important ideas in economics are intuitive. They derive their power from bringing logic and rigor to bear on everyday problems. Consider a thought exercise proposed by Glenn Loury, a theoretical economist at Boston University: Suppose that ten job applicants are vying for a single position. Nine of the job candidates are white and one is black. The hiring company has an affirmative action policy stipulating that when minority and nonminority candidates are of equal merit, the minority candidate will be hired.

Further suppose that there are two top candidates; one is white, the other is black. True to policy, the firm hires the black candidate. Loury (who is black) makes this subtle but simple point: Only one of the white candidates has suffered from affirmative action; the other eight wouldn’t have gotten the job anyway. Yet all nine white candidates go away angry, feeling that they have been discriminated against. Loury is not necessarily a foe of affirmative action. He merely adds nuance to a discussion that usually has none. Affirmative action can harm the very race relations that it seeks to heal.

Or consider the periodic campaign to mandate that insurance companies cover the cost of two nights in the hospital for women who have delivered babies, rather than just one. President Bill Clinton found this issue sufficiently important that he vowed in his 1998 State of the Union address to end “drive-by deliveries.” But there is a cost to such a plan that should be made explicit. An extra night in the hospital is not medically necessary in most cases, but it is expensive, which is why new parents don’t pay for it themselves and insurance companies don’t want to pay for it either. If insurance companies are forced to offer this benefit (or any other new benefit mandated by law), then they will recover their extra costs by raising premiums. And when premiums go up,