Naked Economics: Undressing the Dismal Science

Article excerpt

Naked Economics: Undressing the Dismal Science, by Charles Wheelan (New York, NY: Norton, 2002), 260 pp., $15.95.

Most of us recall introductory economics courses in college, dense with graphs like demand curves, supply curves, and indifference curves, and terms (the definitions of which we have long since forgotten) such as efficiency, absolute advantage, comparative advantage, and marginal utility. If we progressed beyond introductory economics, we were immediately faced with dense algebraic notation and assignments to use calculus analyze economic functions. It is all too easy to associate economics only with this challenging mathematical structure.

But economics is more. Economics is based on the deceptively simple premise that incentives matter, that people's actions are guided by incentives. As a corollary, economists (at least most) assume that individuals are rational in attempting to maximize utility, which economists define something like happiness. Hence, economics helps explain why people act as they do. Economic analysis, particularly an analysis of incentives, can help explain otherwise puzzling and counterintuitive actions.

In Naked Economics: Undressing the Dismal Science, Charles Wheelan-author, University of Chicago professor, and sometime National Public Radio (NPR) commentatorprovides a lucid, algebra-free explanation of economics. He relates economics to everyday issues within the experience of the proverbial educated layman. And he does so with clarity and humor.

Economic analysis can also illuminate the political process. In fact, analysis of politics is perhaps one of the most interesting aspects of economics. Political policy questions are among the most pressing of our time. And policy questions tend to arouse strong emotions, as one can see by the intensity of the political rhetoric on economic issues. Take, for example, minimum wage laws. While driving tonight, I heard Robert Reich, the former secretary of Labor under President Clinton, contend with indignation that anyone who does not support a minimum wage law is uncivilized, a "market fundamentalist." Strong words those.

In his introduction, Wheelan says all this better than I, addressing the common lack of understanding of economics and the breadth of topics that economics can help us understand:

The scene is strikingly familiar. At a large American university, a graduate student stands at the front of a grand lecture hall drawing graphs and equations on a chalkboard. He may speak proficient English; he may not. The material is dry and mathematical. Come exam time, students may be asked to derive a demand curve or differentiate a total cost function. This is Economics 101.

Students are rarely asked, as they might be, why basic economics made the collapse of the Soviet Union inevitable (allocating resources without a price system is overwhelmingly difficult in the long run), what economic benefit smokers provide for nonsmokers (they the earlier, leaving more Social security and pension benefits for the rest of us), or why mandating more generous maternity leave benefits may actually be detrimental to women (employers may discriminate against young women when hiring) (p. xv).

In reading many economics texts, there is a distinct small government leaning. That is, government is good for keeping its citizens safe and enforcing contracts and property rights. I have read few if any economics books in recent years that suggest that government is good for much more than that, especially social welfare programs. Almost all economics books I have read contend that large government is bad government. Most economics books emphasize that social programs by definition involve redistribution of wealth, and such redistribution necessarily involves centralized, coercive powers of the state.

Wheelan takes a more nuanced view. True, he is clearly within the free market, "Chicago school" of economics. …