H McKee Stewart Jr

Musings on Business, Finance, and Economcs.

Book Review: Super Freakonomics, Steven D Levitt & Stephen J Dubner

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If you were looking for a nice, tightly structured book about what most people think of as ‘economics’, this isn’t the book for you. Indeed, one strongly suspects that you can’t write that kind of book and generate the sales and celebrity* that Levitt & Dubner have.

It’s an entertaining book, but the author’s Jumble-o-Stuff style only makes the structure apparent in retrospect. That’s probably a strength; books focused on reaching the public don’t get very far if they are focused on tables, equations, and footnotes. Jumble-o-Stuff allows Levitt & Dubner to focus on providing illumination of costs, tradeoffs, and decisions.

Some of the key points:

1.People respond to incentives. The extent of those incentives are far more broad than what most people think of as economics. One of the great strengths of the book is re-pointing to human action as the core basis for economics.
2.People behave differently when they know that they are part of a study or are under observation. This tends to limit the value of social science ‘lab’ experiments.
3.Just about nothing is as cut and dried as you think. Who knew that “drunk walking” was not safer for the drunk than “drunk driving”?
4.The law of unintended consequences is the one that Congress always passes. People and the series of interactions that we call society are far more complicated than a central authority can understand.

There’s a lot of debate around quite a few of Super Freakonomics examples. The global warming discussion is particularly incendiary – most of Gore’s disciples are in deep denial concerning the fact that government and university scientists are subject to all of the incentives to deliver results that will keep the grant money flowing. After all, what government wants to let a good crisis go to waste?

It’s also heresy to even consider the notion that the costs associated with the most commonly suggested “fixes” of carbon taxes, “renewable” energy, etc. may outweigh the potential costs of doing nothing, or are even significant.

Even worse is the notion that we may be able to use technology to solve the problem. (Certainly, some of the technology presented sounds pretty iffy.) Still, assuming what the climate crowd says is true, most of the currently proposed mix of taxes, regulation, and subsidies to “renewables” won’t have a significant impact, technology may be the only way out. Assuming that the worst case scenarios a) materialize, and b) actually are as bad as expected.

You don’t have to be Al Gore to believe that burning stuff may not be the best for the environment. The relevant question might be, “are the alternatives less worse, or enough less worse to offset the costs of moving away from fossil fuels?”. Currently, at the present level of technology, wind, solar, and wave power are only feasible assuming that the government transfers massive amounts of money from the taxpayer to subsidize these efforts, and they carry their own environmental impacts as well.

It’s not a discussion we’re likely to have – at least on a serious level. It all goes back to incentives. The government has powerful incentives to be seen to “do something”. The subsides come from a wide base of taxpayers who have a very diffused interest. The subsides go to corporations, think tanks, universities, and labs who have a very focused interest in the money. This provides additional incentive to the politicians in the form of donations and favorable publicity from the beneficiaries.

Spoiler Alert: Why should suicide bombers buy life insurance? Hint: Data Mining.

Link to Amazon: SuperFreakonomics: Global Cooling, Patriotic Prostitutes, and Why Suicide Bombers Should Buy Life Insurance .

Here’s a link to the Freakonomics blog. Bookmark it.

* At least for an economist. The nearest parallel that comes to mind would be Milton & Rose Friedman’s “Free to Choose” a best seller and TV series.

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Written by hmstewartjr

19 May 2010 at 10:46 AM

Posted in Uncategorized

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