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

draw any conclusion about my destination based only on my skin color and style of dress. The really weird thing is that I was on my way to the Bulls game.

Race, age, ethnicity, and/or country of origin can convey information in some circumstances, particularly when other better information is lacking. From a social policy standpoint, however, the fact that these attributes may convey meaningful information is a red herring. The question that matters is: Are we willing to systematically harass individuals who fit a broad racial or ethnic profile that may, on average, have some statistical support but will still be wrong far more often than it is right? Most people would answer no in most circumstances. We’ve built a society that values civil liberties even at the expense of social order. Opponents of racial profiling always seem to get dragged into the quagmire of whether or not it is good police work or an effective counterterrorism tool. That’s not the only relevant point—and it may be completely irrelevant in some cases. If economics teaches us anything, it’s that we ought to weigh costs and benefits. The costs of harassing ten or twenty or one hundred law-abiding people to catch one more drug dealer are not worth it. Terrorism is trickier because the potential costs of letting just one person slip through the cracks are so devastatingly high. So what exactly should we do about it? That is one of the tough trade-offs in the post–September 11 world.

In the world of Econ 101, all parties have “perfect information.” The graphs are neat and tidy; consumers and producers know everything they could possibly want to know. The world outside of Econ 101 is more interesting, albeit messier. A state patrolman who has pulled over a 1990 Grand Am with a broken taillight on a deserted stretch of Florida highway does not have perfect information. Nor does a young family looking for a safe and dependable nanny, or an insurance company seeking to protect itself from the extraordinary costs of HIV/AIDS. Information matters. Economists study what we do with it, and, sometimes more important, what we do without it.

CHAPTER 6

Productivity and Human Capital:

Why is Bill Gates so much richer than you are?

Like many people, Bill Gates found his house a little cramped once he had children. The software mogul moved into his $100 million dollar mansion in 1997; not long after, it needed some tweaking. The 37,000-square-foot home has a twenty-seat theater, a reception hall, parking for twenty-eight cars, an indoor trampoline pit, and all kinds of computer gadgetry, such as phones that ring only when the person being called is nearby. But the house was not quite big enough.1 According to documents filed with the zoning board in suburban Medina, Washington, Mr. Gates and his wife added another bedroom and some additional play and study areas for their children.

There are a lot of things one might infer from Mr. Gates’s home addition, but one of them is fairly obvious: It is good to be Bill Gates. The world is a fascinating playground when you have $50 billion or so. One might also ponder some larger questions: Why do some people have indoor trampolines and private jets while others sleep in bus station bathrooms? How is it that roughly 13 percent of Americans are poor, which is an improvement from a recent peak of 15 percent in 1993 but not significantly better than it was during any year in the 1970s? Meanwhile, one in five American children—and a staggering 35 percent of black children—live in poverty. Of course, America is the rich guy on the block. At the dawn of the third millennium, vast swathes of the world’s population—some three billion people—are desperately poor.

Economists study poverty and income inequality. They seek to understand who is poor, why they are poor, and what can be done about it. Any discussion of why Bill Gates is so much richer than the men and women sleeping in steam tunnels must begin with a concept economists refer to as human capital. Human capital is the sum total of skills embodied within an individual: education, intelligence, charisma, creativity, work experience, entrepreneurial vigor, even the ability to throw a baseball fast. It is what you would be left with if someone stripped away all of your assets—your job, your money, your home, your possessions—and left you on a street corner with only the clothes on your back. How would Bill Gates fare in such a situation? Very well. Even if his wealth were confiscated, other companies would snap him up as a consultant, a board member, a CEO, a motivational speaker. (When Steve Jobs was fired from Apple, the company that he founded, he turned around and founded Pixar; only later did Apple invite him back.) How would Tiger Woods do? Just fine. If someone lent him golf clubs, he could be winning a tournament by the weekend.

How would Bubba, who dropped out of school in tenth grade and has a methamphetamine addiction, fare? Not so well. The difference is human capital; Bubba doesn’t have much. (Ironically, some very rich individuals, such as the sultan of Brunei, might not do particularly well in this exercise either; the sultan is rich because his kingdom sits atop an enormous oil reserve.) The labor market is no different from the market for anything else; some kinds of talent are in greater demand than others. The more nearly unique a set of skills, the better compensated their owner will be. Alex Rodriguez will earn $275 million over ten years playing baseball for the New York Yankees because he can hit a round ball traveling ninety-plus miles an hour harder and more often than other people can. “A-Rod” will help the Yankees win games, which will fill stadiums, sell merchandise, and earn television revenues. Virtually no one else on the planet can do that as well as he can.

As with other aspects of the